Borrell Associates released a deeply insightful report this past week entitled: The Economics of Search Marketing: Addressing the Challenges of a Scalable Local Online Advertising Model. The paper was under written by Clickable and can be downloaded for free from their site.
In summary, the report finds that up to 90% of SMBs who invest in paid search advertising quit six months later. To be clear, we’re talking about SMBs who purchase “paid search” advertising solutions from any number of various resellers such as the Yellow Pages, Yodel, Reach Local and other local advertising companies.
Some very smart guys have already written about the report including Greg Sterling, Matt McGee and David Mihm. Together they’ve done a decent job of skewering the “ad words reseller” business model and highlighting the bad business practices that drive huge numbers of SMBs to rapidly abandon their online advertising efforts, including:
- SMBs not undertanding what they’re buying and expecting a magic bullet.
- SMBs growing impatient with a lack of results
- Salespeople who are compensated on acquisition, not retention and say anything to get the customer
- Not enough squeeze for the buck with 40% of the spend going to agency fees instead of ads
No matter how you slice it — it’s a total blood bath.
So if you’re in the business of providing online marketing services to SMBs — what should you do?
Well, if your business model is limited to to selling “clicks” and “impressions” to SMBs you could copy Citysearch, Yodel, and Reach Local. This strategy would entail trying to build a network of content partners to display and monetize your ads. The more you can monetize outside of Google and the other major search engines the better your SEM margins will be — but I am not sure if you’re customers will be any happier or stick around any longer.
Alternatively, you could innovate beyond traditional advertising and develop new products to help SMBs market themselves online. Instead of disappointing customers with insufficient or sub-optimal “click” packages — you could offer a suite of “self service” tools to help them get online, engage prospects, and get leads. You could charge a monthly fee of $50 bringing into play a huge portion of the SMB market that is otherwise priced out of the paid search game. Different from advertising, this new product would encourage SMBs to control their own destiny by becoming active participants in the social and conversational web. To succeed in this approach — you must leverage the fact that SMBs are skilled conversationalist off-line who continue to rely on good old fashion “word-of-mouth” as their primary source of new customers. If you give them simple tools to transition their “word-of-mouth” skills to the web, they’ll love you forever.
Still not convinced? Consider the Borell report which states that an additional $15 billion will migrate from offline media to online media by 2013. Local search advertising will undoubtedly benefit from this shift — but the question is how? Will there simply be more SMBs willing to buy the same sub-optimal advertising service? Will these new customers hang around for 9, 6 or 3 months before churning out like their predecessors?
I personally think Greg Sterling is 100% correct when he says:
“Perhaps some of the SMB ad dollars will simply “disappear” as the migration occurs — perhaps the spend will shift toward products and services that don’t constitute “advertising” in the traditional sense, e.g., new websites, online marketing tools, [or social marketing tools].”
Let me know what you think? I’d love to hear your thoughts.
Well said Matt – the most effective promotional tools for SMBs do not fall under the heading of advertising, but can actually be done for free or very inexpensively with standard communication, listing and socialization tools. The best service would be to simply make it easy for an SMB to be guided through the proper use of the legitimate devices. This is also less expensive than advertising and leads to happier clients, especially in the current days when more and more action is coming from organic search results versus the paid search ads. Agency clients that use UniversalBusienssListing.org to get listed in the Search Engines tell us that 20% of their clicks come from these submissions versus the ads. What you say in your posting is verified by the advertising agencies themselves.
I here what your saying, I help SMBs establish an online presence and I do it organically. PPC for small business I think is a wast of money. Getting organic PR for local business is not difficult to do, it takes a little time, but it is much better for the SMB in the long run.