It is well documented that 97% of Google’s profit comes from ads. Although they do have a lot of product offerings; Chrome, Gmail, Wave, Google Docs etc. these do not directly generate income. Therefore, if Google is an advertising company rather than a search company, it makes sense for them to ensure that you use Google as your default search engine. The more searches that go through Google, the higher the chance that an ad will be clicked. On the other hand, the more people who use Google, the more likely advertisers will use Google Adwords to drive paid for search advertising.
An increase in advertisers offering the same products for the same search queries will mean more competition, benefiting Google with;
1) a higher return (from increased CPC costs) and;
2) better targeted ads (Google wants to ensure it brings the right content to the right people).
Some search queries have clearly already reached saturation, meaning competition has increased CPC to a level where ROI is questionable e.g. LCD TVs. (only those retailers that can command economies of scale will get ROI).
For others, they will inevitably continue to advertise further down the long tail, continuing the cycle and complementing points 1 and 2 above. And if Digital marketing spend continues to increase, which it inevitably will (Digital will always have a more measurable model than traditional) means it’s all good news for Google.
In my next post I will discuss whether or not Google should worry about its low switching business model. You should subscribe to my RSS feed and follow me on Twitter.
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