When you say that your ads get devalued, do you really mean that each click is worth less simply because it is less likely for a click to happen? This sounds silly to me, and I think you meant that impressions (i.e., your server costs) get devalued, because clicks are where the money comes from.
do you really mean that each click is worth less simply because it is less likely for a click to happen?
He's not wrong. Welcome to Smart Pricing!
Imagine I have a graph of CTR on the x axis, spanning 0 to 1, and traffic quality (on any scale you want -- conversion rate if you need to think of a real number) on the y axis. On this graph I plot every site or page on AdSense.
You're going to see the same behavior at both asymptotes: when clicks are super high or super low, traffic quality (generally) sucks. If it is super high, then it is highly likely that the page is doing click arbitrage by having the ad be the only interesting content. In most circumstances, this sucks for the advertiser, because users will click the one blue thing just to proceed without ever having transactional intent with the advertiser. (This is not universally true, but work with me.)
On the other hand, absurdly low CTR usually means a very engaging page with lots of repeat visitors. Like, say, a forum. In this case, any clicks happening are likely to be mistakes -- oh, effity, I was trying to comment on pg's reply, now I've clicked off to greatVPSproviders.com, back button and they're out money.
So if you're not in the sweet spot that Google thinks is a "normal" CTR, either by being too high or being too low, expect to get Smart Priced. (Google if you don't get the term. Short version: CPC and CPM rapidly approach zero.)
smart pricing also factors in conversion rate for the end business. a lot of the businesses which use Google Adwords also use Google Analytics for conversion tracking. and when Analytics has data on a particular domain sending traffic from Adsense blocks, it will regulate pricing based on that.
