Google on the block

This is in response to Google does it again...

Ok, ok, let me tonic down my gin....

Don't get me wrong... My problem with Google is what I call the Uninformed Customer model.

- their business model involves getting as many users as possible and then sell co-lateral products (adwords) - network effects business model...
- as I've posted earlier (see The Money Way and About Pay-per-Click and Customer Acquisition Cost), a user having a trust relationship with Google might get disappointed by the website / products Google advertises through adwords. This is why Google needs an always increasing user-base to account for the apathy of old users that already clicked the ads, and now ignore them. - they fail to create a true user loyalty

Also, as I was lately talking with my friend Jonathan Belisle, users become by nature nomadic and unloyal (see also The age of procrastination, a stupid key and the revenge of the users), especially when they perceive the provider as an unethical one... This is where the problem occurs.

1. Google starts to be perceived as a corporation with unethical behaviour
2. The model of uninformed user lowers its user-base confidence
3. The eternal-beta model insures that the products will always be choppy. Their goal is not to create state-of-the-art products but to get as many users with as many freebies as possible.

So when users don't trust you and your products (even though they are amazingly cool and practical) and when users are known to migrate to the next best thing what is there to conclude....?

But still. As Google needs the world, the world needs Google too.

Google is behind the what i call the Robin Hood Business Model (or the network effects :). And is responsible for opening new possibilities in the business world and helping create a more affordable information and technological society.

And I have confidence in Google... they are the good guys, they are not evil!

But for how long...
Monopoly brings abuse and power corrupts...

Here is another example: EU Probes Google on Data Protection ("The search engine says it collects data in order to protect against hackers, but is retaining it for up to two years legal?") ...

-- Octavian Mihai

About Pay-per-Click and Customer Acquisition Cost

We have seen previously how Google is making its money through AdWords and AdSense programs which basically follow a pay-per-click model.

One can expand this for pay-per-lead (the users must contact the store or sign up to something) and pay-per-sale. This is also known as a cost-per-action model (CPA). And besides google it is used by spam and junk mail.

Obviously, if I am a business, I am only interested on the new customer acquisition cost. (If I am a good business I can retain parts of my customers, if I am a bad business I only need to always get new and different customers - like some drugs or weight-loss programs that work for specific types of persons but are advertised as working for everybody)

And the new customer acquisition cost should be less than what a seller is paid to sell the same product. Which usually ranges between 10-40% of the product price, all depending on your profit margin on that product.

This is where the problem comes in.

Say i sell online $20 backpacks.
I make a profit of $10 on every backpack sold.
To use AdWords it would cost me $0.5 per click.
So I need to make a sale of at least every 10 visits in order to gain $5 per backpack.

Well the customer acquisition costs for online stores is still in the $teens.

So the best model for this type of sale is still eBay.
An interesting incentive model is proposed by MyStoreRewards where sellers can send buyers money credits in order to make another sale. This is a good combination since the user gets a rebate and the seller saves on the new customer acquisition cost.

In any case, besides putting money in the ads the seller should have:

- customers willing to buy (ebay)
- good trust system (reviews, etc)
- a good incentive system
- an extremely fast and user-friendly website
- great products - that's another story

-- Octavian Mihai

The money way

The Google way - volume - network effects - unclear quality

- gather as many people as possible - network effects
- show them an ad
- statistically a very tiny portion of the people will be targeted by your ad
- an even tinier portion of the people will go and visit the store (website)
--- Store owners pay per entry (click) See Google’s AdWords.

Stores have even more visibility now with the targeted marketing of Google’s AdSense. Say I have a website about crap, then Google AdSense will automatically put crap-related ads on my site. Google will then split the profits generated by pay-per-click with me. Yey!

The Wall Mart way - volume - cheap - clear quality

- bring clients to the store (even if it means to lose some money by selling some products under their profit value)
- sell as many products as possible for a tiny profit (sometimes percentages of a cent)

The Amazon way - volume - loyalty and trust - clear quality

- sell as many products as you can by creating a trusted network (reviews, recommendations, etc)
- Amazon positions itself on the customer’s side. Saying we can drop the price but if your book is crap and you get bad reviews it won’t sell.

The Ebay way - volume - loyalty and trust - clear quality

- let people sell what they want
- take a little percentage of their transaction


The Facebook way – loyalty and trust - targeted volume - clear quality

- let people bring other people
- create an extremely flexible but reinforced trusted network
- present really targeted and specific ads (well they don’t have an open system like google does).
- Extremely powerful in targeted marketing

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Among these models we can distinguish:

Informed (loyal) Customer - users know what to expect quality-wise
Those that consistently give the customer what he wants (and give them impartial tools to make informed decisions) – Ebay, Amazon, Facebook
Facebook might jump to the other side.
Wall Mart – hey, we’re just cheap, that’s why you’re here. Quality wise you get what you pay for, but look at all the crap you can buy in one place!

Uninformed (not loyal) Customer - users don't know what to expect quality-wise
Google – the results are not rated in any way. So it needs more and more volume of users to cover for the disappointing experiences that the users have when they go to a lame advertiser’s website.

What’s next?