Is Google becoming a victim of its own success?
Google's first-quarter headline results, released at the end of last week, featuring a 31% surge in profit and 20% increase in click-through rates, seemed to make a mockery of recent comScore data that had indicated declining growth in paid clicks in search marketing.
Media Week deputy editor Colin Grimshaw
But the headline comparisons were year-on-year increases. Paid click growth over the fourth quarter of 2007 was only 4%, which in the booming growth terms of the online world is depressingly stagnant.
This is due partially to systems improvements aimed at limiting accidental clicks, for which advertisers are still charged. The resulting improvement in ad quality boosts revenue.
Chief executive Eric Schmidt claimed to have seen no ill-effects on Google's business from the US credit crunch, except in travel, cars and luxury goods categories.
However, there are signs that Google may be in danger of becoming a victim of its own success. Competition for popular paid-search terms in some areas has raised bid prices to a point where the return on investment is precarious. In car insurance, for example, the cost of customer acquisition can exceed the first year's premium.
And this cost of acquisition is often understated as it fails to include money spent on brand building offline that causes someone to search for that brand online.
In the UK, Google has been excoriated in the press recently for axing the exclusivity afforded to brands on bidding for key words that incorporate their own brand names. There was a similar brouhaha when it did the same in the US, but the real effects were negligible. Big brands made non-compete pacts with each other, and Google's charging process counters reckless brand imitators. Marketers who appear irrelevantly to the subject in searches are penalised through higher charges, as they attract less click-throughs.
That paid-search row is a storm in a teacup. In any case, it is organic search that may be Google's Achilles heel. It was search integrity and accuracy that built Google's reputation among researchers and other early adopters. But aggressive, sometimes fraudulent, search optimisation techniques on behalf of commercial entities now threaten that integrity.
A new Google, unsullied by such rampant mercantilism, may already be sitting on a drawing board, somewhere in the Santa Clara Valley.
- Colin Grimshaw is the deputy editor of Media Week.
This article was first published on Media Week
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