Barron’s on Google and Click Truth

An article in this weekend’s Barron’s argues that an eqal threat to Google, alongside click fraud, is click truth. Huh, you say? Well, here is writer Thomas Donlan:

Google’s best selling point — advertisers can learn which clicks produce sales — is potentially its biggest hazard, because advertisers can also learn which clicks don’t produce sales, and scale back their advertising budget so that less of it is wasted.

This may not kill Google in the world of advertising, but it will force it to change every bit as much as Google and its Internet cohorts are forcing TV, newspapers and magazines to change.

Forced change is an opportunity to stumble. And in the world of stock-market speculation, Google — selling for multiples of future earnings and cash flow that imply impossible growth — is already a disaster waiting to happen, although nobody knows when or how the market will force a revaluation.

So, as I understand Donlan’s argument, he is saying that advertising budgets are the size they are largely because people don’t know how much waste there is in advertising. They over-spend, but they don’t know by how much they over-spend. Once people know better how much ad spending is wasted then the ad market will shrink, or so Donlan’s argument goes.

I don’t disagree, but hasn’t this happened already? My sense is that most advertisers already pay far more attention to effectiveness when comparing online to offline advertising. So sure, you will not ever see a dollar-for-dollar flip of offline spending to online — that wouldn’t make sense, in part for some of the reasons Donlan cites — but I think advertisers (and Google bulls and bears) knew that already.

Related posts:

  1. Google Radio
  2. The ABCs of Downgrading Google to “Sell”
  3. 2006 Prediction #3: Click-fraud Goes Mainstream
  4. Click-Fraud and the Economics of Anonymity
  5. Google Hearts Plagiarism(?)

Comments

  1. Franklin Stubbs says:

    If ‘Click Truth’ reveals which keywords are profitable and which ones are not, would such a revelation not lead to a bidding war for the most successful keywords?
    Perhaps the pool of desirable of keywords would shrink, but increased demand for the smaller pool would jack up the profit margins.
    Furthermore, why would a company reduce their advertising budget overall… if they find a smaller pool of keywords is the most effective, why wouldn’t they just plow more money into what works.
    I’m not a Google apologist by the way, I just find the devil’s advocate position more interesting. Among other things, GOOG’s success has ignited a classic case of Tall Poppy Syndrome.

  2. Paul K. says:

    Franklin — Good points all. I didn’t say it clearly enough, but you could also imagine companies spending more money on advertising in a post-click-truth world, albeit on different things. After all, isn’t it possible that management holds back ad spending because of uncertainty about effectiveness? I know that is the case at most companies with which I’m involved.

  3. Richard says:

    Equal threat is a bit of an overstatement but he does kind of have a point. (I can’t actually see the article on Barrons.com yet)
    I’ve bought a lot of Adwords traffic and as I accumulate data on what’s working it’s definitely worth my while deleteing non-performing keywords (or more often reducing my bid). I won’t maintain my total budget just to bid up performing keywords if it hurts my margins.
    However, the reason words mostly don’t perform is because they’re not as well targetted to my site, and they would probably convert well for someone else.

  4. Zack Handley says:

    I haven’t read the article but from your quote it sounds like Donlan is Absolutely Wrong.
    Google’s business has grown so tremendously because the ROI is sooo clear.
    As far as Advertisers scaling back???!!. That makes me want to let out a loud guffaw! ROTHLMAO (i’ve never been able to use that before).
    Last I checked, only 5% of advertising budget are allocated to online venues yet consumers spend almost 40% of their media consuming time online. Once that 5% gets closer the amount of actual time spent online, then we can start talking about Advertisers pulling less profitable ads because of their new performance monitoring abilities.
    But Let us Be Clear: We’re.Not.Even.Close.

  5. John K says:

    Editors who have clearly never looked at an AdWords account shouldn’t be committing their opinions to print.
    He completely misunderstands the key functionality of AdWords.
    Truly Idiotic.

  6. Rick Ambrose says:

    Right or wrong on click truth, the Barron;s article points out that trees do not go to the sky for a reason. Google, as great as it is, will develop more competition along side their higherb than expected investment costs. With respect to Cramer and all the pro-Google brokerage houses – GOOG will see 275 before it sees 500.

  7. jack says:

    This is like selling products in the dark to the customers in the past and suddenly the lights come on. Suddenly all the customers can see what they are paying for.
    There will be some re-adjustment. But that does not automatically imply that there will be more or less profit. To the seller, it just means that bad products will have lower profit margin and good products will have higher profit margin. In the end, the seller may get more profit, or less – all depends on the market force.

  8. Bob says:

    How foolish this argument now seems!!! Shame on you for doubting true growth, only for past memories of 1999-2000!! GOOG will see $1000 before it sees $400…BR

  9. norman says:

    I haven’t read the article, but since when is wall street a good indicator of the health of a company? Aren’t they usually 6 -12 months behind what is happening?

  10. Andi says:

    Another old media giant attacking a business model that is poised to overtake their own. Follow the money and thank Barron’s for causing a momentary bargain in GOOG.