Growing Ecommerce – The Retail Growth Podcast

​​CPC Crisis: 30% Inflation is Here! What now?

• Smarter Ecommerce • Season 4 • Episode 15

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This episode tackles the most urgent issues retail clients are facing right now: exploding costs and profound market uncertainty.

Hosts Mike Ryan and Chris dive into the alarming trend of increasing CPCs (Cost Per Click), which are soaring at rates of up to 30% in key categories. Chris calls these increases a "fucking pain in the ass" and a potential "business destroyer," especially for businesses with paper-thin margins. They debate whether Google is responsible or if it's purely a market-level crisis, and why Google must find a solution to prevent mid-sized players from running out of money.

The second major theme is the AI search disruption. The hosts discuss the pervasive uncertainty among retailers—from small shops to enterprise clients—about the future of search behavior and the need for a stronger Data Density strategy. They reveal the huge structural change that the average search query in AI mode is 2.5x longer than in standard search. Finally, they discuss the evolving role of the PPC manager, emphasizing the need for system thinking and an openness to human-machine collaboration to thrive.

About smec (Smarter Ecommerce):

At smec - Smarter Ecommerce, we specialize in transforming business goals into optimized ad campaigns. With over 16 years of experience in Google & Microsoft Ads, our intelligent software and expert services help retailers achieve superior results.

We're committed to giving you the tools and insights needed to stay ahead in the ever-evolving world of digital advertising.

Make sure to follow smec - Smarter Ecommerce for more performance marketing insights:

SPEAKER_01:

All right, welcome to Growing E commerce. I'm your host, Mike Ryan. And I'm Chris. Our running jokes here. We're so funny, and people love us, Chris.

SPEAKER_02:

I hope so. I hope so.

SPEAKER_01:

You know, I I missed our last studio date because I wasn't feeling well. And Chris almost jumped in for a monologue, but he just couldn't get past the specter, the haunting specter of having to do the intro by himself.

SPEAKER_00:

The intro was the the intro and outro was the fucker, you know. I I had some topics on my mind. I just didn't feel ready for this one.

SPEAKER_01:

Listen, it's it's it's job security for me. I know that you can't get you can't get rid of me because you can't do the the podcast intro without me. You got through this room, mate. All right. So we we've got a couple of ideas in mind here today. Let's see how far we get. We want to talk about some some hot topics that have been coming up in our talks with clients lately that we're into kind of what we call a QBR season, doing a lot of business reviews and and looking at the past year and the year ahead with our clients. So I want to talk about some of the themes coming up there. And we let's see how long that takes, but we may go into some other stuff too.

SPEAKER_00:

The first one has some some potential to maybe, you know, be enough for the whole episode. But let's see. Let's find out.

SPEAKER_01:

Why don't you why don't you kick us off, Chris? What's what's good? What are you hearing lately?

SPEAKER_00:

Smart E commerce is one of one of the bigger uh performance marketing agencies slash source providers in in Europe. And we're working with mid-sized to really big enterprise clients, mostly in online retail. And as Mike said, now especially Q3, this is probably the most stressful quarter for us in terms of meeting our clients. And we have our quality business reviews mostly in Q3, getting prepared for the high season in Q4. And I had the chance to talk again to a lot of high-level uh representatives of our clients and and yeah, try to understand what's what's on their mind. And I think there are a couple of things which which might be super obvious, but it still you know showed that there's a lot of uncertainty going on. Doesn't matter if you talk to a company spending, I don't know, 10 million on a monthly basis into Google or to a smaller, smaller client spending, I don't know, 50 grand into Google, the uncertainty with regards to AI, what's going on on the Google site, but not just on Google, chat GPD, perplexity, what's going on there. And the the the the this uncertainty, and because I really tried to pin that down in the talks I had with this, with our clients, is very, very much directed towards the question, okay, if if there are these shopping assistants now popping up, what's going on with the with the search behavior of of the clients of our clients? And what does that mean for me as an online retailer, especially with regards to my data structure? What do I have to provide to Google, perplexity, and so forth in order to be served? And there's a lot of uncertainty going on. I think we have some ideas, of course, and what can and should be done. But this is a very, very dominant topic beside others, but maybe we can we can touch that later. This uncertainty around data and and how is it served by this new wave of search behavior tied to this AI disruption going on? That's one one very dominant topic.

