Diorex

You have probably heard the old saw about beware of the light at the end of the tunnel, it just might be a 10 ton locomotive heading at you.

This is how I am starting to think about paid search and Google.

Before I lay out my thinking, let me say that I do not think Google is going to kill paid search and arbitrage any time soon, but I strongly believe they will make it far less lucrative over time.

We manage an obscene amount of Google spend and I have seen a few very disturbing trends of late along with some doomsday type scenarios.

Google seems to really want our conversion data. Despite it not being a tool we need or would use (everything it does we have built in house) we got a full court press from our reps about how great it would be to use the tool and how it would really provide Google data that could help our paid search campaigns become far more efficient. Although we would not have put a Google pixel on our site under court order, we played along and balked at the “we can do anything we please with your data” language. Their response, oh that is just legal stuff, we would “NEVER” use your data for any reason other than to help you. Ok fine. Lets just put that in the contract. In not so many words, they blatantly refused to accommodate a formalization of an oral warranty by their sales staff.

Within the last week, we have experienced “deja vu, all over again…” Our reps called and touted the absolutely fabulous results we could not possibly live without from the Website Optimizer tool. We once again played possum and asked about the protection of data. Once again they clammed up fast.

The recent “accidental” quality score bug which raised bid prices across the board may very well have been a stress test of bid prices. It might have been Google testing the elasticity of pricing. How many advertisers will turn off ads with a 10% increase, how many at 5%, how many at 25%. I cannot help but think Google got some insight into how much more large subsets of advertisers might be willing to pay for the same clicks they are buying cheaper now.

What if Google applied the “Snap” model of cpa? Is there any circumstance where my margins would expand? Why would my partners pay me to go through Google when they can get the same traffic for cheaper than they are currently paying me?

If Google is unwilling to say they will not use my data for anything other than the stated purpose, and is adamant about leaving clauses like that in contracts, then I strongly suspect that they have a possible future use for that data, in fact it almost seems tailor made to plug that data into a CPA search program.

The honest truth is Google is as responsible for making more millionaires as any product or company I can begin to think about, and I am pretty sure they know it. As a publicly traded company their fiduciary responsibility is first and foremost to their shareholder’s/. Partner/Vendors are below quite a few other entities.

It is very democratic in that anyone can open an account and buy any relevant keyword to any site they own which means just about anyone can buy just about any keyword. Top that off with the fact that the margins are obscene. A reasonable expectation of a reasonable advertising medium would be that if I have XX advertisers all of whom are making huge ROI from my ads, many of whom are only advertising is through that medium, that the cost of that medium will go up in order to continue to experience growth.

How many people on this planet can name the US President, but have not heard of Google. The pool of potential new users is probably several times smaller than the existing user base.

Google controls the algorithm. It is not transparent, they can raise every single CPC by 5% overnight with a tweak to the bid algorithm.

So far, they have had no need to resort to these tactics as growth has continued at a torrid pace. No reasonable person can expect that growth to continue at past trends. Once the average marketer is on Google and found an equilibrium price they are happy with for their keyword set, the only way to continue to grow earnings is to raise the average revenue per search.

The experimentation with CPA ads is also alarming. If I do not have to worry about conversion rate, do I just tell Google I want to buy traffic at a certain percentage of my profit and allow them to manage everything? Eventually Google gets to tell me, either through market forces or directly, that my share of the profits is going to be lower.

I know I am playing “what if”. I am just starting to realize that the business I am building may not be the permanent long term cash cow that it is now. I have built businesses in my life that had a fatal flaw before, and it ended badly each time.

The fatal flaw in the paid search business may very well be that Google is 80% or so of my traffic and they can regulate, tax or starve me of traffic at their whim.

The reason I came to this realization was at a partnership meeting the other day where we were discussing making a major investment that would take almost 5 years to receive an adequate ROI. It is a needed investment and somewhat of a vanity investment, but once we began to discuss would Google still be allowing us to make triple digit daily ROI on obscene amounts of money in 5 years, not a single one of my partners felt comfortable saying they would.

If Google turned you away tomorrow, or tripled your CPC’s or only allowed you a certain number of clicks per day, what would you do?

This entry was posted on Wednesday, February 21st, 2007 at 5:49 pm and is filed under Google, paid search. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.