Big Bubble? Maybe. Big Trouble? Definitely.

I've been jousting (in a friendly way) with Aaron Goldman for the past couple of weeks in the pages of MediaPost over the question of whether the online ad economy is in a bubble. While I don't expect our exchange to produce any agreement, this debate is important because there's a lot about search, the main driver of this economy, that's broken and urgently needs fixing.

Google is of course the 800-lb gorilla of search and any discussion of what's wrong in the online ad economy must start with it. There are really only two factors that keep Google's money machine (and those of the many companies that have organized themselves around it) pumping cash like a Saudi oil well: first, the willingness of thousands of marketers to spend sizeable amounts of money to rent keywords in order to acquire qualified customers, plus the willingness of hundreds of thousands of publishers to participate in Google's Adsense network in exchange for a share of this revenue.

Search Ecosystem or Search Wasteland?
The mistake that most online ad pundits make when they analyze the future of search is that they focus on the macro picture without addressing what's going on at the micro level. From a macro perspective -- from 30,000 feet above the search ecosystem -- everything looks green and wonderful. From these lofty heights, the migration of dollars from untargeted analog media to targeted digital media can be clearly observed, and it's an inspiring picture.

It's only when you zoom down and focus on the many individual "trees" and other fauna in this ecosystem that one can see that they're suffering from blight. Some of them are already dead. The online pundits don't see any of this because they rarely talk to the marketers who collectively keep this ecosystem alive. They might talk a lot with other pundits, but you'll rarely find them spending time with the people who actually pay Google's bills. This is why my perspective is different -- I actually spend time with a large cross-section of prospective clients, and if you think that things are just hunky-dory with them, you need to roll your airplane down a couple thousand feet.

Wall Street Isn't Main Street
Let's be frank. The marketers who are paying Google's bills have grown plenty tired of hearing how accountable search is, how wonderful search as a DR medium is, how easy it is to achieve acceptable conversion rates, and how they just need to spend more to get better results. I won't go so far as to suggest that a rebellion will happen tomorrow, but I'll tell you this: many of these marketers are operating on razor-thin margins, a good share of them are just barely hanging on, and the moment that any competitor comes along and offers them even a slightly better deal on the clicks they rent, they'll bolt like jackrabbits.

I'll tell you something else: these people react very differently from the rest of us whenever another cute story comes out about the fact that Google's founders are adding another Boeing 767 to their toy collection or reserving private islands for their nuptial joy fests (I'd tell you what these marketers say here, but there may be children in the audience). And who can blame them? After all, after they total up their click rental costs at the end of the day, they're barely breaking even!

The Brand Guys Are Apoplectic
But angry desperation among Ma & Pa e-tailers and other small outfits that supply Google with a good share of its billions isn't the end of it. The big brand guys are furious too, because Google effectively forces them to rent back the brand names they invested billions in over decades in order to avoid the inevitable confusion that occurs when Google blithely sells these same terms to others (a practice that Google strictly forbids on its own branded terms).

The courts will ultimately decide whether this practice (and all of Google's revenue derived from branded term searches) is OK or, as the complaint alleges, an unconscionable policy that "hijacks" consumers to competing sites. In the meantime, the big brand guys that Google depends upon for its future growth aren't just angry: they're fighting mad and have enough lawyers to keep Google busy until the year 2050.

The Big Squeeze?
Finally, there are the publishers. Many report that even as their traffic and click-through rates have steadily increased in the past six months, their Adsense revenue has plateaued and even declined. You can't exactly blame these guys for embracing the latest conspiracy theory to make its way around the Web, which is that Google squeezed them in the last quarter to meet Wall Street's expectations. Or for whispering the once unspeakable thought that maybe Microsoft isn't such an evil company after all.

Google needs all of these groups -- small firms and big ones -- to keep going. It may not know it, but it needs them more than it needs Wall Street's approval, and it needs to do much more to keep their willingness to work with Google alive.

Nobody really wants Google to take a hard fall, and nobody wants to see a healthy online ecosystem turn into a toxic Superfund site. The former hasn't happened yet, but my concern is that the latter process is already well underway, and this bodes ill for all of us who work in search



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