Blog homeI wrote earlier (published on the Travolution blog) about CPC bid inflation on Google. Previously Google have stated that in Q1 2008 there was 20% CPC bid price inflation.
If you haven’t read that yet, read that, then come back to read this additional bit!
The summary is I don’t believe this is sustainable (from Google’s perspective) and they had better come up with some solutions otherwise their marketplace will soon become more expensive than other channels - and Google will lose their currently held dominant position in B2C leisure travel.
Jaime Horwitz from Canada has responded with his thoughts. [Read his article]
I just thought I should outline a few likely outcomes to see if we can get some common understanding as to what the next few years may bring….
Scenario #1
- Advertising inventory supply remains constant with demand (i.e. both grow / fall equally)
- Website conversion gets better (due to increased investment in usability and product optimisation)
- Due to increased conversion, keywords become a lot more expensive - but the overall impact remains neutral
Likely outcome: Tour operators, hoteliers and airlines win (vs agents) as they have a better website conversion than agents, meta-search or travel content sites (for the same paid for traffic). Google wins because they retain the Google marketplace as the key mechanism (in the B2C leisure travel industry) to drive traffic to travel sites.
i.e. as an advertiser, if you can’t run your business at a higher level of website conversion - you lose
Scenario #2
- Advertising inventory supply remains constant with demand (i.e. both grow / fall equally) or demand exceeds supply
- Site conversion remains constant (at current levels)
- Keywords continue to become more and more expensive
Likely outcome: Individual companies with a fixed budget can source fewer and fewer visitors via Google. Google becomes less important to B2C leisure travel than their current status. (Remember most travel products have both a minimum and finite availability). Additional distribution and marketing partners are required for tour operators, airlines and hoteliers…. As in scenario #1, the product suppliers win (vs agents) but this time because only suppliers find it easy to create distribution relationships. Agents can’t afford an additional layer between them and the consumer.
Google loses as they lose their “controlling” position they currently have. Obviously they still have a successful business, but they have lost control - they have lost the initiative. Distribution fragmentation takes place.
Other thoughts
There are probably other scenarios - but I am not writing for an MBA - but writing a blog post. If there is an obvious scenario I have missed, please add in comments below.
The two key themes that come out of this are:
- Product suppliers have a greater chance to benefit from the web than agents. However to achieve this, product suppliers must leverage their potential to have a better website conversion than agents. The balancing factor is that large agents who can afford experienced web teams may still be able to compete with small tour operators with inexperienced web teams. Small agents with inexperienced web teams have no chance.
- For Google to remain in control as long as possible it would benefit them to get conversion up across the board (hence all their free tools they provide to assist with this). The longer Google remain in control, the longer they have to think about what should replace their existing system (and the more demoralised their competitors become hence stop thinking that they may have the new golden solution - leaving the field open to Google)
Perhaps scenario #2 is inevitable at some point (as website conversion can’t continue to increase indefinitely). I guess, at that point, some other company comes along with a slightly different model - and - due to the now fragmented distribution - they can become a powerful meta-search. Whoever it is though has to have their traffic costs lower than Google - which - unless there is a wider change in general search - or something else - then this may be unlikely. If I had to guess what that could be, I would suggest some kind of distributed meta-search - where data flows around the web - rather than users going to specific sites……. I am sure I have heard of this concept before…… !
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Hi Alex,
An interesting debate and one I’ve been thinking about myself. The large travel firms spend thousands of pounds a day, if not tens of thousands a day, in peak times to ensure they get the traffic and sales. Then carry on with the high PPC positioning strategy in quieter shoulder periods, ensuring they retain their market share of clicks and available conversions (and Hitwise/PR position). They have the budgets to do this, and keep up with Google CPC inflation, but I would suggest smaller travel businesses in mass tourism with more limited budgets are being priced out of the Google PPC market, creating a two (if not more?) tier advertiser structure - (big budget) haves and have nots, languishing around latter results pages with little response let alone cost effective conversions.
So maybe this is just market forces at work, and smaller advertisers will (be forced to) find alternative advertising spots where they get a viable return on investment. There’s a great opportunity for someone there to work towards a more level playing field, maybe even Yahoo! - which has historically delivered more cost effective response for some travel advertisers, all be it not quite so voluminous as Google.
But here’s a question - if small/medium advertisers ditch Google and go for cost effective alternatives, will Google searchers tire of the same companies at the top and so take their search elsewhere?
Hi Vicky
Thank you so much - I am on a panel helping interview Yahoo travel in a few weeks time. I was beginning to wonder what to ask! You have come up with a perfect angle!
http://www.tti.org/index.php?id=134
I think what you are saying is - if keyword inflation continues - small advertisers have to find alternatives (like Yahoo) - hence the alternatives become more attractive for consumers to start at…..
In Google’s defence, people have said this for ages - but consumer behaviour has been pretty much supporting Google all the way… its going to take something pretty important to change that. Maybe a fantastic travel section on Yahoo - supported by a diverse range of travel companies advertising - would be sufficient. I have my doubts though.
My main concern is that whatever replaces Google (if a replacement comes) it must have a lower barrier to entry (both commercially and technically). Otherwise small travel companies won’t play - and therefore won’t feature. Most 3rd party distribution that tour operators can do comes with quite complex technical overheads - and commercial costs / requirements - which makes it impractical for many.
Cheers Alex, yes I have my doubts too, so synonomous with search is google in users’ minds. But perhaps the challenge to Google will be someone who comes out with another form of advertising rather than search, or a completely new way of communicating entirely with customers. People used to doubt that another company could ever possibly come along and challenge Microsoft’s world dominance… Unfortunately I can’t make th event but let me know what Yahoo say!
I think I know ecactly where that PPC increase came from! Ouch!
It will be very interesting to see the same results for this January. Last year, it was widely known that there was significant demand in the market and all advertisers wanted to invest heavily to get their share. This year, it is widely anticipated that the market will be smaller but no less competitive, even with the withdrawel of some major players. Therefore, with rising costs and reduced margins there is the distinct possibility that larger organisations will be priced out of the game if they fail to see a return on their increased investment.
It could well be argued that rising CPC costs created the vast affiliate marketing channel for travel. Small organisations that could not compete on the generic volume driving terms were forced to look more tactically and take advantage of niche opportunity windows within both the paid and natural channel.
I think one of the real problems is that the larger organisations are now becoming smarter. Focussing keyword strategies on the long tail, geo-targeting and ad-scheduling whilst investing heavily in SEO to ensure the most efficient investment of their marketing budget. This effect minimises the opportunities available for SME’s in the sector.
Alex, I echo your sentiments that on site development and conversion should be the main objective of travel sites. By concentrating on user experience, personalisation, quality content and merchandising visitors in a similar fashion to successful sites in other sectors, travel websites will see less users drop out of their site and back to Google. But we all know the challenges with actually doing this!
Nevertheless, I think that we can’t sit back and rely on Yahoo! and MSN to come up with a competitive proposition for travel advertisers. We have all seen them go backward rather than forwards in this area. The fact is that Google is where the consumers are and Google is where the consumers will be in five years time. Does anyone disagree?