Re: Google dance

From: Robert Ross <rross_at_AdventuresMarketing.com>
Date: Wed 10 Dec 2003 07:23:30 -0600

<<We're about to be priced out of the Adwords, and the big businesses
will take the business and just pass on
the costs to the consumer.>>

Though it is a possibility that Google is using this situation to
enhance their evaluation for a IPO, I personally doubt it. The numbers
just don't add up. It is unlikely in the short term to increase their
profits enough to affect an IPO. In my opinion, this could actually hurt
them. What a lot of people don't see is that AdWords is not a magic
bullet even if you have deep pockets. It's very naive to believe that
Google hopes to increase spending on AdWords, since for most advertisers
it isn't even possible to increase keyword bidding profitably. Most of
us AdsWords user are already bidding as much as we can afford on as many
relevant keywords as we can think of. There may be some short term
effect as new advertisers are forced to try Adwords, but in the near
term it still won't work as the weak ones are forced out and the
situation equalizes. Why? Because there are inherent limits on the whole
process: (1) keyword inventory, (2) conversion rate and (3) average
revenue per visitor. You can't just start a bidding war for keywords.
Keyword inventory is limited on most search terms, which means you can
only generate so much traffic from that source even in number one
position. And for most web sites, conversion rates are pretty well a
constant, too.

Shenanigans by Google can change that - so if bids go up to high, I stop
bidding. It is usually only the top few position is worth bidding on
anyway, so if I can't afford that, they'll probably lose me as a
customer (and I am a Gold Account on Google and Overture). Total revenue
per unique visitor won't change with bidding wars. Revenue per visitor
must be higher than the bid or you lose money, so it is a limiting
factor. If revenue per visitor, for high traffic low conversion sites
(like many designed without marketing behind them), is as low as 5 cents
per visitor, you can't bid more than 5 cents a keyword. It is almost
impossible to find keywords at 5 or even 10 cents anymore. If revenue
per visitor is $1, bidding more than $1 means a negative ROI. Bidding on
Overture and Google, the only ones that really count, is probably
significantly higher than that on average, between 50 cents and $1 for
me. That means regardless of anything, I cannot bid more than that
without losing money. End of story. For sites with high conversion rates
- congratulations - you can afford to bid much more before hitting the
wall - but the limiting factor is still there and a bidding war will
eventually make it less cost effective to use AdWords - resulting in a
loss for them rather than a gain, not to mention negative publicity,
since these kinds of less-than-ethical manipulations usually get out
eventually.

For customers, it is all about relevancy. AdWords advertisers also care
about that, since buying less relevant keywords means a lower conversion
rate and ROI, which is what we care the most about. In the real world,
there is a direct relationship between keyword relevancy and ROI (not so
with free listings I think). So, if we're smart we're highly motivated
to only bid on only the most relevant keywords - making Adwords ads the
MOST relevant links in a search in most cases. That's why advertisers
are willing to pay for them - but only while it makes money. Most
advertisers are already buying as much as they can and bidding as much
as they can afford and still be profitable. I know that I am. A bidding
war won't change that or bring in any more advertising for Google as
long as the keyword inventory remains a constant. This is just as true
for big businesses - they're probably already out-bidding everyone for
any keywords they want. Even if online ROI isn't a consideration for
deeper corporate pockets, the rest of us are already bidding as much as
we can for the second, third, fourth or fifth position - and for us
positive ROI is essential.. So nothing's changed. It's just the numbers.


I guess I went on a bit - but I hope this helps some folks...
Bob Ross
AdventuresMarketing.com





Received on Wed Dec 10 2003 - 07:23:30 CST