SPEAKER_01:

Yeah, for sure. Definitely like how are end consumers changing the way that they search, and then how's Google tackling that? How can our businesses tackle that? I agree. I and it's uh it's stuff that we've we've gone in this direction a bit before on the show, but I think things continue to change and firm up, or we realize how ambiguous other things are. Um, like I I recently did a couple of FAQs with some clients. I also like published an FAQ online on our on our blog about ads and AI surfaces. Uh, just what we know and what we don't know at this point. And there's more things that we don't know than what we do know. And often Google's answers here are very fluffy and need someone to decode them or just cut through to what is the core message here. So that's something that comes up as well.

SPEAKER_00:

That's that's that's that's for sure. And and to to all our listeners who are running running their online shops, again, I think it's it's not really tied to the size because what what I can tell you guys is that it it's it's still so fresh that even even the big players, you know, like with the big watchs, with with the big teams, there's no strategy in place. They there there's this uncertainty, of course, is is is dragging them down a bit in terms of okay, there's there's probably also risk tied to it. But I've always been tried to be rather optimistic and and wrong than and being pessimistic and right. I think there's a there's there's also a lot of chances now baked in into this whole uncertainty because that the players who will be the most advanced, who will be willing to test in in an HL way, uh, I think there's a lot of ground to to be made up. And that that's that's what I try to bring across to our clients, but for sure the uncertainty is big. Because let's face it, Mike. I mean, we talked about that. Even Google doesn't know precisely, for instance, how how do the ads in AI mode really perform? Um, so yeah, this is certainly very, very dominant.

SPEAKER_01:

Yeah, definitely. I mean, yeah, it's one of those moments of probably creative destruction where a lot of the the way that these channels have worked or the way that businesses have done are going to be in one degree or another upended and replaced with something new. And but again, it's a chance for us to adapt. That's what we what we do as human beings, as life forms, as intelligent beings in particular, you know, we should be able to adapt and evolve. But of course, it it's a stress moment. But yeah, I mean, like one of these things that pops up when you were talking about data earlier, like I think an emerging trend or phrase here that's coming out is this idea of data density. And we see, for example, that like Google is telling us that when they serve ads adjacent to AI surfaces or inside of AI surfaces, they're they're not just gonna consider the classic stuff like the ad copy and its relevance to the landing page and the relevance to the the search query or the prompt in this case, if you're in AI mode, but also they need to consider relevance to the AI content itself, which is a huge wild cut because I think it's very non-deterministic and out of anyone's hands directly what the AI is going to say. And this is like, you know, I mean, organic search was always algorithmic. It was always determined by Google's ranking systems and all this stuff. Um, but this is this is really, I think they Google even had a system called rank brain, but now we're we're getting a new kind of brain in the mix here. And the challenge is that to achieve data density or like a critical mass of data, is imagine that someone is having a chat with an AI bot, and the AI, like, in order for it to surface results organically, also for paid listings to serve, there needs to be a lot of specific available, excuse me, is specific information available. So this will touch on all sides of your business. Like you need that structured data that your SEO people are responsible for. You need the rich landing page content that your e-com teams are responsible for. You need like really great, detailed, accurate, up-to-date feed information. Then you need to think that your business data is in there for your campaign steering as well, on top of that. And you you also need great creative and assets. I mean, it's it's just all these kind of a perfect storm of the things that are needed all coming together.

SPEAKER_00:

Yes, it's a perfect storm, and and the big question, maybe we can can can jump to to one or two other topics uh uh our clients are really focusing on right now or going into 2026. One one major question is, of course, what type of data and how how do I have to change my current data strategy? I mean, I I was was in in Dublin at Google uh for a couple of days, and I mean the the first insights I got from okay, how does AI mode change the search behavior? Uh is there already some insights to be made? And and Google was very vague, maybe rightfully so, because they they don't know probably in detail as of now. But one one step with step which stood out is that the average search query locked in in Google uh in AI mode is 2.5x longer than the search query logged into the standard Google server. 2.5x longer. So I think that the search will change completely, and that has to be reflected in your data strategy. In and and it's really a perfect storm, but again, Mike, I think a big chance.

