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Google AdWords system hurts small-business owners

In class, we learned about how Google uses a modified version of the Generalized Second Price Auction to sell its advertising spots to companies. They use the pay-per-click model, where advertisers pay when a user actually clicks on their ad. The price per click is determined in part by Google’s auction. We learned that this is greatly beneficial to Google, and the sale of advertisements serves as its primary revenue, generating tens of billions of dollars per year.

In this article, Darren Dahl discusses the effects of this model on small-business owners. Tom Telford started advertising his business with AdWords in 2001, and said that after he started with the service, “calls and e-mails started pouring in.” But as his business continued to grow and he was advertising on Google, Yahoo, and Bing, he realized he was spending over $140,000 a year to advertise on these campaigns. Moreover, the price per click had more than doubled from what he paid in 2001.

For small businesses, this cost is huge, and one that does not scale. The article goes on to discuss other ways for websites to gain traffic, including one that we discussed in class: search engine optimization (S.E.O). Mr. Telford did not choose this route. Instead, he decided to create web content that was relevant to the keywords that users would search for. There are various companies, like HubSpot, which help in this process, aiding businesses by creating blogs, Facebook pages, etc. with relevant information to the company. This increases a company’s relevance/“quality” score, which Google takes into account for AdWords prices.

In the end, Mr. Telford saved a huge amount of money by changing the way that he approached online advertising. Perhaps in a few years, the charge of services like S.E.O. and HubSpot will become prohibitive as well, and we will need to think of even more new ways to generate web traffic to a site.

Source: http://www.nytimes.com/2012/10/18/business/smallbusiness/as-pay-per-click-ad-costs-rise-small-businesses-search-for-alternatives.html

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