Are Small Businesses Abandoning AdWords? A Reality Check

Are US small businesses (SMBs) abandoning Google AdWords in droves because of rising CPC prices? That’s the implication of a recent story in the New York Times:

[Concern over the rising cost of keywords] has become increasingly common as online advertising has become a standard channel for large companies. Attracting those additional advertisers has been great for Google, which reported a 42 percent increase in paid clicks, year over year, for the second quarter of 2012. But the heightened competition has driven up the prices for keywords and made it harder for small companies like Mr. Telford’s.

While rising keyword prices is a legitimate concern for many paid-search marketers, the article holds out Blue Creek Cabins, operated by Tom Telford, (cited in the passage above) as a typical SMB. In fact, Mr. Telford isn’t typical. In addition to Blue Creek Cabins, Telford runs a marketing company called 98togo that makes money by helping marketers get SEO and social media traffic. In other words, Mr. Telford has an interest in convincing business owners to shift their budgets from paid-search to other channels.

Telford tells us, by the way, that his cabin rental operation is still by far his biggest business, that his marketing business grew out of what he learned doing marketing for himself. Nor is Telford the only interview in the article. There are other marketers quoted who also complain about the rising costs of paid-search marketing. And, yes, it is a much more competitive market than it was a few years ago.

But the reality of what’s going on in the market (especially among SMBs) is more complex than the article suggests. For example, in last week’s quarterly earnings report Google said that CPC prices were down 15 percent over last year.

One could have written an article that picked out SMBs who were moving budgets from, say, traditional media into search and were quite satisfied. Google can point to many case studies involving SMBs who are very happy with paid search. I was referred to a couple of examples in fact.

However it’s not like paid-search has been a mainstream marketing vehicle for SMBs for years and now it’s getting too expensive. Historically AdWords has been too complex for most traditional SMBs. Many have also been ambivalent about advertising on Google (and online advertising generally). Yet nearly all of them are interested in Google as a marketing channel; most are just much more interested SEO. Social media has also been the focus of considerable recent SMB attention and interest.

As a general matter, the small business market is incredibly diverse and generalizations or characterizations are elusive. What we can say is that the majority of SMBs have few if any employees. The bulk of the market is concentrated in the fewer-than-four-headcount end of the spectrum. Most SMBs are “time starved.” And the SMBs that spend meaningful money on digital marketing or advertising tend to have more employees and revenues.  These (and e-commerce companies) are the advertisers that built AdWords — long before the brands and big agencies showed up.

Google won’t share detailed numbers. But the company said recently that Google AdWords has “well over one million advertisers.” It also claims the majority are small business owners. That could just as easily mean the local plumber or massage therapist or an IT security company with 99 employees.

For the better part of the past decade Google has been trying to push deeper into the traditional service-business segment, which is huge but fragmented and hard to reach. It has done so through small agencies and reseller partners and more recently with AdWords Express, which offers radical simplification of AdWords. As you know it’s basically a do-it-for-me program. It takes the mystery and complexity out of paid-search marketing for time-starved business owners.

SEOs and PPC experts have given AdWords Express mixed reviews. It’s simple but more blunt than a self-managed campaign. Google hasn’t shared any success metrics, although it continues to tweak, improve and enhance AdWords Express, most recently with call tracking (which Google calls “Call Reporting”). Google has also invested in building a service organization to respond to SMB-oriented AdWords support calls.

Search (in the form of organic rankings) will always be of interest to small business owners. And, along with a range of other channels, paid search will continue to be utilized by the more sophisticated SMBs who generally can afford to use an agency to manage campaigns.

I think a more accurate picture of what’s happening in the market is that some veteran paid-search marketers (that may technically qualify as SMBs) are diversifying their ad spends into new areas, in part because of cost but also because the market is evolving and their are new channels such as social and mobile.

And even though costs may be rising in some categories and for many keywords, it’s still pretty hard to beat the ROI of paid search.