Keeping Up With Demand

by Chris Kenton on February 11, 2005

Every time I’m tempted to short Google’s stock, they do something that impresses me.  I’m not talking about their new map, which is cool technology, or their library project, which is certainly ambitious. I’m talking about the kind of stuff that’s happening in the bowels of the company that you don’t hear about in the news. Management stuff. The stuff that actually helps a company generate revenue.

A lot of my clients are involved in some level of search engine positioning. 80% of all Web traffic begins at a search engine. If your company appears on the first page of results for a search phrase relevant to your business, it can drive your sales through the roof. But keeping your company’s raw listing prominently ranked is a big investment in time and money.

Not too long ago, Google added paid search listings. The idea is that you buy the rights to certain key phrases in an auction scheme. When those key words are searched, you get a small advertisment listed on the results page, guaranteeing that you’ll serve up an impression without all the hassle of SEO. Without getting into the ROI comparison between paid listings and raw rankings, this was a great move for Google. They created an economy around search engine results–one that nets them a lot of revenue. But there was a problem.

Google’s AdWords were so popular that demand skyrocketed (I wonder-how much of the demand had to do with eliminating the confusion of SEO). And what happens when demand goes through the roof? So does the price. For some really popular search phrases, you could spend $1, $10, even $20 or more for *every click*, driving the cost-per-lead up to the point where many companies started to curb their enthusiasm–not to mention pop a few tums over the notion of competitors or cynical customers clicking their ads just to drill them for a few bucks. But that’s just the dynamics of a rapidly evolving market. The real problem was something else.

One of my colleagues is the VP of Marketing at a mid-size retail software company that sells their product online. As you can imagine, driving Web traffic has an immediate impact on their sales revenue, so they keep pretty current on SEO and paid search. But a few months back, when she called Google to place a $30,000 order for paid search, she got the cold shoulder. No one would return her phone calls. It seems that demand was so high, as well as orders, that my colleague wasn’t a big enough fish for Google to bother with. Her frustration made me start wondering if they were growing too fast. Hearing a customer with 30k to drop saying: "They won’t take my money," doesn’t sound very good to an investor.

But today I got a phone call from Google. A sales rep in New York saw Cymbic online, checked our search rankings for various phrases and found us lacking, and called to offer a helpful program to improve our performance. For my company, search engines aren’t the best use of money. We have a highly targeted clientele that we reach directly; I really don’t need another RFP from Qatar, or Poland, or India. But I was impressed because obviously Google is taking the pulse of its operations and making adjustments. That may not be the basis for a $200 stock valuation, but it says a lot to me about the health of the company. 

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