Economy Down, GOOGLE Up.
Oct 25th, 2008 | By Gene A. Wright | Category: General, MarketingOne of the opinions I respect in the crowded arena of online marketing is that of Alan Rimm-Kaufman. His recent blog posting regarding the phenomenon of the economy being down and GOOGLE being up.
A Prisoner’s Dilemma? PPC Advertising During The Current Financial Crisis
From the posting, “Desperate for revenue, advertisers are tempted to increase the aggressiveness of their advertising. Advertisers feel they must spend more in advertising to generate each revenue dollar, because they need the sales, or because they sense their competitors are advertising harder, or because they fear their competition is about to start advertising harder.”
What do you think? Is this a Prisoner’s Dilemma?
The economy right now is a real challenge for all companies. Opinions are all over the map as to where we are in the recession cycle, how far things might actually fall, and what the bottom and recovery cycles will look like. Through that, companies teetering on the edge of survival must make some very difficult choices. These companies can choose cost-cutting as a means to survive, but knowing how deep to cut is very difficult when they do not know how deep the trough will be. The other option is to fight for market share, increasing their share of a declining market. The upside to this strategy, is if successful they have the potential to capture and retain some of this share as the market recovers. Then they emerge from the downturn a more successful company. I believe that is the bet that many of the google advertisers are placing.
I’m struggling with relating this to the prisoner’s dilemma. If they really were moving toward the cooperative strategy isn’t that for both firms (prisoners) to not advertise (keep silent)?
Firms are always faced with the issue of their competitors advertising effectiveness and I don’t think that challenge changes with the cycles of the economy. What I get from this article is that Google’s product (search in this case) is recession resistant and I’m tempted to say bullet-proof. Google can deliver the traffic (their product) and after that it’s up to the searched firm to provide the value proposition to make a sale.
One point for using “value proposition.”
The situation with Google and its advertisers is not as black and white as Prisoner’s Dilemma. There are some similarities between the two, but Prisoner’s Dilemma was not created with the search industry in mind. In the long run cooperation yields better results, but when a search engine shows advertising results and the company advertising is not the first few results, you have trouble. Maintaining market share and getting customers coming to your site is extremely important in advertising today. There are hundreds of retailers for almost any product today, and keeping visitors on your site is important for when the economy starts growing and for when it slows down. Keeping customers coming might make your product the first they buy when they are not as hard hit. Advertisers should not think of it as prisoner’s dilemma, they should think if we don’t maintain our market share now, we will not be able to increase it in the future.
I disagree with Alan in this case. Quality products will sit on shelves if the consumer doesn’t know or trust the brand. Advertisement (traditional and non-traditional) makes or breaks the success of the vast majority of products offered. For the doubters out there, just take a look at the Billboard hot 100. Do you think that the “artists” featured could stand solely on their body of work?
To an extent, this is a prisoner’s dilemma, but I don’t feel as if it’s a straight “confess/don’t confess” situation. Good advertising isn’t just ads everywhere, which seems to be what the article infers. It’s advertising in the right place, right time. It convinces the consumer that they cannot possibly live without the product being offered, quality or not. If it succeeds, it’s not just capturing SPC, it’s generating them too.
I have similar thoughts as cnoble, it is not an clear comparison. As we learned in Dick Marcus’s Corporate Economics class, based off of the The Prisoner’s Dilemma, both would be better off cooperating but are fearful so they don’t. So in this game, does that mean that Google a double crosser? Could be a be a smart position in this current economic state.
Yes this is a prisoner’s dilemma in that the more advertisers try to push of their CPC the less ROI they all will get for their investments, so it would make more sense for them to collectively wise-up and hold steady on their costs. But that isn’t going to happen since there will always be a few decision makers who are getting a stronger push from upper management to show they are making an effort to drive more site traffic to help sales in tough times. Paying more per click is an easy fix for advertisers who don’t want to work more creatively or have bosses who only want to see numbers jump to feel they are working harder, thus they will take the penalty later for the immediate boost they feel they are getting in traffic (working less smart).
BUT, this all assumes it is only a decision of “pay more or pay the same for your clicks.” What is not discussed here is what advertisers can do to better target their ad content on Google to better attract a higher percentage of the key customers who are still doing the buying (if we assume the sales volume is not increasing) without having to adjust their CPC. This could possibly increase SPC even if they are a few rungs lower on the results because the copy pops to the buyer’s hot buttons. And advertisers can do much more to keep these people once in their site to lure them into that purchase, versus hoping shear traffic volume will “accidentally” gain greater SPC. Another option is more organic focus with SEO work to their sites so natural results pull people through, instead of just a CPC focus. This is where we are focusing our energy currently rather than jacking CPC spend.
