Google's slump - an advertiser's view
Google stock has dropped to $450 based on a ComScore report that fewer people are clicking on Google ads -I've seen two lines of interpretation of the ComScore data: On one side is the argument that cash-strapped consumers are not in a buying mood, so they are not clicking on ads. This line of thought would mean Google's slump is only temporary and will recover as the economy recovers. But a closer look at the ComScore data suggests those clicks aren't coming back - that the reduction in clicks comes because the novelty of paid ads has worn off, just like banner ads before it.
Yes there may be a revenue lift for Google from proposed video ads, and likely this will lead to a "pop" for a few years as advertisers become excited and jump into the fray - until this too becomes a yawner for consumers leading its ROI to drop as well. And advertisers will certainly feel safer with a pay-per-purchase model where we pay only if a sale is made, rather than pay for clicks, but too few purchases for online spending will take the bloom off the online rose as well.
What will Save Google? The long-term state of Google and other paid search-dependent companies seems rather obvious to me - they will need to have a Pay-Per-Purchase model for their organic results, for which today they get not a penny. If reductions in clicks for paid search continue to decline while consumers continue to use organic results liberally, I expect search engines will be forced to monetize where people are in fact clicking.
In addition, as more advertisers realize less and less sales through search, Google and others will be forced to monetize other product offerings to pay for the computing power it takes to run their core search business. And all of those websites dependent on Google's ads for revenues will need to come up with another revenue model. Paid search simply will not be able to continue to subsidize the rash of free applications from "web 2.0" companies. (And when the public finally has to pay for applications, quality of application will be the key determining factor so I wouldn't count Microsoft out.)
Advertisers have been subsidizing most of the new web 2.0 applications offered to consumers for free, but are not getting as great a benefit for their ad dollars as they once were. So a note to all consumers out there using applications paid for through advertising dollars - start clicking on ads and buying products from your clicks - or expect to have to pay for the applications you've come to feel entitled to use for free. And a note to Venture Capital firms and senior mgmt in companies with no other revenue model but advertising - Watch out, the ROI from Web 2.0 companies are making TV, radio and print media look attractive again.
Yes there may be a revenue lift for Google from proposed video ads, and likely this will lead to a "pop" for a few years as advertisers become excited and jump into the fray - until this too becomes a yawner for consumers leading its ROI to drop as well. And advertisers will certainly feel safer with a pay-per-purchase model where we pay only if a sale is made, rather than pay for clicks, but too few purchases for online spending will take the bloom off the online rose as well.
What will Save Google? The long-term state of Google and other paid search-dependent companies seems rather obvious to me - they will need to have a Pay-Per-Purchase model for their organic results, for which today they get not a penny. If reductions in clicks for paid search continue to decline while consumers continue to use organic results liberally, I expect search engines will be forced to monetize where people are in fact clicking.
In addition, as more advertisers realize less and less sales through search, Google and others will be forced to monetize other product offerings to pay for the computing power it takes to run their core search business. And all of those websites dependent on Google's ads for revenues will need to come up with another revenue model. Paid search simply will not be able to continue to subsidize the rash of free applications from "web 2.0" companies. (And when the public finally has to pay for applications, quality of application will be the key determining factor so I wouldn't count Microsoft out.)
Advertisers have been subsidizing most of the new web 2.0 applications offered to consumers for free, but are not getting as great a benefit for their ad dollars as they once were. So a note to all consumers out there using applications paid for through advertising dollars - start clicking on ads and buying products from your clicks - or expect to have to pay for the applications you've come to feel entitled to use for free. And a note to Venture Capital firms and senior mgmt in companies with no other revenue model but advertising - Watch out, the ROI from Web 2.0 companies are making TV, radio and print media look attractive again.
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