Wednesday, November 14, 2007
How did I miss this post by Steve Rubel? Tired of doomsaying in the Web 2.0 bubble realm, he recently predicted an impending recession for poor old Google, based on several factors. I'd like to address these as best as I can. While I don't disagree that any market can peak, I find it pretty funny to note how rapidly Google's revenues grew in the era *after* everyone started closely measuring their performance and *after* they began more carefully filtering click fraud and weak content partners. That rapid growth in 2004-7 came after many thought they saw click prices "leveling off."
The psychological reasons for these predictions are relatively simple: many people wish paid search would just go away. It's troubling to observers who don't like new things and want to turn the conversations back to older ad models. It's also troubling to people who, since the free lunch of organic search referrals and the odd viral success began, do not think marketers should pay for anything. (In this regard, see Godin's post of yesterday, Who Pays the Messenger?, which is a sensible reminder that bargains on marketing costs are for the rare few. The rest have to pony up.)
Rubel's recession factors are as follows, with my responses:
Clutter. Does Rubel understand search beyond his own reaction to a single SERP? Google monetizes less than 60% of all queries, and has a consistent place they slot ads: in the top premium spot and right-hand margin. By and large, users have been trained to see the sponsored results as commercially-oriented, and organic listings as, well, something else. The consistency of this method is such that users have been seeing fairly similar screen layouts for more than five years. Why call clutter on Google now? If it's a relevant listing, tailored to a potential searcher's needs, it isn't clutter.
The Traffic Has to Convert. Again, for more than five years, my firm and firms like mine have actively worked with clients to measure paid search performance, shaping the "cost per click" priced medium into a de facto cost per action medium. Part of that effort involves working with clients so that they "work backwards" - in fact in my "what's new with paid search" presentation, recently I've put that slide first on the deck. You don't have to "convert everything over" to cost per action. I'll argue that this will *never* happen en masse because it would shut down all big media players and eliminate their leverage and reasons for being in business, in essence making them pay-for-performance affiliates of increasingly lazy marketers. The onus has to be partly on the advertiser to shape and refine their use of targeted media so that they can acquire customers via direct marketing, at rates below their cost per action thresholds (if this is how they measure). The minority of advertisers are sending traffic to nonconverting pages. None of this has any impact on click prices because the majority are measuring and paying for clicks with eyes wide open.
Rising Costs. Rubel cites a Forrester study that shows CPC's rising 33% year-over-year from '06 to '07. That sounds like it might be in the ballpark. There's no disputing that many advertisers aren't getting any bargains, and in some industries, some players are priced out. So? It's an extremely granular situation, with the markets for certain keyword searches still finding their level. Yes, eventually the ceiling is reached. But how many advertisers have I talked to who are still getting a 10X ROAS? Cut that in half, and half again (in other words, double CPC's, and double them again), and they still wouldn't quit the auction. Growth will slow eventually. That's inevitable and pretty much a truism.
Marketers are Trying Other Things. People are discovering the online world beyond search. As they should. Whether this means money flees search (when the ROAS is locked in and screams "profit" to decisionmakers -- they're making money, not "spending" it) is an extremely dubious proposition. Likely this would be more than made up for by the declines in wasteful television, print, and other traditional, sometimes overpriced media.
Search Ads Are Untrustworthy? Trust and credibility. Indeed, that's Job 1. If you've had a front-row seat, though, you've probably noticed the incredible efforts Google's poured into challenging low-trust advertisers with poor quality scores and prohibitively high bids. Affiliate ads, false claims, arbitrage, hype, cheesy business models, etc. are all finding it harder and harder to advertise on Google. The standards bar is being raised month over month by a proactive, large scale initiative at Google that Yahoo and Microsoft are no doubt studying closely. That's a trend that isn't going away.
Search advertising is not a fad. It's hard-wired to results and amenable to intense scrutiny and analysis. That's why it thrived out of the gate in 2001-2004, while advertisers shunned the rest of the online advertising that had burned them so badly by not performing in the first bubble.
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