Shocking cost-per-click rates! Did you hear that? The cost of a service increased from $1 to $50 dollars in 10 years with no change in quality.
This means that on average the price increased by 47.875% each year. Over the last 12 months inflation has averaged 2.5%. Using this figure as the average inflation over the last 10 years the current price charged should have been around $1.28.
I am referring to nothing but the cost-per-click I paid for a particular keyword in 2008 which was not more than a dollar but today the minimum cost per click for that very same keyword is $50 dollars. In order words to buy traffic to one of my websites in 2008 I paid $1 but today it costs $50.
In order words all suppliers looking for customers searching for a particular item had to pay $1 in order to get a single customer unto our websites. We were all bidding. Today if you bid below $50 you won’t get any traffic for this very keyword.
This poses an economic paradox. If supply of software exceeds demand the equilibrium of the demand supply curve should shift to the right leading to lower software prices. However, demand for pay-per-click advertising for that particular keyword has grown but the supply hasn’t increased leading to a rise of the average cost-per-click from $1 in 2008 to $50 in 2008. Assuming that the conversion rate has remained at 1% it means that in 2008 companies spent $100 just to sell one item but today companies have to spend $5000 just to sell that same item. We know that the price of software cannot be less than the advertising costs per unit. Which means that in 2008 software in that category could have been as cheap as $100 but today it cannot be cheaper than $5000. This is definitely an economic paradox because the number of companies supplying software has increased but the price of software in this class has shot up astronomically.
What are the ramifications? It means that customers have to put up more money unnecessarily to acquire software that is being advertised through pay-per-click advertising. Given this situation some might opt for older methods of running business. Using paper and pen or some old technology that is out there.
Secondly, it means that many companies are going to go out of business simply because they aren’t going to make enough or aren’t going to breakeven. Some may be offering far better products but unfortunately they would have to fold up. Few would ever hear of their products because of high advertising costs. They can’t get customers. It also means that entrepreneurs out there, especially the college graduates with little to no capital, have no chance whatsoever at competing in this market.
Clearly, the situation is not good for the economy because jobs and livelihoods are being lost. Secondly when companies use outdated technology the quality of living of society as a whole does not improve. Outdated technology is inherently inefficient.
This is not the situation with all types of software though. While companies battle for market share through pay-per-click advertising many free open source products as well as free mobile apps are being released. This has made it possible for many people to use software. Many haven’t noticed the expensive but not so good software that is being marketed.
Something has to be done. What can be done?
I think we need to increase the number of search engines or the number of companies offering pay-per-click advertising. When competition increases pay-per-click advertisers would have more options driving down cost-per-click rates and thus the price of software and similar products.
Another option would be to have special price based search engines. When customers search for items to buy the items would be listed from the lowest price to the highest. This would allow startups to compete and drive down the cost of software. This would ultimately lead to an improved quality of life for all.
To conclude, I would reiterate the deduction that was made earlier: the ever increasing cost-per-click rates are unacceptable. Something needs to be done now. I hope the conversation would not end here.
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Credit: Yaw Boakye-Yiadom (pronounced Yiaw Bwachi-Yiadom)
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