Pay-Per-Click Destined to Evolve into Pay-Per-Action - Lessons from the DotCom Burst
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With the disaster of the DotCom bust, we saw how companies that were given a taste of instant success could literally go belly-up overnight. But this type of thing isn’t new. Black Tuesday is still regarded as a day of mourning, with the flag at half-mast for some families, and the California Gold Rush left many people devastated, broke, and homeless. What makes an idea stick, work, and grow for some; while other seemingly brilliant ideas barely even make ripples? Further, what works for one person may not necessarily work for the next guy.
I recently read an article written by Jon D. Markman, who writes a weekly column for CNBC on MSN Money, about three internet companies, Amazon, eBay and Yahoo!, that survived the DotCom bust, and why they could do what very few others managed to do. He also writes how Google, in particular, is extraordinarily vulnerable to the same cataclysmic events that the other ill-fated DotCommers experienced. What separated the survivors from the casualties, and why is Google likely to end up more like the late, busted DotCommers than these survivors?
Markman says, “First, companies that best survived the bursting of the tech-stock bubble were already, or on track to be, the most profitable -- signifying that their managers understood their role in the great capitalist value-creation chain.” Technology commentator Mark Anderson, even way back in the 90’s, explained his own skepticism of the many online gimmicks by writing, reminding his readers that the real measure of a company’s success was in its profits. At a time when business success for many pretenders was being “measured in "clicks" and "eyeballs" rather than cold, hard cash,” the words were relatively lost on those that believed that this was the new world order. But, without saying “I told you so,” Anderson really had it right on the money. Companies that lasted were the ones that provided valuable, unique services that motivated customers to pay a premium over competitors’ services.
Second, the DotCom survivors learned how to generate constant revenue streams, and not relying solely upon a single source of income, Markman implies; meaning they didn’t keep all of their eggs in a single basket. So what do these survivors have that Google doesn’t?
Markman writes, “Its greatest asset is its greatest weakness: its engineers developed a world-beating search engine algorithm and Web interface, and its marketing team developed clever ways to monetize it through the sale of contextual advertising links. Its purity, however, has left it looking increasingly like a one-trick pony. Search is not a particularly difficult computer engineering task, and while it may be popular, there is no community that compels users to habitually use Google search. In a nutshell, there are no barriers to entry. A couple of kids at a Shanghai university could come up with a better search method tomorrow, and tens of millions of users around the world could switch to it from Google within a week.”
“It’s cool, but you can’t defend it,” Anderson says. “It is the most vulnerable high-capitalization company in the history of the world. Even in 2000, there was no company with more risk per dollar of market cap [than Google].”
After going public just over a year ago, Google’s stock has been trading at an average of $117.80 - $319.22 per share over 52 weeks. But even Google cannot keep up that pace forever. During the DotCom Bust, another survivor, Amazon.com, still almost didn’t make it. But because of its frugal money management, it managed to be spared from the fate of the other DotCom casualties. Even eBay and Yahoo’s careful corporate spending has been a consideration here. But Google spends heavily on employees’ salaries and benefits, headquarters, and even other perks, like meals. There is even a colloquial expression, “Google Lunch” that means “over-the-top-spending,” in parody of Google’s deep pockets.
Next: Will Google Be Buried with PPC? >>
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