I don’t think the prisoner dilemma idea is applicable to this situation because there is no long term advantage gained by the double crossing company. The benefits of advertising are hard to quantify and if a company was double crossed by a competitor it would be relatively easy to spend more on advertising to catch up and there is a good chance that that the if the company that was to catch up in the advertising they would not loss much ground to the team that double crossed them
This certainly sounds like a prisoner’s dilemma to me. I also agree with the author that this is an emotional reaction that is based on a short term view. Its another symptom of our focus on quarterly profits instead of sustained long term growth. It would be interesting to study the incremental return on investment for each additional advertising dollar spent. I suspect you would see a sharp knee in the curve where additional money spent yields no return.
Prisoner dilemma, maybe. I just think Google knows what they are doing. Is Yahoo expressing the same thing Google is? I don’t think so. Right now Google is finding that even the “recession” is not impacting business strategy. If another search engine comes a long and over takes Google, they would probably be in the same boat.
t-rex
This post and all the responses made me think about a commercial I heard on the radio this morning. It was for North Shore Bank, and the premise of the ad was that while all the big banks are going under, this local bank is still thriving, and can give you a loan if you want it, because they stuck to their guns and practiced sound loan principles. I couldn’t help but thinking as I listened to it that the marketing team over at North Shore Bank saw an opportunity and jumped on it. Everyone is wondering how safe their money is, how easy or difficult securing a loan would be, the list goes on. I think that type of ad will be very effective in realing in new customers, because it addresses a real concern that the public has right now.
In the end though, as this ad pointed out, and as I think those placing aggressive ads on Google will find out soon enough- the product is only a portion of the company. The rest of the business and its budgets are comprised of overhead, and human resources, etc.. A company must be sound from top to bottom if they want to last through these times…pouring all the money into marketing does not drive growth or longevity. That is done by investing in R&D, and of course reliable people to manage and drive such endeavors.
Right now, a luxury item is still a luxury item, and if I feel that I don’t have money to spend on any luxury items, it won’t matter if I see more ads for luxury item #1 or #2- I can’t afford either one right now.
I think the article is spot on. It would seem natural in tough times like this to expect an advertiser to bump up advertising to try to lure just a few more people to their products. The problem – for those companies that is – is that consumers just don’t want to spend that extra few dollars right now. So here they are spending all of this extra money on advertising while their customer base is not increasing, maybe decreasing, ultimately hurting their bottom line. While these companies are suffering GOOGLE is raking it in. It seems that GOOGLE’s business strategy works no matter what the economy is like – if it is good advertisers are spending more money on advertising because they have it, if it is bad advertisers are spending extra money trying to reach out to more customers in desperation. In either of these situations GOOGLE is capitalizing on the money that advertisers are spending.
This article is very interesting, but I guess it shows just how crazy people are going with our economic problems today. Although Google might be one of the less expensive forms of advertising now with the PPC, most people should realize a few things. Google knows what they have going for them so of course the are going to capitalize it to the fullest extent. I don’t want to say Google doesn’t ‘care’, but they’re not hurting. This reminds me of the whole deal with the top 3 car companies in a sense, who demanded billions of dollars and got it because we knew that if we didn’t give it to them, we would be out an enormous amount of jobs. Many companies depend on those car companies to keep their company alive. I guess it’s always nice to have the upper hand!
The article reminds me of investing in a Bear Market:
Advertizing on Google Investing in a Bear Market
1. Have clear economic targets. Have clear inventment goals.
2. Use strong bid management tools. Use proven “bear market” inventment strategies.
3. Seek capped agency or technology fees. Seek contractual advisory fees structured as “flat-rate” fees.
4. Protect your bottom line first. Select a portfolio that keeps you comfortable and safe.
5. Stay calm. Stay calm.
I don’t think pumping more money into advertising while the economy is in a recession is the right thing to do period. You would think that companies would realize this, people don’t have the disposable income that they did 5-10 years ago. Instead of spending mass amounts of money advertising the products that aren’t getting sold, they should be using that money to innovate and changing their product to meet the new needs of consumers in these difficult economic times. This is why Google succeeds, they are an innovation powerhouse that seems to know quite accurately what the people want.
I think Google has figured out the right recipe for profiting when other aspects of the economy aren’t. I don’t think the answer to saving money is to pull it out of advertising and marketing because then the product isn’t going to reach as many people as before. Thats like saying that we are going to get out of this recession by saving money. The economy needs to be stimulated or we are going to be pulled further in. I also dont think that Google is messing with the prices of AdWords or cheating their way through things, I think they have just done a good job figuring out how to do it. Advertisers can use Google, which is a ridiculously trafficked sight, to get the word out about their products.
