When Might the PPC Gap Close?

When Might the PPC Gap Close?

In conversation with folks equally besotted with all things search and marketing, the talk often turns to click fraud.

After some mandatory clucking of tongues, I go off on my own little riff about the subject - how it's difficult to prove as a percentage of overall PPC revenue (beyond the anecdotal), and how - for the time being anyway - it really doesn't seem to matter. Click fraud is something of an ecosystem "tax" - advertisers who are putting $1 into AdSense, for example, are (usually) getting more than $1 back. Whether they get $2.00 or $1.75 is not that important, if, say, 12.5% of the clicks are fraud, who cares? You can always petition Yahoo or Google for a refund (though not all do).

Only when they start getting back 99 cents (or less) for that $1.00 will the "margin pressure" build to "do something about click fraud" in any real sense. In the meantime, advertisers are happy with AdSense, because, well, it works well enough, and there's no incentive to change it.

This post about a recent earnings release from FTD, written by Jeff Matthews, struck me as a potentially important insight with regard to all this. Matthews likes to stare at corporate behavior and find the stuff that perhaps others have not thought about. From what I can tell, he's not a search fellow, but, a reader pointed me to his stuff, and it's good.

From his post:

"During the Christmas season, certain online search engine costs increased significantly over the prior year, and as such we made the decision not to pursue the resulting high cost order volume."

That comment was contained in the long first paragraph of a press release from FTD Group, the flower delivery people, that was issued at 5:54 E.S.T. last Thursday night, when almost nobody was around to care.

Now, I don't follow FTD closely, but its business model depends more than you might guess on internet searches-after all, somebody searching for "flowers" on Google is probably not doing deep scientific research into botany. They are very likely a guy, running late, kicking himself for putting it off until the last minute.

What is also interesting about the FTD release is that the company states that despite a pull-back in online ad spend and the resulting revenue shortfall, the company will still hit its EBITDA and earnings targets

This suggests that at least in the floral delivery category of online search, and assuming FTD is not just blaming an innocent bystander like some companies we could imagine, the marginal cost of a new customer has reached parity with the marginal profit from that customer. Which is not something anybody expected happening any time soon.

So what is FTD doing about this turn of events?

"we have begun making additional investments in our marketing staff to help build a more diversified marketing portfolio. We believe these initiatives will enable us to regain our competitive position in the marketplace and continue to deliver long term bottom line results for our shareholders."

A possible conclusion? Search marketing may be on its way toward a slowdown, if not a plateau. And while this is entirely anecdotal, and certainly nothing to base decisions upon, it points to the margin pressure idea, and, I think, validates it. At least as far as FTD is concerned

Thanks, Searchblog reader Philip!

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