Google, Automation and What Performance Max Means for Advertising

February 2, 2022 | Listen to the podcast here.

Chances are that anyone who works in digital marketing has logged into Google Ads, formerly known as Google Adwords before its rebranding in the summer of 2018. Google came out and said they’re dropping “words” because they are now more than words. Digital marketers believed them because they had YouTube and everyone knew they wanted to make that more profitable. 

Google didn’t release YouTube revenue numbers until recently but doing a little financial archeology: YouTube users in 2018 was about 1.8 billion. Facebook as a comparison had 1.47 billion. It looks like Facebook’s market cap was $374 billion that year vs Google’s $724 billion. Of course, each of them had more than just one platform so this is by no means sound financial analysis, simply an illustration of why it was laughable at the time for Google to say ‘yeah we’re dropping words’. When Google finally released YouTube revenue data, they disclosed that YouTube accounted for 10% of the company’s total revenue. This is 2 years later than the period in question, which really means that the vast majority of Google Ads, 90% in fact, is still words.

Facebook was a much more profitable platform with similar daily average users. All said, PPC professionals in those days, just dismissed this rebrand to ‘Google needs an ROI on YouTube’.

Others may have been thinking that Google was gonna make a play for the Display space because it released Smart Display a year prior. Those people would have been laughable at the time too but they were more on the right track. The remainder of people are visionaries who instead focused on the word ‘Smart’. 

For those who are not in digital marketing, the mark of a good paid search professional up until maybe 2 years ago now, was that you can beat Google at its attempt to automate. Agencies were hired on their ability to devise strategies to outsmart Google in getting them to pay higher CPCs.

This is why it was so hard to see what Google was really doing in the background. This is not about YouTube, Display or automation alone. This is really about the convergence of Google properties. Google is now packaging its various ad placements into automated campaigns that serve ads to any user. They are creating campaigns that essentially follow people around until they make a conversion. What this means for advertisers is that you don’t really get to control how much you pay Google because you just don’t have that ability. Either you run on these campaigns or you don’t serve ads at all.

Google is certainly not the bad guy here. It’s quite brilliant what they are doing and advertisers have seen significant improvements in conversion volume using products like SmartShopping and Discovery ads. They are actually, arguably, quite behind other platforms. Facebook has basically packaged Facebook and Instagram as a default. You can certainly opt out of one but in most, if not all, instances that really doesn’t deliver.

There is an argument to make that Google is taking a page from Facebook’s playbook, now called Meta. SmartShopping, Discovery Ads and now Performance Max are essentially campaigns that can serve ads on all of Google’s properties. They run on automated bid strategies with maybe a CPA or ROAS goal and the budget they are given. Other than that, Google essentially decides everything else - bids, time of day, frequency, and really everything else. You also do get to tell it which tag to use which is important to retain a little bit of control but tagging has been all over the place for a lot of websites that it’s often looked over.

SmartShopping was this product that people didn’t really know what to do with when it first came out. The idea of serving product ads on Display, YouTube and Gmail was in itself so foreign because the performance of each of those tactics against purchase behavior was so poor. The data that advertisers were seeing was that people just do not buy when they see an ad while scrolling different sites, apps, watching videos or reading their emails. Top it off with the inability to layer in audience targeting and the lack of reporting or ability to exclude placements just made it so hard for advertisers to figure out what to do with this type of product.

Marketers have since been sold on SmartShopping as it really finds users who will convert at the right ROAS. In extreme cases, it just doesn’t spend because the goal set for it is too lofty that it has no runway to do any testing but it will still meet its ROAS goal in this scenario.

Discovery Ads is genuinely a very good campaign type that generates conversions for brands, especially since the main property of this campaign is the Google app - not mobile Chrome but the Google app itself. It’s really been a successful campaign type which is essentially ads on Google’s Discover Feed which you can see in the app. Discovery Ads is such a good campaign type for awareness as well as conversions that seemingly has created a category of its own. What it means to each brand is of course easier to understand but to label it as a default awareness or conversion tactic is still yet to be seen. It is this all in one because it also serves on YouTube’s feed and Gmail.

