TechDirt (which recently got great write-up from the SF Chronicle — congrats to Mike Masnick and crew!) responds to a SiliconBeat post by Michael Bazeley about the prospects of Google being accused of predatory pricing given its recent track record of substantially cutting the price of offerings it has acquired.
I’m going to steer clear of that debate for now, but respond to something that TechDirt’s Dennis Yang said.
Quickly then, Denis… the golden rule of SEM is… He who owns the marketplace, rules. (Droll, I know…)
Which is why, when you wrote (emphasis mine):
“With Urchin, Google is looking to impress upon more of its users the importance of analytics. Conspiracy theories aside (as in, is it good for Google to have access to all of this data?), the idea is that better analytics will lead to smarter ad spending, which is ultimately good for everyone.“
… you were speaking (I’m guessing) from instinct, not analysis of the impact of a bidded marketplace at liquidity.
Here’s what I wrote in The Value of Search Marketing Relationships w.r.t. Google’s acquisition of Urchin:
“On the surface, the play here is obvious: if you hold ROI constant and increase conversion rates, CPC prices will rise (proportionally). Said another way, as long as all of the ROI doesn’t go into the advertiser’s pocket — and it won’t, because their competition will eventually wise up and use the same solution, thereby increasing competition — Google will profit.”
So what really ends up happening (assuming rational marketplace participation) is:
1. Advertiser 1 gains a short-run margin advantage using analytics
2. Competitive advertisers figure this out and start using analytics
3. The equilibrium ROI is restored (as reflected by increased CPC) , except that:
A. Everyone’s now paying Google $200/mth. It’s very important to remember that this represents 1) non-TAC revenue, and 2) diversification of revenue streams; and
B. Google’s marketplace has ‘sucked up’ the incremental margin through higher CPCs; and
C. Google has a lot more data on your business
Very seriously here for a moment… if you haven’t run a Five Forces analysis on SEM (or more broadly, on continuous bidded marketplaces), you simply must do so; you’ll see the game much more clearly. If you don’t have the time or horsepower to do it, drop me a note; always happy to help a new client see what’s afoot.