Editor's Note: Google's rise in market share has been matched by a rise in stock prices. What happens when there's no more market share to grab? It's not far-fetched shareholders will pressure Google into monetizing wherever they can, at the advertiser's expense. Is inflation in our future, or will market or regulatory forces prevent? Please postulate in the comments.
Big companies were reluctant a few years back to shift a significant amount of their advertising budgets to search marketing. This reluctance made conditions perfect for small businesses to take advantage of Google's relevancy at bargain basement prices while Google built its reputation and search share.
But big companies wised up, making competition for ad space even fiercer. Those big budgets provided a big advantage in organic results, too. While bootstrappy, budget-conscious companies tweaked and tested and gamed to get better organic placement, large companies realized pretty fast it was easier just to buy a site already ranking for relevant keywords.
Trends like these, along with Google's own renewed focus on raising search ad real estate prices by reducing the number of ads while increasing relevancy for users and, by default, conversion rates for advertisers, mean Google was already headed for high-roller club status. And now Google is reaching into Yahoo's pot, too.
Effectively, Google has the potential to reach 90 percent or more of Internet searchers: 90 percent of the US, adding to 90 percent of the UK and Europe. That's what, a couple of hundred million searchers? Add that to other advertising roads Google is traveling—TV, radio, print, wireless—and remember how a 30-second spot during the Super Bowl grabs a couple of million dollars for the network broadcasting it.
Consider this also: According to ComScore Chairman Gian Fulgoni, Google has made its billions from just five percent of its ads being clicked. Not to insult your math ability, but that's 95 percent of Google ads that are not clicked. Though clicks are monetized based on direct action, Fulgoni says only 16 percent of ads have direct online effects; 21 percent have latent online effects, and 63 percent have latent offline effects.
"[S]o 84% of the value isn’t being monetized by search engines," Search Insider's David Berkowitz summarizes in his " Dreaming of a Super Model" report. The value in that 84 percent is in less tangible branding value. Enquiro attributes a 16 percent brand lift when the brand made an appearance in the top organic result and the top sponsored result.
Fulgoni used these numbers to suggest Google could maximize profit by adding a layer of cost to search advertising in the form of cost per impression. Either by display advertising (Google can certainly pull up DoubleClick's CPM expertise for this*), or by simply charging every time a text ad appears on the search results page, Google could up its ad revenue by huge margins. Advantage: advertisers with huge budgets, and Google shareholders. Disadvantage: Google goes back on its core philosophy of clean interface, simplicity, and equality of opportunity.
Think that can't happen? You could be right, but "fiduciary responsibility to shareholders" is a much weightier phrase than "advertisers will be outraged." Berkowitz joins a likely chorus that advertisers would break this model:
"So, what would a CPM model add to search? In this economy or any economy, not much. Yes, it would show marketers that there is more they should value. At the same time, that would make search marketing much less appealing. There are competing forces: the engines aren’t cashing in as well as they could be, but marketers have enough pricing concerns with search even when they’re getting a great return on investment, let alone when they’re struggling."
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