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Has the faltering economy finally caught up with Google and their lucrative AdWords platform?

Perhaps in the short-term, according to Merriman Curhan Ford analyst Richard Fetyko. Yesterday, Fetyko issued a release via Barrons stating, “Based on our checks, the decline in consumer and business purchasing is having a dampening effect on search-engine marketing (SEM) — keyword prices are down 5%-30% from the third-quarter of 2008, traffic to ecommerce sites is also down year-over-year and quarter-over-quarter, and click-through-rates on ad listings are declining as well. SEM is expected to be among the last places to see cuts, and we are there now. Advertisers are adjusting their keyword buys to protect their margins and returns on investment, which are under pressure as sales-conversion rates and average order value dropped, based on our checks. Google’s paid-click volume is also under pressure. Since consumers and businesses have reined in their spending, they are searching for fewer commercial items and are clicking on fewer ads (click-through rates dropped), which translates into slower growth in paid-clicks volume (key revenue driver). Weakness has also spread overseas. Domestic growth has decelerated in 2008, and we expect international regions to slow in the fourth-quarter of 2008 and 2009 as well. U.K. ad revenue was flat for the last three quarters, and the rest of Europe and Asia are seeing cutbacks in ad budgets as well.”

Not surprisingly, various research agencies are reducing their projections for online advertising growth going forward. Just last week, marketing research firm eMarketer reduced estimates for U.S. Internet advertising to $25.7 billion for next year, about $2.7 billion less than a forecast from just three months ago, but still a 9% increase over this year. EMarketer predicts U.S. search ads will generate $12.3 billion next year and that “display ads” will rise nearly 7% next year to $4.9 billion (less than the 14% growth previously suggested). Considering we’re in the midst of the worst financial crisis since the 1930s, I would say that any growth at all is pretty good! The reason for continued growth in PPC advertising despite this crisis is because it works.

While “decelerating growth” may be a sobering reality for Google, it will not bring them to their knees. In the near term, Google may have to make some adjustments, but they appear incredibly well positioned to potentially dominate multiple marketplaces going forward, including organic search, sponsored search advertising, online video & the wireless market. Organic search, PPC advertising and online video (via YouTube) are already in the bag, at least for now, and Google’s wireless Android platform is new but already creating a lot of buzz. Actually, I personally think that what Google has already accomplished is amazing and I look forward to witnessing their future innovations. They always seem to be one step ahead of the competition.

Holiday Reminder- The busiest shopping day of the year, Black Friday (this Friday) is followed by the biggest online shopping day of the year, Cyber Monday (next Monday). Happy Thanksgiving.

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The state of the PPC advertising industry according to Google earnings

In a word, the PPC industry continues to look healthy.

After the closing bell today, Google, Inc. reported their most recent quarter’s earnings, including an impressive profit increase of 26% compared to the same quarter last year. This is pretty impressive growth, especially considering just about every other company seems to be slowing down.

Google Chief Executive Eric Schmidt said that the company experienced “revenue growth across all of our major geographies thanks to the underlying strength of our core search and ads business.” 
Google officially started generating more than half of its revenue from international markets. 
 
In regards to their paid click revenue, Google said Thursday that the number of paid clicks rose 4% from the previous quarter, and 18% compared with the same period a year earlier. Though the economy is hurting, people continue to search the web and click sponsored results with increasing regularity.

Google continues to grow its workforce, adding another 519 people during the quarter, though this is down from an increase of 2,130 employees at the same time last year. The company now has 20,123 employees.
We’ll see what Yahoo! has to say when they announce their quarterly earnings early next week.

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Financial Crisis and Internet Marketing

The widely followed Dow Jones Industrials slid another 508 points yesterday, closing at 9,447. Yikes, 19 more days like that and the stock market will be gone! For the sake of our economy and everyone in this country, things will improve, and the sooner the better. I fear the potential fall-out from what has already happened in the stock market is just beginning to be realized and further far-reaching consequences are likely to develop. Already, the financial crisis here at home has spread overseas as international banks and markets are now in a state of crisis as well. In fact, global markets lost $8.1 trillion in value over the past 3 months. Based on these unsettling facts, the question for today is, how will this financial crisis impact Internet marketing, and more specifically pay-per-click (PPC) advertising? For the sake of this article, I’m going to assume the stock market does not remain on its current path to zero. If it does, we’ll all have much more serious things to worry about than Internet advertising.

Per a previous PPC advertising news review I wrote back in July, the PPC Economy still appears stable, at least for now. Recent surveys suggest that U.S. online advertising is still slated to grow 22.7% in 2008, though this is less than the 32.7% growth previously anticipated. I also referenced Henry Blodget, co-founder of Silicon Alley Insider and someone whose opinion I greatly respect. He stated that, “new or developing media–those that still are growing more quickly than advertising expenditures as a whole–exhibit fewer recessionary effects than traditional media. More specifically, advertising spending on “new media” does not decline before, during, or after recessions, it simply grows less quickly than during normal years. This trend was clearly visible in the growth of television advertising during the recessions of the 1950s and 1960s, and in the growth of cable advertising during the 1990s.” In fact, Hal Varian, Google’s chief economist, agreed, telling analysts that, “During periods of slow economic growth, the last thing an advertiser wants to cut is spending on search-based advertising.”

However, right now, no companies seem to be safe. Just this week, Internet giant eBay  shed 10% of its workforce, meaning 1,600 more people are now seeking employment. They’re far from alone as job loss continues at an alarming rate. Earlier this month, the U.S. Labor Department reported the economy lost another 159,000 jobs in September, far more than the 100,000 lost jobs economists were expecting. The economy has now lost 760,000 jobs since January. These numbers cast a harsh reality on the tragic state of our economy.

To examine if PPC advertising is suffering, let’s take a closer look at Google’s last quarterly earnings release. Google earns the vast majority of their revenue from their Google AdWords search-marketing program:

Google reported revenues of $5.37 billion for the last quarter, an increase of 39% compared to the same quarter a year earlier. This indicates that advertisers are still willing to shell out money to Google, though at a slower growth rate than the year prior.

Here at JumpFly, where all we do is setup and manage PPC accounts, we have fortunately not yet witnessed any recognizable slow down in new or existing clients as a result of current economic conditions. From our eyes, it appears that the search engine marketing industry remains strong – increasingly competitive, but strong. As I watch the economy crumbling around me, I occasionally ponder the demise of PPC advertising, but I just don’t think it’s going to happen. PPC advertising is an incredibly powerful, proven and cost-effective medium for reaching targeted customers. Advertisers still need to reach their targeted audience and there is likely no more cost effective way to do so. 

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