Thank you both for the reply.

I've looked at Webmaster, nothing there in way of penalty. However there was a surge in indexed pages (like huge from 700 to 7,000) that happened in this same time period (aug-september) We discovered that the developers had implemented a search function on the site that was creating essentially duplicate content. We had them implement canonical on the site to avoid issues there. Personally this is what I believe has affected the organic more so than the adwords. But the client thinks that has not had an effect, he believes that organic traffic was erroneously reported in previous months. ( I believe this to be impossible, true?)

I'm trying to figure out if there is a remote possibility, that adwords would cannibalize organic.  It seems counterintuitive to spend adwords money, but not increase traffic, just "steal" traffic from one source for another. But it also seems "reasonable" that Google would take a site out of organic results to force click thrus on the ad (too cynical....?  perhaps...lol)

Seems there would be no advantage to running adwords if that is the case. I can get the relatively the same traffic for free, right?

Thanks for your thoughts on this.

I hope someone can give me some insight here, or at least point me in the right direction.

As of September 1 we are running Adwords. We are seeing an alarming drop in our organic traffic since then. It's almost like Adwords is cannibalizing organic.

August/September

Paid 116/847

Organic 648/178

We've looked at why the Organic could have dropped (penalties, site function issues, etc.) and have found nothing unusual.

Can someone give me a reason why this might be happening, Why such a dramatic decrease just as adwords is started.

Thanks!