Ciceron Blog Archives

Why I'd Short Google

Google just pushed over the $400 per share threshold. The company's entire revenue stream is based upon its paid search listings. You know the ones -- you see them at the right side and very top of the Google search results pages.

Or maybe you don't see them? In fact, only 15% of you actually click on those listings. When you search, your eyes makes the connection that something's over there, but you don't click them. You don't read them. At least not that often. No, you click the main listings aka "natural search" rankings.

So let's parse out this perfectly horrific storm for Google.

A. Search is the fast growing area of all of advertising, growing at a 40% annual clip. Billions of dollars are pouring into Google's coffers.

B. According to Jupiter Research, only 20% of all search marketing campaigns are optimized for marketing performance, meaning that of those billions of dollars flooding Google's bank accounts 80% are essentially on auto-pilot.

C. According to the CMO Council, the #1 responsibility moving forward for Chief Marketing Officers is financial accountability.

D. Search -- by far -- is the most easily accounted for marketing expenditure. You know when, where, how and who to market. And, once again, only 20% of marketers pay attention to the financial performance of their search campaigns.

E. 80-90% of consumers -- you and I -- click only on the natural search results within Google. Google derives zero dollars from natural search and it's their brand promise not to.

Do you see where I'm going with this? In the not so distant future, those 80% of search advertisers will be required by their CMOs to account for the auto-pilot dollars they're spending with Google. When savvy marketers realize that only a fraction of their search spend is actually producing results, they will pull those dollars from paid search and put them somewhere else, say, natural search optimization. (That's what we recommend to our clients: use paid search for keyword-to-conversion testing; use paid search as a short-term visibility tool until your natural rankings begin to appear; and, in very select cases, continue paid search alongside natural rankings to support the strength of your brand because people will still click the natural listings anyways.)

Ad agencies aren't helping either. They're often the ones funneling those dollars into Google because the business model is familiar: buy an ad, see the ad, charge for the ad. Unfortunately for them, it's not about impressions but direct financial results.

It can be argued that 80% of Google's revenues are irrationally exuberant. To maintain that $400 per share valuation, Google needs to quickly diversify its revenue streams. Right now, the company's a one-trick pony and the numbers just aren't stacking up.

I'm not an investment guy...but this one I'd sell short.