RSS 2.0 Feed

Are Google the irresistible force and the immovable object?

Posted on 26th November 2007 at 4:24 pm by Chris Dugdale

Google seem utterly unassailable as king of the search hill, but equally their tide of acquisitions seems equally unstoppable. What are they up to and where can it lead?

If you look at Google's list of acquisitions over the last few years, there are some interesting trends as well as some paranoia inducing purchases in there. But leaving the tin-foil hat stuff aside for the moment, let's take a quick look at their more conventional purchases.

Despite Google diversifying like crazy, the only real revenue stream it has is its paid search offering, or to put it in less obfuscated terms, advertising. Now, it is natural that Google's competitors covet their neighbour's house as it is a very big and successful house indeed, so there is little wonder that MSN and Yahoo! are desperate to acquire companies that might expand their own advertising network's exposure. Microsoft's purchase of a 1.6% stake in Facebook is a case in point; Microsoft is desperate to acquire more sources of ad views to try and compete with Google, but what does Google gain from doing this?

Google were piped at the post with this deal (maybe their acquisition drive isn't utterly unstoppable), interested as they were in cutting a similar deal with Facebook, but why? What does Google gain?

With click volumes and click prices so high in Google, they can't really expect people to pay more for their advertising; corporate PPC budgets are pretty maxed out already. The only way for Google to raise the click price in topped-out markets is to improve the ROI on that click, which in all fairness they have taken small steps towards with recent modifications to the clickable area of their ads.

So the obvious gain for Google is competitive lockout. By purchasing things that the competition might use to make egress on their market share, Google is protecting what they already have. This is a fairly safe conclusion to draw though and there may well be a slightly more complex answer.

As Google captures more eyeballs to view their ads, the cost per impression isn't likely to rise as people are already paying top dollar for each click. What does change is the volume of clicks. Where a brand might currently be able to dominate the top spot in the paid listings for very generic search phrase, as the ad impressions (and by inference the clicks) increase, one of two scenarios will develop.

1) Advertisers take this in their stride. Ultimately, as long as you are making a profit on each sale, there is no reason PPC budgets don't grow to match demand. The more clicks you attract, the more sales you make (as long as these clicks are converting at a reasonable rate). So ultimately nothing will really happen other than Google and the people using their services making more money.

2) Budgets run dry. Many big advertisers have fixed budgets and can't necessarily be flexible enough to keep up with growing click volumes. As these budgets run out, other advertisers will step in to fill the gaps; others that are bidding at lower prices for the clicks. This sees sales pour into the under-bidders who will either bolster their bids on the back of their new-found profit, or simply be content to cream the greater profit from the budgetary misfortunes others.

These are two very different scenarios. The first will see a bedding-down of the status-quo, where the big players cement their position at the top. The second sees a much wider spread of business being dealt out and the under-bidders profiting more. Which way will it go? That depends very much on the adaptability of the top players. It is a case of business mimicking nature again; adapt or die.

File under: google online advertising acquisitions