Lew Moorman from Rackspace wrote a great article today about Google. He asks an interesting question: can Google continue to snub their customers? I think it’s a great question and one I’ve been thinking about for a long time.
As a disclaimer, I try really hard not to be one of those people that hates on companies because they’re big and successful. I might envy them, but I rarely have a true dislike. For example, I like Microsoft. I use their products every day and I don’t see that ending, probably ever.
Google might be an exception to that rule, but I’m not sure yet. I admire (and envy) them in so many ways. I use Google search all the time and as a company, we spend a ton of advertising money with them every month. I love the culture they’ve built and I try to learn as much about how they do things as I can (and I’m not ashamed to try to emulate a lot of their successful initiatives). But there is one thing I just can’t get over: they don’t seem to care about their customers (some, like Lew, don’t even think they consider advertisers customers).
Many people still don’t realize how Google makes so much money. But shockingly, it’s pretty simple. It goes like this: people use Google to search for stuff every day. It’s become second nature to “google” for something you want to find on the web. And while more people search for more stuff, Google sells advertisements to companies that want to capture that search traffic. For example, we advertise when people are searching for anything having to do with email hosting. Rackspace wants to capture anyone searching for managed hosting. And eBay wants to capture as much traffic as they can since they sell just about everything under the sun.
With this brilliant model, Google has truly changed the business world. Literally millions of companies now leverage Google’s advertising platform to attract new customers and grow their businesses. Millions of users search Google to find stuff everyday. This means that Google is growing like a weed. I’m not sure where they rank, but I know they’re still one of the fastest growing companies in the world and their stock price is incredibly high.
But now that Google is so big and has so much money, they are going far beyond search. It seems like they are getting into just about everything. And they have every right to do whatever they want… right? But what happens when they start competing with their advertisers? Because its exactly what they’re doing. Will their customers ultimately revolt?
Take eBay, for example. eBay spends hundreds of millions of dollars every year on Google ads. And what does Google do? They build competing products such as Google Base and Google Checkout (Checkout is really a competitor to PayPal which is owned by eBay).
But here is what I really have a tough time swallowing—Google has the ability to use its own advertising and distribution system to market the competing products and services (sounds like the same thing that used to get Microsoft in trouble with the government and probably still does). This creates more competition for companies that advertise with Google which does two really important things:
1. Additional competition means lower conversion rates for the advertisers (as long as some people buy from Google, they’re taking conversions away from their advertisers).
2. Additional competition drives up the price of the ads (the Google ad system is based partly on how much companies are willing to pay for ads. The more you pay, the higher your ad comes up. It’s a little more complicated than that, but the amount you pay definitely matters).
Google wins no matter what! Even if their products and services don’t sell, they at least make everyone else pay them more to win customers. Unbelievable!
How long will they be able to pull this off and how many markets will they be able to do this to? I have no idea, but it’s pretty scary to think about. It keeps me up at night, that’s for sure. And I like seeing that a company as big as eBay got pissed off and did something about it—for now at least, they have stopped advertising with Google. Will Google get the message and do anything about it? Time will tell.
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