The much-heralded level playing field of paid search has begun to experience the unpleasant reality of a monopoly in the marketplace. So much importance is placed on Google that deeper-pocketed businesses may be driving smaller competitors out of AdWords.
Greater awareness of search marketing, the ability to measure search campaign effectiveness and ROI, and the relatively lesser expense compared to other ad mediums may turn 2007 into a perfect storm of competition for desirable keywords, one that could leave the small- to medium-sized competitor swamped.
If the dire circumstances illustrated by BusinessWeek extend through the paid search environment, companies are going to need money-covered hazmat suits to protect themselves.
It’s a new theory of relativity. If the expense of paid search relative to ROI is low, a company can and should pay the price for quality keywords. As the price climbs, only those firms who can enjoy continued profitability can continue to pay for that search-driven traffic.
Google denied in the article that the days of bread and circuses have ended for those smaller advertisers. “We’re not seeing any erosion of ROI across the board by our customers,” says Richard Holden, Google’s director of product management for advertising.
The online retailer cited in the report, BabyAge.com, begged to differ:
Even as BabyAge’s $1.2 million worth of search ads got more clicks in 2006, they netted fewer actual buyers, effectively doubling their cost. “We’re out of business at this rate,” fumes Chief Executive Jack Kiefer. He plans to cut back on search ads this year.
Marketing expert Andy Beal, who was cited in the report, suggested on his Marketing Pilgrim blog that these conditions represented a maturation of the paid search market.
In 2007, Beal described how the paid search market would continue to evolve:
Medium companies will discover that they need to be more aggressive with their campaign management and explore the “hidden” keywords known only to those marketing the long tail. There, they find lower CPCs and better targeted visitors.
Small companies get crowded out and start exploring social media marketing, SEO, viral campaigns and locally-targeted search ads.
Large companies realize they can’t afford to compete against each other’s monstrous budgets, and start backing off on their paid search spending, before finally discovering the long tail.
Growth in the paid search space starts to slow as small, medium and large companies start becoming more savvy with their ad spend and other mediums start offering lower CPAs.
When looking at the impact of rising prices and stronger competitors stalking through the paid search arena, one has to keep in mind who ultimately wins in this kind of arms race. As always, it’s the arms dealer, Google in this case.
Rough Type blogger Nicholas Carr recognized this in his observations of the story:
In 2005, CEO Eric Schmidt spoke eloquently of how AdWords was creating a “long tail” of advertising, delivering benefits to “businesses [that] haven’t been served by traditional advertising sales.”
But at the same time Schmidt was telling investors how “last year we brought out a whole suite of tools for very large advertisers who can use our services in all of their divisions to generate lots and lots of revenues.” On AdWords everyone’s equal, but the big spenders are just a little bit more equal than everyone else.
At Google, this just reinforces what they are at the end of the day: a search advertising company. “It’s overriding goal is, of course, to maximize ad sales, not to level playing fields,” Carr wrote.
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David Utter is a staff writer for Murdok covering technology and business.
