In no time we will all know the result. No not the American election though it will take place just days after Barack Obama takes the oath. No this time, Google’s quarterly performance figures for Q4 2008, rather than being browsed and applauded, will be excoriated.
Will Google’s figures be dismal - for sure. Google is no more capable of avoiding the economic crisis than an ocean liner the falling tide. If you think about it for just a few seconds, ‘performance’ advertising must mirror the economy.
If a click is worth 50 cents thanks to the value of products sold, then when the number of products sold declines - because there are fewer customers - that click must be worth less. If the price of the product is discounted, and the same number of customers buy, the click is worth less. If the price is reduced and fewer customers buy the price is reduced even more.
Can this scenario be avoided? There are certain circumstances where this will be less true and certain ways of mitigating the impact.
1. Persuade more or all advertisers to switch their budgets to ‘performance advertising’.
Obviously if not all advertisers use Google style sponsored links and performance advertising then there is scope to reduce the economic effect by getting advertisers to switch their budgets. But this is a painfully slow process and one which Google was already pushing at the peak of economic success. True, there is now greater advertiser motivation to improve peformance but unfortunately advertisers and marketers will are working to protect their budgets not to switch them at times of financial success. The chances of this generating sufficient forward momentum in the present market are slim.
2. Persuade more advertisers to invest in ‘branding’.
Ironically one method to reduce the degree to which Google depends on the performance angle is to persuade more marketers to use advertising campaigns where the objective is to build brand awareness for the future - a ’sale tomorrow’ if you like.
There is a role for brands in search but now is not the time when advertisers will choose to experiment. They will be looking for a sale today, not tomorrow to protect their jobs, their payroll and ultimately their businesses. This avenue will produce only minor results for Google in 2009.
3. Increase the base cost on which all auction bid prices are based.
This is an option if you’re prepared to risk allowing competitors to enter the market. Google is very clever at subtley increasing base bid prices including rolling out quality scores and higher minimum bid prices for competitive campaigns. I predict that the lowest priced clicks in the competitive sectors will be higher in 2009 when they should in fact fall.
Why? My reasoning is that less efficient advertisers are often those paying for lower ranked sponsored links who just don’t realise their campaigns are inefficient. Google will take more revenues from inefficient advertisers this year than ever before.
4. Increase the market share of the performance advertising delivery company.
Google’s market share in western markets is as high as ever and is continuing to creep upwards but is currently strong enough to be relatively expensive to increase still further in the short term.
5. Add new international markets.
Unfortunately, some of the most attractive markets for Google to expand in - particularly China and Russia - are proving somehat tough for the Californian giant against home grown sites such as Yandex and Baidu - in other markets Google’s market share is already strong so little scope for growth.
6. Open up new market sectors.
You could, of course, buy new technologies to open up new forms of performance advertising - such as YouTube.com for instance. So far, Google’s revenue from its search engine has refused to budge from 98% of its sales. It is important to be well placed for future developments, but Google’s axquisitions aren’t going to help it battle through the current crisis.
7. Avoid or circumnavigate regulation and ethics.
Google is already seeking ways of beating click inventory limits imposed by legislators. The most significant recent example is removing trademark protections in the UK meaning that trademark owners have to pay significantly more per click for their own brand terms.
8. Reduce the amount of the click you share with delivery partners.
Commissions have already gone in Europe and it remains to be seen how this will help or hinder Google sales.
For sure you will soon hear the word ‘bellweather’ along the lines that what happens to Google happens to the industry; this is misleading.
For the very reason that performance advertising reflects the economy, this also means that advertising costs must reflect economic values.
In other words, advertisers can follow their instincts and cut advertising in line with their own expectations of what the market place will deliver in terms of sales. This should, for the first time, work in advertisers favour and result in reasonable performance.
The cleverer markets will realise that by being hyper efficient, not wasting clicks and by actually increasing their search budgets, their business cannot just survive and prosper but positively thrive. Specialist search agencies can do exremely well in this market place on lower Google click costs.
So Google is no true industry bellweather. Google should reflect the economy directly or its claims to offer performance advertising may actually start to sound rather hollowam. And they definitely need to think more about working positively with partners!