Keyboost, SEO, Website Why are Google Ads – and YouTube advertising videos – becoming more and more expensive?
Google offers a lot of services for free: the search engine itself, videos on YouTube, e-mail service via Gmail, storage space and document editing via Google Docs, it goes on and on. But if you do not have to pay for them, you are not a customer, you are the product that is being sold. Thanks to these free services, Google knows an incredible amount about its users, and this information is worth its weight in gold for companies that want to cater to the specific preferences of these users. That is why Google owes the lion’s share of its profits to Google Ads. Actually, Google is first and foremost a seller of online advertising space. That is why Google Ads increasingly look like ordinary search results.
There used to be two strong arguments for using Google Ads:
– You reach a very specific target group and can advertise in an extremely targeted way, and
– Google Ads are much cheaper than traditional advertising.
The first argument is still valid, but the second less and less so: Google Ads have gradually become more expensive. What is the reason for this? Below, we highlight 3 reasons why the costs of Google Ads are steadily rising.
Advertisers are driving up the cost of Google Ads themselves by bidding against each other for ads.
Admittedly, you can easily control the cost of Google Ads by setting a maximum budget: once that budget is used, your Google Ads will no longer appear and there will be no additional costs. But by letting advertisers bid against each other, Google stimulates the cost of placing an ad to keep rising: it is tempting to bid just a little bit more so that your ad appears above that of your competitor, after all it is only a difference of a few cents. Unfortunately, your competitor thinks the same way, so there is a chance that you will end up in a spiral of higher bids.
Google prefers not to pay taxes, or at least as little as possible. If taxes have to be paid, Google will directly pass the cost on to its customers.
Google may be an American company with its headquarters in California, but the company eagerly uses its foreign subsidiaries to maximise its tax avoidance. Google’s European branch in Ireland plays a major role in this. Ireland has very favourable tax rates and offers the opportunity to set up constructions that provide even more tax advantages (see ‘Double Irish With a Dutch Sandwich’ for more in depth info – https://www.investopedia.com/terms/d/double-irish-with-a-dutch-sandwich.asp).
A number of other European countries have taken steps to impose taxes on Google for Google Ads that are targeted at their specific territory. And, guess what, since 1 October 2021, Google simply passes on the costs of these taxes to its customers.
Google needs extra profit to pay the fines imposed by the European Union under antitrust law.
In 2010, the European Commission started an investigation into competition distortion by Google. The search engine would list its own online sales channel Google Shopping prominently in the search results and give a lower ranking to competitors. In 2017, Google was found guilty and fined 2.42 billion euros. That amount corresponds to 2.5% of the profits in 2016. Peanuts, actually, but still Google appealed. The search engine lost the appeal in November 2021. It is possible that Google will challenge the ruling before the European Court of Justice, but it seems likely that the fine will be collected after all.
In 2019, the European Commission convicted Google of unlawfully excluding competitors from Google Adsense and related topics. This time the fine amounted to 1.49 billion euros. The appeal procedure is currently ongoing.
In 2016, the European Commission launched an investigation into anti-competitive behaviour by Google in connection with the Android operating system on mobile devices and with the Google Chrome browser. In 2018, the EC imposed a fine of 4.3 billion Euros on Google, which the company appealed again.
The appeals bring a delay, but there is a good chance that Google will have to pay these fines. You do not have to be clairvoyant to understand to whom the company will pass on this loss.