When this first came out, Google was marketing it as its response to social media. This was absolutely another ‘Google what are you up to moment’. But it has really become a good example of how Google is bundling products and automating its bid management.

Today, Performance Max is all the rave. It started as this full on campaign where Google will serve an ad on any property to its fullest extent. Up until this campaign, all other bundles only had a little of each. Performance Max is able to serve on any placement within any property of Google’s total inventory. Now, you can give Google a few text ads, a few creatives and it will serve your ad anywhere in its ecosystem.

Performance Max being the culmination of a lot of what it was doing over the last few years, is the pivotal moment where digital marketing practitioners need to think about where paid search and the rest of Google is heading.

It’s really not about the different levers that can be pulled within Google but about how Google is positioned within the entire media plan of a brand. Google used to really be focused on the bottom of the funnel and, with Performance Max, they can be anywhere in the funnel. This sounds cool for them to say but not all brands need to focus on the whole funnel all at the same time.

There is no immediate threat to being able to create tactic specific campaigns - text, PLA, discovery ads, YouTube and so on. But zooming out and looking at the digital marketing landscape as a whole, brands need to think about what Google is trying to achieve.

Paid search has historically been measured by cost per lead or return on ad spend. The former is measuring how efficiently you can acquire a user who will eventually be a customer; and the latter measures how much revenue you are bringing in for every ad dollar spent. Brands are quickly realizing but maybe not articulating that the goal of their campaigns is really customer acquisition. Not just a lead, not just acquiring an indicative customer but acquiring an actual customer. Someone who will pay for products purchased or services rendered, not someone who is still thinking about it.

Optimizing toward CPL does not really report on the full picture unless you implement some sort of closed loop reporting. Even then, Google is saying that that is an antiquated way of measurement and that you need to pass back the value and optimize toward customer value to the brand. Some of you might be thinking, well this is return on ad spend.

Not exactly. Return on ad spend is simple math by dividing gross revenue generated by gross ad spend. Gross ad spend means that it doesn’t take tech fees, agency fees or marketing department costs into account. Gross revenue generated means it doesn’t account for cost of goods sold, handling fees and so on.

Value-based bidding is Google’s latest push in automation and it's designed to take more of these variables into account. There’s no mandated variables here so you can really weigh attributes by what makes sense for each individual brand. But the idea is configuring that revenue number reported to take more of these costs into account and really track the profit you can make from a customer acquired. 

Where this differs is in who you are prioritizing with your budget. Say you are down to your last $20 and you need to choose between 1 of 2 customers to serve that last ad. As an example: your product is apparel. You have 2 items that are similar in price but different in cost to you. Optimizing toward ROAS would just select whichever item has a lower CPC. Now, optimizing to value (value being measured by margin) would select the item that has a lower cost, and therefore higher margins.

Through value-based automated bidding, Google is saying that it can determine that for you. And, not only can it determine that, it can also take into account which user will likely purchase again, and again, and again.

Bringing this full circle, Performance Max is Google taking all of its might, connecting all of its data signals and saying that we will do all this but not just on text search. We will do it across all our properties and deliver you valuable customers. 

Google is seeing the proliferation of marketplaces and that there is now a channel that is the absolute bottom of the funnel. Amazon, Walmart and others can even tap into CPG (consumer packaged goods) brands but not only CPG, FMCG (fast moving consumer goods). Things like toiletries, groceries and items that just wouldn’t make sense to go DTC (direct to consumer). Not to mention, all these customers form the first-party data of the Amazons and Walmarts and they have first-hand knowledge of purchase patterns, preferences and other behavior.

DTC brands are seeing quite the success on social media with large followings on Facebook, challenges on Tiktok and experiences on Snapchat. It is looking like Google is really trying to position itself as an ecosystem where people discover and purchase, which is really just an add on to what it already is.

Whether or not this is what is running through Google’s mind, what is clear is that Performance Max should really be used and evaluated from a customer acquisition standpoint. That is: “Can it deliver customers who I would have not otherwise gotten by using one tactic alone and are these customers valuable to my business? I cannot decide how much I am spending on individual tactics within this campaign type so the value I am getting needs to outweigh the inability to control the different levers.”