Google’s Wall Street Drama: Does It Matter?
The numbers that mattered last week had nothing to do with Google’s share price: they came from WebSideStory, which found that search ads resulted in a conversion rate of 2.3 percent, more than twice as high as conversions from non-search ad placements.
Unless you’ve been living under a rock for the last week, you know that Google reported its quarterly earnings last Monday, and because they fell below levels expected by an irrationally exuberant Wall Street, Google’s stock took a 20 percent dive, from just above $470 per share to about $400 per share, wiping out about $19 billion in the company’s valuation.
Does any of this really matter to you, the search engine marketer?
Well it matters, in the psychological sense. Google is such a dominant player in search (and such a well known brand generally) that its fortunes will seem synonymous with the health of the overall search marketing industry in the minds of many. But beyond the Wall Street drama, the slump in Google’s share price means practically nothing for the future of this industry; here’s why:
Search is Here to Stay
According to figures published by SEMPO (the Search Engine Marketing Professional Organization), in 2005, annual spending in the SEM industry grew from $4.08 billion to $5.75 billion, a 40 percent increase over 2004. 83 percent of this spending was in paid search, which is the advertising medium driving Google’s growth. The industry as a whole is on track to reach annualized revenues of $11 billion by 2010.
This growth isn’t being driven by speculative fantasy, but by the practical realization by marketers large and small that search marketing provides an ideal way to deliver commercial messages to searchers in a way that is targeted, relevant, unobtrusive, and most importantly, accountable. The numbers that mattered last week had nothing to do with Google’s share price: they came from WebSideStory, which found that search ads resulted in a conversion rate of 2.3 percent, more than twice as high as conversions from non-search ad placements. Only direct bookmarks had a better conversion rate than search.
Google’s Fundamentals Are Strong
Google’s earnings may have disappointed Wall Street expectations, but in fact, they were quite spectacular. For Q4 2005, Google reported revenues of 1.191 billion, up 86 percent over Q4 2004, which was up 22 percent over Q3 2005. In December 2005, Google had 16.5 trillion ad clickthroughs; almost twice as many as runner-up Yahoo, according to Nielsen/NetRatings.
And Google continues to be the engine of choice among marketers conducting PPC ad campaigns: according to research firm Outsell, which polled 1,200 search marketers late last year, 71 percent of respondents Google’s Adwords platform effective, roundly beating Yahoo (62 percent) and MSN (49 percent).
What Are The Real Challenges?
It’s likely that Google will have a great year, but it’s also probable that like the proverbial pioneer, it might wind up with more than one arrow in its back.
Many powerful people, especially in Madison Avenue and traditional media circles, want Google and the search marketing industry to stumble, because at its core it provides an advertising medium which provides accountability: a quality which marketers prize, but one which many ad executives irrationally resist. The forward thinking agencies, publishers and agency holding companies do recognize a profound shift surrounding the advertising industry with marketers demanding proof that their advertising is effective. The search engine marketing industry, for better or worse has been a driving force in advertising accountability.
Newspaper associations have recently made angry statements about how Google and the engines “steal” their content, which has caused speculation that these providers might decide to collectively place their content into “walled gardens” invisible to the engines. Of course their free organic search engine traffic will disappear, which would make the walled garden a poor strategic move, particularly if competing news organizations move in the opposite direction. Click fraud, a popular topic within the press, is a genuine challenge to accountability which the search marketing industry needs to address more forcefully, and issues such as censorship and user privacy, unless confronted, raise the specter of government regulation of the search engines.
Mr. Frog hopes that Google uses its dominance in search to guide the overall industry toward finding solutions to these difficult problems. But he also knows that Google’s corporate style is to “go it alone,” a style which tends to make Google appear arrogant (dare I say “evil?”) and which gives its many critics, on Wall Street, Madison Avenue, Capitol Hill, and the White House, plenty of ammunition.
Google is a big target, and they can’t all miss.
Mr. Frog is a leading Search industry visionary. Mr. Frog is a member of the Did-it Search Marketing team which accompanies him to most major