In my opinion it isn’t a prisoner’s dilemma. In the end, if the economy is suffering, everybody suffers, even Google. When the article was written, we were at the beginning of the global crisis and consumer demand began shrinking. One thing to do, and that’s what most advertisers have done, is to increase their spending on advertisement in order to boost consumer spending. If this doesn’t happen, and it didn’t and will not, the advertisers will have to cut costs and this will also affect advertising and Google.
An economic crises always occurs in a wave. Industrials (automakers) are the first most of the time, because they rely on have investments due to higher production costs. Google in the service sector may be one of the last who will be affected. Let’s hope for Google that the crisis is over by then…
In the Microecon class “Prisoner`s dilemma” was a completely different thing… not sure why author is using this methaphor in his article…. But it is an interesting fact about Google being up all this time. It is strange to me especially because we have so many different advertisers and almost all of them are down. Maybe Google is playing not by the rules…
Advertising is needed for reaching potential customers, irrespective of the economy. I don’t perceive this as a case of prisoner’s dilemma.
In times of a weak economy margins are typically lower, and the marketing strategy needs to account for that. Not advertising is typically not an option.
The fact that Google’s position is getting stronger in a weak economy indicates that they are perceived to have a good value proposition.
I think the prisoner’s dilemma is following others to spend more on advertising, or “defecting” and being wiser with your advertising dollars. Google profits go up as advertisers bid each other up competing for prime search location. The result is everyone pays more and gets less impact, with Google being the only winner. Could it be that when the economy is down, companies are looking to spend their precious reduced advertising budgets most efficiently? Web advertising is still the best bang for the buck. There is another school of thought. In a drastically depressed economy, additional advertising spend may not be enough to motivate customers. Some companies will delay product launches and advertising budgets to use them when the market is more conducive.
I am not sure this is a prisoner’s dilemma. I think it more of a marketing job by Google. Click through numbers have always been suspect. Also there are not many choices, Yahoo or Google for search, MSN and AOL are meaningless. The perception is that Google has a better mousetrap, I have always been skeptical of the numbers. It like my mom used to say, if your friend jumps off the bridge are you going to follow. I am not sure how truly quantifiable web sales are from advertising dollars spent on certain site, but do what’s best for your organization and don’t worry what others are doing. I would not be suprised to find out later that Googles system is flawed.
I do agree with the comments posted on here as we are in a recession and the economy is going through a very tough time; no one really know’s how long it’ll take before we’re out of this mess. With that being said, companies are getting desperate and are following all necessary protocol in order to weather the storm in hopes of only being a stronger company later on. Some companies feel the need to gain market share and will do what it takes to achieve that. It is not Google’s fault that these companies are willing to pay such hefty fees. Obviously as demand rises so will prices and to some this may seem unfair but it’s a matter of choice for each company and ultimately they don’t have to jump out and take on those fees.
It makes sense, but I think companies are just turning to lower cost advertising alternatives. Advertising on the superbowl was down. An organization can take the cost of a superbowl ad and spread it over an entire year with online advertising. I also think it is just a result of the growth of internet advertising. More people are looking, pay per clicks are up, and businesses that want to advertise are noticing. Meanwhile print subscriptions are down and DVRs have made TV advertising less effective.
As a result of the economy down, there are several factors that contribute to this, first the globalization of the world, second the failure of the Bush Administration to realize that the economy of America must be looked after, and third the decline of manufacturing. Google has found a revolutionary method to not feel the wrath of the depression, giving people exactly what they want while still making money out of the transaction. Companies who want to increase the effectiveness of their marketing must tap into the potential of google. Because google is so powerful and efficient at what it does, a successful advertising campaign coordinated with google could be the difference between sucess and failure in such a rough economy. In my opinion an advertising campaign coordinated with google is well worth the substantial investment.
I don’t think this is a situation relating to prisoners dilemma. Right now in this “recession” more and more companies are emphasizing a lot more on how well and how much they need to advertise. The more interest and awareness that it publicized about specific products and services can only help in today’s economy. Google can either be the company’s best friend or worse enemy. They need to decide what types of actions they will make in order to stay a float in these stressful times. I think that Google has been doing nothing but there job to act an aid and tool to tons of companies all over the world. Although, everyone is entitled to their own opinion.
I think it depends on how stiff the competition truely is. If the competition is very strong in a market and past trends indicate that market share is lost by not keeping up with the competition’s advertising then yes it is a Prisoners dilema. At some point it has to stop and your product has to carry the weight of the brand otherwise the company and its competitors will reduce margins until there is no more to make.