AdWords: Do you feel the pain yet?

[abbottsys]

Well, not AdWords pain specifically, but pain non the less. In an economic downturn small advertisers do not understand a basic advertising principle, "in down times, advertising is the last expense you should sacrifice".

Many Google advertisers are small businesses. So, will they panic and pull their ad dollars?

Of course, this is based on the assumption that the US is about to enter a recession. There are some who laugh at this suggestion. I'm not one of them. Strap on your seat belts, it's going to be a bumpy ride

Your thoughts?

[cscgal]

I, unfortunately, also feel that a recession is under way. However, I'm not so sure that I would directly associate a recession with advertising dollars as closely as you do.

It really depends so much on the industry you're in, and whether your target audience are other businesses or consumers.

Also, most AdSense publishers run free content-based sites, and traffic is not going to decrease because of a recession. If anything, people will have less money to spend going out and will spend more time at home on the web. If you look at it that way, an increase in traffic can lead to an increase in AdSense earnings.

It really is completely based on the audience. As always, some niches might suffer while others do better. And then it rotates. Just about every industry is seasonal in some way or another, anyways. I run a tech site and our summers are never that great. There are some sites that target outdoor activities that have excellent summers and slow winters, for example.

[AussieWebmaster]

I agree with Dani - the web may improve in a recession.... both because people will not go out as much... but also because of how well the transactions can be tracked and tied to ROI

[Discovery]

The ones who will get hit hard with the recession, real or percieved, are the ones who overspent, lived beyond their means using short term high interest revolving credit, and purchased homes WAY out of their league. Fortunatey for our business we do doubly as well in a "down" market.

I dont want to start a debate on the economy, but much of this recesion talk is political hype to stir up the masses to vote one way or another. Have we slowed? Yes, but we are at a historic low of 5% unemployment and residential housing only represents 4% of our countries GDP and in the worse case scenarios that drops by 1%. We're not sliding into a 1979 G. Ford recession. Oil is actually cheaper than it was in 79 adjusted for inflation.

With that said, rational or not, people and companies will behave differently if they feel or believe the pinch of a tightening economy.

To me companies have learned their lesson and now trust the internet as a viable advertising medium. This time if budgets get tight they will move to use only those elements that can be tightly tracked and controlled and that aint T.V, Radio or Print.

Consumers are now using the Internet in their every day lives. For basic comparison shopping to getting coupons at Pizza hut to checking milk prices at Wal-mart or the local grocery store. Its fast, efficient, they can save money, time, and they dont have to spend money on gas to bargain shop for basic necessities.

I understand the concern that the "poor" will no longer be online because they can't afford an internet connection. And this will be interesting to see what they choose to give up...their expensive cell phone or their internet connection? Their starbucks coffee 5 days a week, or high speed internet for a month? The Rock Star drinks or Online Gaming?

I think consumers are way to hooked into the net to give it up now. They will drop something else to ensure the connection stays on.

Discovery

[abbottsys]

Great feedback. You folks have almost got me convinced that a recesssion will be good for AdWords
But, I'm considering the small advertiser, maybe a storefront, who looks to cut back in a downturn. They see they are spending $500/month on AdWords and can "save" that expense with just one click. Do they make the click?

[Ryan L]

I think that some small businesses that aren't high enough up the food chain, have low margins, or bad cash flow will decide that it's no longer worth the trouble and get out.

A lot of affiliates will get squeezed.

Will the online spend contract?.

It depends on how much of the spend is based on affiliate revenue.

just my two cents.

[Discovery]

I think that some small businesses that aren't high enough up the food chain, have low margins, or bad cash flow will decide that it's no longer worth the trouble and get out.

I think this is exactly the value proposition SEM's can pitch.
Why risk untrackable, unpredictable marketing expenses when an ad agency or qualified SEM can virtually gaurantee a CPA and Budget.

Do you want to spend $500 for a yellow page print ad, or DM piece that produces vague results and loose correlations to sales? or spend $500 for an almost certain number of sales/leads that you can track ROI with near 100% acurracy?

Although the other mediums are old hat and comfortable to many small retailers, I believe many of them made the switch to local marketing using the Internet in the past couple years. Some bailed in 1999 and got burned and have learned that the Internet is no fluke it is legitimate for businesses large and small.

There will always be those who tuck and hide and go to what they know best. The credit unions did this with me in 1999-2000 "online banking will never take" one exec told me. I worked with B of A instead. A group of Driver Education companies said "The internet will never replace the local in class course". 10 online companies now dominate what once used to be an industry of thousands. Businesses with this attitude who bailed on the Internet in 2000 went out of business. I think the savvy small/local retailer understands the game has changed.. and for the better.

[AussieWebmaster]

Great insightful post Discovery....

[Ryan L]

Originally Posted by Discovery

I think this is exactly the value proposition SEM's can pitch.
Why risk untrackable, unpredictable marketing expenses when an ad agency or qualified SEM can virtually gaurantee a CPA and Budget.

I think that your right that ppc will be the last to decline....for sure.