SPEAKER_02:

Yeah.

SPEAKER_00:

Another topic, by the way, and this is a big one, this certainly could also be enough for a whole episode. Increasing CPCs. It's really I think we we can be politically I mean there is no there's no I I can I can swear here, right? Mike, still your show. I think we're it's a fucking pain in the ass. Sorry, it's already increasing CPCs are really a massive issue. And I think the the the increasing CPCs, I call them business destroyer. It's it's really uh it's really uh potentially cutting the throats of of especially businesses with with paper thin margin wiggle room in the first place. And the the the CPC increases are just I know they vary from industry to industry, but on average it's it's it's crazy. It's absolutely crazy. And of course, the topic, you know, because this is directly impacting top and bottom line. What's your take on that, Mike?

SPEAKER_01:

I mean, I I tend to I I tend to be not too alarmist on CPC trends because in the past I've often found like you'll see a lot of reports out there saying that CPCs are uh growing at these huge, huge rates. Um and you know, when I look at the big picture, I I mean I think there are always examples in specific verticals and markets and combinations thereof and business models inside of that, that these things can there's a huge amount of variance where things can happen. Um but I've I've typically seen that over the past years, CPC is not that different than inflation. And inflation has been high the past few years, it's been a pain. But uh, but yeah, I've I've been called into a couple cases recently and that are pretty alarming, you know. Businesses that were forecasting and planning with say eight percent CPC inflation this year, which is a lot, to be frank. Like that's I mean, you wouldn't be happy about eight percent consumer inflation, consumer price inflation. Um, and and seeing, you know, getting into their key categories, and you see that in certain campaign types and categor category combinations, there's inflation 30%. And then I go and I I look at their peers and stuff like that to try to see what's going on, and then I see that no, this is not an aberration, it's not just them alone, but they're that there are these whole groups facing these kind of forces. Um so I mean I think the only consolation in in that is that their competitors are facing these challenges as well. But it's it's outrageous, some of what we've seen this year.

SPEAKER_00:

Yep, it's really outrageous. And the more important it gets to really squeeze, you know, to I don't know, to apply this 1% rule, every leverage you have applied because it really can can make the difference compared to your competitor. Because as you said, it's it's never a specific story to one online shop. It's it's rather the industry or maybe the whole online retail market suffering from these increasing CPCs. So this is certainly a very dominant topic. And by the way, we I I had a very because if you if you zoom out a bit, I think it's it's very interesting. I I had like I said, I was at Google in Dublin and Europe headquarters, and I had a I had a very good conversation with with a really high high Google representative, and I I talked with him about you know that the increasing CPCs and what does it do, especially you know, to the German market, what would I see. And I I think Google really, from a strategic perspective, I think Google really has to be very careful here. Because, man, I I tell you, a lot of online retailers are just running out of money. And, you know, and or are just not able to invest that money into a channel which is just not working for them anymore. Um so I think the good thing might might be, Mike, I don't know how you see it, but maybe maybe Google, of course, has a deep interest in in of course making a channel Google work for the clients because at the end of the day, they would be willing to move the money somewhere else if beta is working better for them. Um it's really interesting, maybe. And I think we really have some risk that this this mid-sized players, especially, where the word chests are word chests are just not that deep, that they will really think about is Google the right channel for me anymore?

SPEAKER_01:

That that that's for sure. And particularly if competing channels come up and they start trying to compete on a cost basis. Um but like you know, there's often these conspiratorial statements toward Google as if Google is is increasing the CPCs on purpose to maximize their profits. And I don't really believe that. Like we know I mean there is this these leaked emails about shaking the cushions and things like that. So I think overall this is this is a yield optimization strategy that they go for. Um and they they have to they can't just squeeze the life out. It's like when you're infected with a a virus or something like that. You're going to s get sick, but not sick enough that you're that you're you know critically ill. That's then the virus is not if we just now I'm comparing Google to a virus. This is going to be a good thing. But but listen, like, yeah, Google does play some games with CPCs, but these are on the margins. These are in in, you know, these are in low competition auctions and stuff like that. They're looking at the floors. They want to make sure that their that their floors are high enough that they can make certain margins on on all their auctions, even these less populated auctions. And I'm making that statement as neutral of a way as I can make it. But but overall, like, so I won't say that Google has never touched CPCs, but they're not responsible for runway 30% CPC. This is something that's happening at a market level, at an auction level. I think their engineers need to look at that and see if they can bring it under control. Um, not just like smiling to the bank over there.

