Sunday, August 26, 2007

Local Advertising Network Revenues Threatened By Search Industry

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Local Advertising Network Revenues Threatened By Search Industry

Battle of Search Engines Vs. Search Directories

Posted on Aug 24th, 2007

"Local advertising networks will continue to lose relevance as search engines become the first stop for consumers. To date they have prospered as the “middlemen of paid search". Will savvy advertisers cut them out of the loop?"

Advertisers aren't their only threat. New media may arise that are easier to use and morebeneficial.

"Compared to the print publishers of old, these local guides offered outstanding value to advertisers. Using a performance-based model, a business paid for results in the form of a click or a call. Advertisers had the ability to better gauge spending and ad performance."

Pay for clicks. H-m-m-m-m... Is that the best that we can come up with?

With AdWords, Google forever changed the nature of advertising on the internet. They applied the same performance based model to the entire web. The search behemoth now controls close to 50% of online ad dollars. Google’s ad distribution far exceeds that of its closest competitors.

My Take

Enter the search engine. Funny thing about engines...

"The engine vs. the water wheel – gas vs. gravity"

Vrooom. VROOOMMM!!!

Engines are great. They’re sexy and provide horsepower to get you where you’re going - faster and with more stuff.

But engines need to be fueled and maintained. They also cause pollution, eventually wear out and end up scrapped.

Water wheels are quite different from engines. They expend no fuel. Rather they use gravity and the natural, non-polluting, renewable energy of flowing water that has the power to carve canyons, shape shorelines and move large vessels. Water wheels require minimal operating expense. Anyone who can get to the water’s edge can harness their power.

Let’s draw an analogy and say that engines are to water wheels as search engines are to word of mouth referrals.

Internet search engines are like their internal combustion cousins. They are great for the Internet superhighway – but get bogged down on local back roads when trying to find trustworthy products or services in your town.

Fuel for these search engines makes them an expensive advertising choice. Charges for clicks really add up considering that so many don’t convert to sales. Search engines also need periodic maintenance – optimization to keep them performing better. This gets expensive as competitors are both paying to continually optimize their search engine results, creating a costly cycle.

The pollution caused by search engines - customer dissatisfaction and advertiser disillusionment - choke their efficiency. Both customers and advertisers are in a dilemma when a search engine is replaced by a newer, more powerful model. Do I trust the new one? Should I use both? Should I pay for both? If not both, which one?

‘Word of mouth’, on the other hand, captures a natural process that occurs whenever people are together. It can be positive or negative for businesses and is highly trustworthy. ‘Word of mouth’ covers all topics from gossip to business or medical referrals.

The motivation of organic ‘word of mouth’ is communal benefit - benefiting the "refer-ee" as well as the trusted service provider. It is a very personal interchange, sharing trust and experience. Although they would love to do so, and many have tried, vendors cannot create artificial “buzz” that which generates true word of mouth referrals.

Would a consumer prefer a ‘search engine’ or a word of mouth referral when purchasing a product or service? The answer is obviously ‘word of mouth’ – their choice is less stressful and they normally receive preferential treatment during the transaction.

Which prospective customer/patient/client would a local business prefer? A word of mouth referral or a sales engine sales lead? Any local professional, merchant, contractor or business owner will tell you that their best sales result from ‘word of mouth’. More of these referrals translate into sales and they are more likely to refer more of their friends and neighbors in the future.

What if consumers could harness their local, “offline” network of trusted providers with an online network of friends and associates? What if businesses could reward their clients and the community when they provide offline referrals through such an online network?

If ‘word of mouth’ is so superior to search engines for local commerce, why not harness it using a technology and common sense?

Sunday August 26, 2007 - 11:17am (EDT)