2006 Predictions – Updated After Q1

In late 2005 I posted my top ten predictions for 2006. Let’s see how I did. Here’s a summary of the predictions with comments on my progress:

1. 2006 will be the year of “cost per action” or “CPA” marketing.

SO FAR: Well, I can’t say that the world has gone absolutely bonkers over online lead generation (a/k/a CPA marketing). Then again, Scripps did buy uSwitch for $366 million so maybe I’m onto something. In general, the jury is still out on this one. Grade: B

2. There will be massive consolidation in the SEM industry.

SO FAR: Well, again, a bit early to tell. There have been acquisitions here and there, but I think I have to give myself on C+ on this one so far.

3. YPN will have strong growth. YPN is the “Yahoo Performance Network” – Yahoo’s equivalent to Google AdSense.

SO FAR: Wishful thinking on my part. Publishers have expressed concern that YPN doesn’t have the same eCPMs of Adsense. Unless Yahoo gets its act together fast, I’m looking at a D- here.

4. Local search will *not* explode.

SO FAR: Even though local search has gotten plenty of VC funding, I’ve yet to see any revenue behind this phenomenon. Until that happens, I give myself an A-.

5. Google Video Search will become a cash cow thanks to amateur porn.

SO FAR: I may be wrong about Google Video Search, but YouTube or something similar will eventually make this happen. Hopefully this year. A solid B.

6. Nextag will get acquired or go public.

SO FAR: There have been a lot of rumors already about Nextag this year (a merger with Quinstreet, acquisition by IAC, a major portal, etc). I feel good about this: A-

7. LookSmart will get acquired or de-listed.

SO FAR: Do you really care one way or the other? B.

8. Google Base will never come out of beta – not in 2006, not ever!

SO FAR: At this point the question is less will it come out of beta but rather will anyone ever start using it. A solid A.

9. A search engine will buy an ad during the Super Bowl (2007).

SO FAR: CareerBuilder and GoDaddy advertised in 2006. Can Ask and Yahoo be far behind. A-.

10. There will be a flurry of “how to” books on search engine marketing.

SO FAR: The list is growing fast on Amazon. I gotta ask though: what does Dr. Phil have to do with AdSense? It isn’t clear to me . . . Anyways, this is a slam dunk A+.

Let’s figure out the grand total then: 4 As, 3 Bs, 1 C, and 1 D. That’s a GPA of 2.8. OK, not honors yet, but I’ve got three quarters to improve my performance. Stay tuned!

 

Adios AdSense?

The news that Amazon is currently in beta with an AdSense competitor has raised a lot of eyebrows today. The obvious question on everyone’s mind is ‘will this impact Google?’

My thought is that there is a short story here and a long story. The short story is that Amazon “AmSense,” or whatever they want to call it, won’t impact Google too much at all. After all, A9 – Amazon’s search engine – hasn’t developed too much traction and recently lost their top man, Udi Manber to Google. So what makes anyone think that Amazon is going to suddenly take away huge market share from Google in contextual advertising?

True, Amazon does have a loyal cadre of associates (or affiliates) and they plan to market this service as an additional revenue-generating opportunity. But these folks – more than anyone else – are concerned about one thing – revenue. Whether that revenue comes from AdSense or Amazon is pretty much irrelevant to them. Whoever gives them the most revenue wins.

The longer story here is that Amazon is one of many big players who are chomping at the bit to get some of that AdSense revenue. Consider this list of competitors:

• Yahoo Performance Network (YPN)
• Amazon “AmSense”
• Ebay Keywords

Pretty much the only big etailer missing from this list is MSN, and I suspect its only a matter of time before they follow suit.

The result of this heated competition will be more choice for publishers and less margins for distribution networks. Again, most publishers are agnostic to their distribution network – they will follow the money.

Of course, right now, Google has a huge advantage over their competitors, simply because the AdSense network has much higher CPCs than anything else out there. This is largely because there are so many more advertisers opting-in to Google’s network and thus bidding against each other, resulting in higher bids.

But this is a barrier to entry that is easily surmountable by Google’s big-pocketed competitors. First, as I noted in a prior column, CPC prices will gradually become efficient, with the network with the highest quality clicks getting the highest prices. Google’s distribution network has what I would call “moderate quality.” In other words, some sites in the network are good and produce great revenue, and others are downright awful. By going for quality instead of quantity, a savvy competitor can gradually wean wallet-share away from Google by simply creating higher CPC prices (or in the parlance of the industry, higher “eCPM” – earnings per thousand impressions).

Second, competitors can offer publishers a much higher revenue share. Google allegedly offers its publishers around 78% of revenue at the moment. If Yahoo came along and offered someone 90% of revenue, this could eliminate the eCPM gap between the two networks and make it more advantageous for that publisher to try the Yahoo Performance Network. From Yahoo’s perspective, this is a great deal – it’s additional revenue and profit they didn’t have before. From Google’s perspective, it’s a Catch 22 – either up the rev share and sacrifice margin, or get nothing.

Finally, let’s not forget that competition is coming not only from the major etailers, but from multiple sources. There are, for example, small companies that are focused on nothing but content distribution (Quigo, Industry Brains, ContextWeb). Perhaps even more disturbing for Google, there are affiliate marketing companies that could one day offer CPA (cost per acquisition) based distribution networks for the masses. Ultimately, this sort of scenario presents a higher risk to the publisher, but also the chance for a much higher return. Some publishers will no doubt opt to take this route.

And let’s not forget that a lot of Google’s revenue comes from companies that have simply been lazy about maximizing their revenue. Increasingly, I predict that companies in the Google distribution network will realize that having a small salesforce – or even an online self-serve solution – will make more sense for them, simply because they can eliminate the middleman and drive more profits.

Combine Amazon, eBay, MSN, Yahoo, affiliate networks, and savvy publishers and you’ve got to wonder whether Google’s golden goose might start to look a little tarnished. Will AdSense go away? Of course not, but don’t be surprised to see a much more level playing field in the near future.