For some reason, seeing “dilemma” used next to a name reminds me of a store right around the corner named “Emma’s Dilemma.” Pass a place enough times, and you’re bound to give some mental bandwidth towards guessing the meaning of the name. My guess with Emma’s is that in theory they offer so many choices that it makes it hard to decide what to eat. Having been there, I can only surmise that the dilemma has more to do with how can such a crappy place still get business when a cheaper, more complete grocery store sites adjacent. In a more logical world, Emma’s Dilemma would be how to stay in business. That’s the general flow of the rational business world, do well, and customers spend more. Don’t do as well, and they will spend less or become non-existent.
The rational world has yet to catch-up completely with Emma’s, but it has caught up with someone else, Google, in what was, for us, a most unexpected way. While less so today than at any point in the past five years, Google still occupies a place of prominence for performance marketers. The manner by which affiliates leverage Google has changed. For example, many now focus more on SEO or on remnant display through Google. They’ve done this, because of the ongoing battle to get their ads listed at a reasonable rate. At every turn, it seems as though Google is out to get them. Google of course will rarely if ever confirm changes to the algorithm designed to target any one group. Most of the Googlers themselves have a very minimal understanding of the breadth of what makes them money. Ask them to explain why it seems certain groups get discriminated against, and they will say one of two things. They don’t discriminate; or, if something got knocked down, it was due to relevance / user experience.
Relevance. It’s such a powerful and simple concept. Judge ads by their relevance (which now has grown to encompass an ever expanding array of factors). Give the ads a score that equates to their relevance. Make the price contingent upon how well they score. That’s how, in one simple word, a powerful lever to manipulate pricing has come to existence. If you want it bad enough, you will pay enough. If Google doesn’t want you to be there, then it’s just a matter of setting that barrier to entry so high you won’t want to compete. How they determine relevance is among the companies most closely guarded secrets, and rightfully so if they want to maintain control over the ecosystem. It’s the same reason why Gmail grabs people from other free mail accounts; it’s tougher to get crap through to the natural listings, which in this case is your actual email.
Who would have though that relevance was a business Catch-22. From the traditional affiliate marketer’s perspective, it’s a tool to make more money. It’s a way to inflate bids and extract more margin from the advertisers. Having for so long been of that mindset, it didn’t occur to me what many other sharp minds already knew, that relevance is good in the short term, but it can have the exact opposite effect from a financial perspective. Amazon is a prime example. Here is a company that spends quite significantly on Google. Nothing wrong with that, except that as time goes on, they spend less with Google. It seems counterintuitive, but according to those whose job it is to dig into the financials of publicly traded companies, that is exactly what has happened with many of the large spenders. They have been enjoying a virtuous cycle. Their relevance to the consumer means they receive a higher click through rate; their higher click through rate means Google finds them more relevant. That in turn leads to their being able to pay less. In addition, consumers start to become familiar with the brand and, to some extent, they no longer need Google as much to find this brand.
If Google were not a public company, or not interested in maximizing profit, or instead they were actually interested in the most relevant experience possible, this wouldn’t be a problem. It makes plenty of money, even if a fraction of its constituents do not spend as much as they used to. Google, though, is a public company interested in growing its takes; it’s also human and, being human, they will find something fundamentally wrong with the fact that customers can get more and pay less. As a company, and a shrewd one, they have taken this to mean some weakness exists in the model. It means something is wrong if they aren’t able to continually extract greater margin out of companies. The answer historically has been cosmetic changes on top of the aforementioned re-rankings. That strategy has fundamentally changed, especially in the mature U.S. search market. Today, it means going vertical. They created Google Comparison Ads in order to bypass perceived mortgage middlemen such as LendingTree, Bankrate, and LowerMyBills. In travel, they acquired the technology provider behind their largest clients giving them the freedom to create their own travel property or simply insert into the search results.
That Google struggles to grow in a mature market shows they are human. That they have chosen to grow by competing with their own advertisers is a different story. It might turn out to be the correct strategy. They might prove that those spenders really didn’t offer the value the users wanted, needed, or deserved. Regardless of how it turns out, it seems like the type of approach guaranteed that a company like Google wouldn’t do. Then again, maybe it is. Google is nothing, if not consistent, and they consistently like to chip away at their biggest spenders.
Editor
DM Confidential
www.dmconfidential.com
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