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07.21.08 Will Internet Companies be Immune to Recession?  By David Rodnitzky Back in 2006, when Google announced the "Quality Score" initiative, Google's advertising revenue growth seemed unstoppable. Penalizing a few rogue advertisers ('rogue' being mainly defined as affiliates, made for AdSense sites, or incentivized marketers) might lose Google a few dollars in the short term, but those dollars would quickly be replaced by the hordes of new advertisers rushing to give their marketing budgets to the Google juggernaut. Since the initial Quality Score launch, Google has expanded the program further, adding comparison shopping engines and travel aggregators to the "most wanted" list in 2007 and factoring in page load time earlier this year (which some have suggested creates an incentive for publishers to run text-based AdSense ads at the expense of non-Google display advertising). Along the way, Google's revenues have continued to explode. Now that even the most traditional mainstream marketers understand that Internet marketing is no longer just 'experimental' budget, advertising competition and CPCs have continued to increase on Google. But unless you've been hiding under a rock for the last few months (or work in the Bush Administration), its clear that the Internet advertising boom is going to see some slowness in the near future. The implosion of the mortgage industry, skyrocketing gas prices, job losses and consumer uneasiness all point to a coming recession. Though I believe that Internet companies will be largely immune from a national economic downturn, Google's recessionary fate - and the fate of Quality Score - may take a slightly different course.
You see, Google is now one of the world's biggest corporations. As a result, macroeconomic forces have a much greater impact on them than they would on a smaller company. I remember when I worked at Thomson-West and I sat in on a meeting with the CEO. All I wanted to discuss was the Company's SEM efforts, my boss wanted to talked about overall marketing efforts, and our division president wanted to talk about the Company's strategies over the next few years. But the CEO was on a different plane all together. He was asking us how the war in Iraq would impact business, and whether globalization was a trend we should capitalize on. Basically, his world view was not unlike that of the leader of small country - my small world of SEM was the equivalent of some obscure farm subsidy bill - he understood that the overall health of the Company was decided by much broader factors. Google is in a similar situation. There's no doubt that they will feel the brunt of recessionary pressure much more acutely than smaller Silicon Valley companies, simply because their size by definition connects their health to the health of the nation. When you combine severe reductions in mortgage advertising, bank advertising, car advertising, airline advertising, consumer spending, and employment, you can see how Google might experience some slowness. Case in point: Google's latest (and disappointing) earnings, which shows that - to some degree - as the overall economy goes, so goes Google (for the record, the majority of this article was written prior to the earnings report!). Continue reading this article. About the Author: David Rodnitzky is a regular contributor to Search Marketing Standard Magazine blog and is currently Vice President of Advertising at Mercantila.com, a leading online retailer. Prior to Mercantila, David held senior marketing positions at Adteractive.com (online lead generation), FindLaw.com (online legal portal), and Rentals.com (online apartment site). He has a BA from the University of Chicago and a JD from the University of Iowa. In addition to writing for Search Marketing Standard, you can also read his personal search marketing blog at blogation.blogspot.com. |
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