Most serious observers of the U.S. economy agree that we're already in a recession; the question for us in search marketing is how badly we'll all be hit. Here are my thoughts as the search ecosystem goes into its first negative economic cycle.Don't Worry, Be Happy (That You're Not Working at a Big Ad Agency)!
The first layoffs on Madison Avenue have already happened, the writer's strike is gutting TV ratings, and the only thing propping up the whole antiquated network-agency model is election spending and the Olympics. Add to this a genuine economic slowdown that will cut corporate profits and squeeze marketing allocations, and we may well be on the verge of the demise of the institution known as Madison Avenue.
aside, keep in mind that there are no winners in a recession. While there's no question that a recession will hit untargeted, unaccountable media harder than targeted media that offer marketers insight into ROI, I disagree with those who claim that search marketing is "recession-proof." Yes, when campaigns are run correctly, paid search is a powerful and efficient marketing channel. But many search campaigns aren't run correctly or efficiently, and are far more wasteful than they should be (reasons for this include failure to use automation, poor training of in-house personnel, poor SEM agency performance, and artificially constrained budgets).
If times turn tough, search's intrinsic performance advantages will not save it from cost-cutting, because many spenders will do what they always do -- blame the channel, instead of taking a hard look at how they manage the channel. Some marketers will consequently withdraw from the PPC market; the good news is that this situation will create new opportunities for those marketers who get it right. Search Engines May Get Hit Harder Than We Think
The finance, travel, and e-commerce sectors have all taken body blows in the past few months, and if consumer spending continues to dry up, the pain will get worse. The real bloodbath will likely be in online display advertising space (given that it's so ineffective to begin with). It's far too early to assess the damage, but during the last serious recession, which began in 2000, non-search annualized spending declined from $8 billion to $6 billion in the first 24 months and didn't recover completely until 2003. This trend cannot auger well for Yahoo and other properties highly dependent on display advertising.
While the search ecosystem has never been through a recession, finance, travel and e-commerce are huge search spenders and any further consolidation in these sectors (such as the case with Countrywide, which was swallowed by Bank of America last week) may cause a sizeable spending pullback. The fact that Google and the other engines have non-U.S. properties may limit their overall exposure, but only if a general economic downturn is confined to the U.S., which is unlikely in an increasingly globalized world. We'll Soon See Whether The Keyword "Market" is Really a Market
If advertisers really start to cut back, and demand for certain high-valued keywords drops, the big question is whether marketers who decide to stay in search will see a corresponding decline in prices or whether the search engines will simply tweak their "Quality Score" and "Smart Pricing" monetization algorithms to make up the difference. As I've mentioned before, there are many reasons to be wary about this, especially in light of the possibility of "algorithmic collusion" between the engines (see: "Insider Data Trading (The Real Reason Keyword Prices Will Rise in 2008."
). On the other hand, if there is little or no manipulation, one of the bright lights of 2008 might be some keyword bargains we haven't seen in years. What Impact on SEM Salaries?
SEMPO's recent survey of salaries for SEM professionals shows that while in-house people aren't about to become millionaires, they're doing very well relative to the rest of the U.S. workforce. A full 23.3% of in-house SEM newbies are making more than $70K a year, with 2/3 of their more experienced brethren (5-7 years of experience) topping this figure. There's nothing wrong with in-house SEM people making a fair salary, although I'd argue that in too many cases the results their teams create are inferior to those achievable through outsourcing. Unfortunately, in a recession, marketing departments are usually the first to feel the bite, and some in-house teams (especially those at the high end of the salary spectrum who are managing low, sub-$200K monthly spends) may find themselves under renewed pressure to justify what they're earning.
I'm bullish on the future of search, and believe that this industry is a great place to work, because search is becoming such an intrinsic part of all of our interactions with information systems. However, I'd also advise caution, both to people working in this business today and those eyeing it as a future career choice. I don't think that the search ecosystem will be devastated the way the tech economy was during the "dotcom bubble" of 2000-02, but the same rules for career survival apply today: do excellent work, keep your skills up-to-date, maintain realistic expectations, and make sure that your "real" social network is strong.