SPEAKER_00:

Exactly. And of course, I mean the the whole the whole thing Google tries to do now is AI enabled to just make the fit between the search rate, the consumer and the offering of an online shop just, you know, fit even better than it uh currently does. Because at the end of the day, I mean, I think every online retailer could live with higher CPCs as long as the conversion rate, you know, uh uh, you know, uh behaves accordingly. I think you're absolutely right. Google certainly doesn't play this game. Might have might have been some, I don't know, fishy emails for sure. But again, I think also based on this conversation I had with with this Google rep, high-level rep, I think Google is really genuinely interested in to make this work. Um not not just for the for the big enterprise players. They they know how important this this backbone of of online retail, of the online retail world is, and we're talking about this mid-sized online shops. So really Google and Google understands, Mike, you you said you you talked about that a couple of minutes ago. Uh alternatives will pop up. So I think Google has this certain pressure to make this work. And yeah, so yeah, a tricky topic. I think that's it.

SPEAKER_01:

Yeah. I mean, and just like to just to close loop back to the AI ads for one sec. I mean, something that I'm a little concerned about in the future is that Google is making pretty weird statements about click-through rates in these contexts with AI services.

SPEAKER_00:

They're not important anymore, right?

SPEAKER_01:

Yeah, there's they're telling you like people ask, do click-through rates drop? And Google's official answer is you shouldn't worry about click-through rate. You should worry about your conversion rate and stuff like that. Which, I mean, on the one hand, that's kind of true, but it's also it's also like saying, like, don't look here, look over there. Um, and to me, it's implicitly this answer that yes, click-through rates are lower when AI answers are are adjacent. Yes. And so I but we also we have this sense that people might lose some of their organic traffic to AI overviews and place things like this, that they might have a higher dependency. Like I think that the advertiser demand for paid traffic is is gonna trend up, if anything. And if the click-through rate is is trending down, it creates a picture where potentially CPCs could be quite high in these new contexts. And that and it's always a thing if the value per click, the revenue per click happens and is proportionate, that's okay. But we're seeing advertisers with 30% rising CPCs, and their their value per click is not rising 30%.

SPEAKER_00:

So that's the problem. That's the problem here, yeah. And and to a certain degree, this is in the responsibility of Kuga, of course, to make this work. The whole ecosystem has to work. Well, of course. And and yet again, I mean, I think every online retailer has to understand that I mean the things we preach like every day, probably twice a day, that yes, there's a certain thing Google controls, and I think they have genuine interest to make this work. But don't be lazy, right? As an online retailer, go for every leverage you have. Don't fully trust Google. Think about the campaign structure structure, think about your first party data to inject who you're working with. Do you really have the right team? Do you need external support? I think there is a lot of chances also baked into this situation right now. However, increasing CPC is a big topic. Mike, maybe we can we can talk about that in more detail um in one of the other episodes.

SPEAKER_01:

Yeah, I mean, I'll I I think so. I'll be pro I can probably put together some CPC data and work. Yeah, like rather so some higher level data for sure. I mean, do you wanna do you wanna talk about any of these? I have to respect your time box here, Chris. Do we have time to talk about some of these other topics? Oh sure.

SPEAKER_00:

I'm I'm pumped about it. I mean, may may I ask you a question? Yeah. Um if if if you were running an online job right now, what skills does the perfect online marketing or online marketing PPC manager has to have in order to be valuable from the get-go and and also valuable, let's say in one year, two years from now.