I also think that many that are mature ppc'ers have already cut traditional media severely.

- if joe q public is carrying high levels of circular debt and defaulting more than ever...is it a far stretch to think that ppc accounts for joe q's small business which are generally payed with credit cards would see increases in defaults as well?

[cscgal]

I'm with Frank on that ROI is such an integral part of AdWords that it just doesn't make sense for it to be one of the first things to cut when times get tough. Not only are you post-paying with a credit card, but you know exactly what your return on investment is and you know that keeping it live is directly making you money (often times in the very short term).

[Discovery]

Yes, certainly if you have a lot of small clients who are all floating their marketing campaigns on a credit card then you may see some decline. But outside of Mortgage brokers and real estate pros I dont see too many industries that will get whacked.
Even the mortgage and real estate people are flooding into the foreclosure sales/mitigation or the Hope Now Alliance program created by G.W.

I get your point though, and you're correct. There will be a number of small business that were on the edge financing personal and business expenses with their cards, equity line, that will fall off. Not great clients to have for sure from a financial standpoint.

Discovery

[Mel66]

We have more than one client who have drastically reduced and/or eliminated traditional broadcast media while keeping and/or increasing their PPC and online marketing budgets, for the very reasons Discovery states - why throw money down a rat hole with no hope of tracking results, when you can spend it on efforts that are totally trackable down to the exact action taken? As several have already said, if PPC is making money, there is no reason to stop doing it, even during a recession.

[Ryan L]

[smug smile]
google misses estimate...
http://biz.yahoo.com/ap/080131/earns_google.html?.v=2
[\smug smile]

[abbottsys]

Originally Posted by Ryan L

[smug smile]
google misses estimate...
http://biz.yahoo.com/ap/080131/earns_google.html?.v=2
[\smug smile]

Wow. Interesting find, thanks Ryan. When I started this thread I was thinking maybe Q2 or Q3 of this year. But here's an indication that something *may* have started in Q4 of 2007.

BTW: lots of great analysis in this thread. And I agree with the basic thesis that PPC may be immune to a downturn because it has powerful measureability that most other ad channels don't have. So clients see their ROI and will keep spending.

Fair enough, I agree. But that assumes small advertisers have conversion tracking in place and carefully monitor ROI. Most I talk to don't even know about conversion tracking, let alone how to use it.

[Ryan L]

The issue is bigger than that....its whether that business stays afloat advertising or not regardless, of ROI.

[abbottsys]

Originally Posted by Ryan L

The issue is bigger than that....its whether that business stays afloat advertising or not regardless, of ROI.

True. Even if you're measuring ROI like crazy, an economic downturn can take away your customers, so your ROI falters and your response is to... yank your advertising and any other costs you can to save your business. As I said at the beginning, you can stop your ad costs real easy with just a click. Umm....

[Ryan L]

From an Agency perspective:

I would be more concerned about businesses trying to cut costs and manage PPC on their own?

I'd certainly do that, before I pulled them alltogether....that said I already do

[NewKidOnTheBlock]

just out of curiosity: what do you guys think a recession in the US will mean for other internet marketing fields? and how about e-commerce in general?

I read some great points especially the one about trackability.

What do you guys think would a recession mean for e-commerce in general? or for SEO? or for Web Analytics professionals?

[jewboy]

lots of excellent points on this thread. before we jump the gun and say that the US is in a recession, lets take a look at the facts. a recession is defined as 2 consecutive quarters of decreased GDP. yesterday's numbers came out and the US GDP increased, albeit less than 1/2%. That means it will take a minimum of 6 months until we can officially declare recession.

with that said - surely times are tougher for many, certain businesses are getting hurt, foreclosures are on the rise, and other economic indicators are grim. when times are good and money is flowing, there is a tendency to spend blindly. when the belt is tightened, businesses are forced to watch their pennies more closely. that means less roi blind spending. i think that businesses that see PPC translating into increased revenue and profits, will be very wary to rock that boat. they will be more likely to cut costs on other "riskier" and less measurable advertising investments, as a whole.

[Ryan L]

Originally Posted by NewKidOnTheBlock

just out of curiosity: what do you guys think a recession in the US will mean for other internet marketing fields? and how about e-commerce in general?

I read some great points especially the one about trackability.

What do you guys think would a recession mean for e-commerce in general? or for SEO? or for Web Analytics professionals?

I think its really good for Web Analytics professionals...like everyone is saying, it will cause many businesses to look more closely at their ROI.

Its good and bad for SEO professionals because their will be a flight to SEO's "free" organic rankings. It will be bad for the bottom feeders of SEO because clients will want more measurable results.

It will also open the eyes of many to the fact that organic rankings are far from "free". It takes time, dedicated resources for: content creation, on page optimization (copywriting) and linking campaigns to name a few.

Finally ecommerce is here to stay...I see some market consolidation but little actual contraction. Hell with the price of gas, might as well order your stuff online instead of driving to get it....let UPS and the merchant absorb some of that cost.