While I was driving to work, I began to wonder if the recent changes to Google AdWords, damaging a good many online businesses, have more to do with Microsoft’s hostile bidding for Yahoo!, than to do with advertisers. Google’s overarching significance is because of the organic search results. Most searches are not intended to find something to buy, but to find out about something. So long as Google retains domination of organic search results, it can always gain or regain advertisers.
So, let’s suppose that Google takes a cold hard look at the competitive landscape, much as they did with the recent 700MHz spectrum auction. From what I’ve been reading, Google bid $3.7B and would have been disappointed if they’d won – but it drove up the price and forced a competitor to do something that Google wanted. Might Google be equally subtle with MS and Yahoo!?
How about this? If Google annoys a substantial fraction, especially of small and niche advertisers (lots of them, relatively small revenues in Google’s terms, no profound feelings of mutuality on either side), what is their rational response? Defection? To where? Yahoo! and MSN AdCenter, and possibly to some of the third tier players.
If Google loses, say, 10% of the revenue expected for this Quarter, it makes a massive increase in the revenue potential for Yahoo!, and possibly for MSN. Google’s loss of 10%, makes, if I calculate this correctly, about a 20%+ change for Yahoo! (assuming that online advertising budgets are not reduced, just redirected). I’m not a stock market expert – but wouldn’t this expectation of return for Yahoo! start to drive up Yahoo!’s price? If Google has, according to analysts, stalled or even lost share, then Yahoo!’s performance looks even more remarkable, and the share price cranks up?
And, for Google, this is easily repairable. After the market play, Google turns to advertisers and says “Oops, mea culpa, we goofed – we’ve made AdWords work properly again.” In a quarter or two, the revenue stream is back at Google, or even enhanced (everyone loves a Big Friendly Giant).
Did I make my coffee too strong this morning, or wake up light headed and incapable of rational thought? What did I miss? Is this *subtle enough* to explain why Google would trash so many small advertisers and risk their reputation?
Should the rational response be to drop spending or just redirect it to Yahoo! and MSN, or is there a smarter strategy for advertisers?
I’m still thinking through the implications. Your thoughts are welcome :)
Joe Bowers wrote,
I’m not sure that losses in Google’s market could translate to gains in Yahoo’s or MSN’s market- it seems like the limiting reagent in these markets are searchers rather than advertisers. That is- a drop in the availability or value of clicks from Google (as the result of algorithm changes or banning or whatever) may free up marketing dollars to spend on other paid search channels, but it won’t increase the competitors supply of clicks, or the value of the clicks they have.
This isn’t to say if Google stopped all PPC tomorrow that some dollars from fixed marketing budgets wouldn’t get redirected, but in many more cases folks leaving the Google market would already be bought in to the Yahoo/MSN markets to some (much smaller) equilibrium. In any case, it seems to me that it’s no more likely that the next best opportunity for marketing is Yahoo PPC than that it is a better email program or a highway billboard or whatnot.
On the other hand, I could be taking a very narrow view of why and how folks do their PPC, or just getting my economics wrong. Does this make sense?
Link | March 25th, 2008 at 8:56 pm
Jeremy Chatfield wrote,
Hi Joe, and thanks. I think that your model assumes saturation. IME, most small and inexperienced advertisers look at Google’s market share, and the low entry fee (compare G, Y and M initial fees). Given that managing the activity is about the same cost for each network, where would you direct efforts? Only if results collapse, do you feel the economic need to expend more effort. So G gets advertisers, until results turn down, and then advertisers shift somewhere else – to numbers 2 & 3 (to get any kind of volume that compares with G).
I think the problem is that your analysis is close to a classic “free market optimisation”, but most businesses, like consumers. use micro-economic decisions that include “feeling good about myself” and “do I feel like I’ve done enough” – not “have I saturated the market”.
AFAICS, marketing optimisation, for many small businesses, doesn’t mean “use all possible channels” – because they actually have to do some work on client satisfaction leading to income, which managing multiple networks does not directly do. The optimisation is to do the least they must do, to drive some new clients – leading to a minimal use of different networks?
Does *that* make more sense?
Link | March 26th, 2008 at 2:11 am
Joe Bowers wrote,
This does make sense, and I see your point. Thanks for taking the time to clarify!
Link | April 4th, 2008 at 5:39 pm