SPEAKER_01:

Um yeah, I think that's a that's a really it's it's pretty hard right now just because things are changing so much and the direction of travel is not always clear because like two two years ago, some of these sort of old school skills like search reviewing like search term mining or doing negative keywording and stuff like that, these seemed, yeah, they seemed a bit outdated or less relevant. And yet now these capabilities are back inside of some of these campaigns. And so you really it's so hard because you need someone, it it's it's great when you have some of that old school knowledge, but also you there's things changed a lot like in the last five years, and there's different technologies available and different ways of working with that kind of data. So you I just think in general, it's it's hard to know what's gonna be happening in two years from now. I think it's it's always a bit hard to say that, but it's much harder right now. Yes. Um, and I look at some kind of general skills. That's that's why I look at I think about things like analytical thinking and also like system thinking, and and these are sort of potentially kind of fluffy terms, and and often or often people think of analytical thinking, and they think of like they think of analytics like data, numbers. Analytical thinking is actually something different than that. It's very more than that. Yeah, exactly. It doesn't it doesn't have to be quantitative at all. It's about being able to systematically dissect something, understand patterns, find insights, see how parts are are are functioning and interconnecting, and then and then system thinking on the other hand is taking this much higher level view and and connecting the dots across like a much bigger picture. Um and I I think right now these are these are probably tough to interview for, but yes, but if you find people with these competencies, like you you need to find someone who's going to be able to learn and adapt themselves regardless of what's happening in the next couple of years. You don't want someone that's gonna be too narrow in their way of thinking or their skill set fossilized. It's a very important time. Like, this is also why there's a lot of discussion right now, and I think there's some truth to it that juniors are disadvantaged on the job market because of some entry-level roles becoming more automated through AI. Seniors are maybe advantaged, but I'll also say that that's a temporary situation because you know younger people have much more plasticity in their learning. Uh that they're also coming up with this technology. It's not so new to that, like it's new to everyone, but they're just in a different part of their life. And so I think that that it's very short term to uh have any kind of prejudice against juniors in the team. I actually think that that's that's a smarter bet. Um, you need people who can learn and be trained on new things and not be so fossilized. I think we also need the blend of experience. So it's it's really tricky. I I don't know. I could also get into maybe some more specific skills, but what what are you thinking, Chris?

SPEAKER_00:

Yeah, I mean, look, I mean we are we uh we are we are looking for for talent basically all the time. And just the other day I had a session with our HR department to really discuss in detail what type of person we are looking for right now. And I'm referring to open positions in in the online marketing space, basically our client customer success managers, yeah, which is maybe in terms of requirements comparable to an online marketing manager on the on the client side, somehow. And man, it's really tough to to nail it down, you know, like this this classical skill thinking, which was perfectly fine two years ago.

SPEAKER_02:

Yeah.

SPEAKER_00:

Google ads know-how. I think we're way beyond that. And I I mean, so plus one on everything you said, and one thing which which constantly comes across my mind is I think, especially now in in with regards to to all this AI disruption on the big and and and small stages of the world, I think you really need to have a person who is, and this is maybe even more cheesy than than your than than than your statements, Mike, but I I really think you need a person who is not afraid of getting in touch with AI and automation, understanding the principle, which is it's not replacing me or my role, it's empowering what I do. And I I can tell you in all the talks I have with online marketing managers on the client side, customer success managers on our side, if you have a person who is not buying into this principle, I think this person won't make it.

SPEAKER_02:

Yeah.

SPEAKER_00:

In terms of really being the being that the valuable asset you're looking for as an as a team leader of an online marketing team or an owner of an online shop. So how how how open is this person to the things which are happening now? Doesn't matter if the person buys into that, yes or no, how geeky this person is. You know, is the person able to apply new tools, test new tools, whether it's NADN, Opel, AI Studios, you know, all from Google, all the things which are popping up right now. I think you need the gigniness and I don't know, this openness and the understanding that this is leveraging what I do. It's not replacing. Um this is probably on meta-level the things I would look at most. Next to our fit, of course. But yeah.

SPEAKER_01:

I I I I agree with that. Like I think people talk about interpersonal collaboration a lot, and that remains important, but like as a soft skill. But we are also now talking about like human human machine collaboration too. Yes, and it's and it's in some ways like interacting with a person. It can feel that way because of the the human-like elements that these bots are imbued with, but but it is fundamentally different and and kind of weird. And I I find it frustrating sometimes because sometimes I feel like I'm dealing with an A player, and sometimes I feel like, how stupid is this effing machine? And it's it's it's just you it's just hard to it's hard to do that, and it takes it takes learning and this weird kind of compassion, if that's the right word.

SPEAKER_00:

Like you need to you need or patience, I don't know what, but it's but this I mean what what you're what you're referring to, that the the th I mean look and this is why why why the whole landscape is is changing so dramatically. Um the interpersonal skills, of course, something every company is looking at, for sure. But as a matter of fact, man, you you said it. You have to have this interpersonal machine relationship related skills now, because they are not always A players. You know that, Mike.

unknown:

Yeah.

SPEAKER_00:

Exactly what you described now. You have to be patient, you have to trust in the process, you have to to be able to learn the AI program because sometimes they're they're fucking juniors. I I I really think it's it's a very, very important skill set. I mean, the question is how you test this skill, because this is the challenge for us right now. I mean, and our HRD department is really looking into this. So, what are the best practices and so forth? It's it's not that easy to really dig into this skill set and try to find out does the person have the skills, yes or no. But certainly a big change in, I think a big change in in the prototype. The only the only marketing manager of five years, the skills that this person had, but it it has has so much changed. It's it's crazy, actually. It's really crazy.

SPEAKER_01:

Yeah, I I agree. And I don't want to the domain knowledge remains important. I don't want to sidestep it too much.

SPEAKER_00:

But I see with we here at Smack, we have so many great people. But you see the difference, people who are really into this thing and say, okay, this is now enabling me. This is a personal assistant I have at my hands now. Let's work with this assistant. There are some people who are more hesitant, and I really think that the people who see this as a chance and and have this gigginess to to work with it, to I think these people will will will outperform the others, that's for sure. We have a couple of minutes left.

SPEAKER_02:

I mean, hold on.

SPEAKER_01:

I'm just gonna drop a little I'm gonna just drop a little teaser, okay? Maybe some stuff that we'll we'll be talking about soon. Let's go. Yeah. So I I've been working a lot recently, uh, and I've we've talked a little bit about this on some past episodes too. I've been looking a lot at AI Max and DemandGen. Yeah, you know, I I'm trying to understand Google's new PowerPack. I had a PowerPack monologue while you were out one time, Chris. But but this is this this goes this goes miles deep. And, you know, I've now, for example, I've got a data set. It's still early days, but I've got a data set of about 300 AI Max campaigns where I'm crunching the numbers. Um, because in the past we were talking about things that I observed in single campaigns, and I'm not comfortable with that situation either. I mean, or it's it's interesting, but it's anecdotal. So I'm I'm looking at some bigger stuff. I'm I'm really trying to dig into. So the economics of demand gen. And so yeah, I think there's some exciting data stories coming up ahead on the show. And I'm getting way in front of things here, but I loved working on the state of PMAX report this year. And I we might be looking at like state of demand gen, state of AI Max next year. So let's see.

SPEAKER_00:

Yes, that's what I wanted to hear. And ladies and gents, all the stuff Mike works on. Sometimes I really don't know more than you, the listeners. So I'm really curious about the data, Mike. When when do I mean do you have something on your mind? When this rich analysis with regards to IMAX and when when do you think is it ready on this lovable podcast?

SPEAKER_01:

I I can share, I'm sure next episode I can share a couple of stats and stuff like that. But once we it it takes honestly, I work on these things iterative iteratively over a long period, and then that's how this stuff gets born into one of those big reports. But I I also I there's a lot of analyses I did for PMAX that I know I can do here. I mean, I'll tell you right now, we're seeing that AI Max is being adopted in about 13 to 15 percent of accounts. The adoption level is low within within these accounts, people are still testing, but it's being tested in about yeah, yeah, 10 to 15 percent of accounts, uh, let's say. And it's pretty impressive because just a few months ago it was less than 1%. And I I think Google is going to get a decent level of adoption decently fast here. Um, we certainly see a difference since it went general availability in October, yeah, last month.

SPEAKER_00:

That will be an interesting episode, Mike. We're looking forward to that.

SPEAKER_01:

Yeah, me too.

SPEAKER_02:

Uh Mike. Let's let's wrap it up.

SPEAKER_00:

Let's wrap it up.

SPEAKER_01:

Ultra time. Okay, well, thank you for listening to another episode of Growing E-Commerce. Growing e commerce is brought to you by Smarter Ecommerce, also known as SMEC. You can learn more at smarter e commerce.com. And as always, please leave us a review, share the podcast with a friend. We really appreciate it. See you next time. All right, guys.