Are Google and Yahoo! Fund Suckers?

According to a recent report released by Outsell, the phenomenal success of the marketing programs offered by search engine leaders Google and Yahoo! is creating a sucking void in the bank accounts of other leading information companies.

The report puts it bluntly: "They're literally sucking the financial air out of the room." The report goes on to explain that Google and Yahoo are diverting ad revenue from more established information companies like McGraw-Hill and Reuters, who, together with eight other firms, generated $60 billion in revenue last year.

That number was up $4 billion from 2003. The problem is that Yahoo! and Google have also seen an increase of $4 billion since 2003, though that brings their total up to $6.5 billion. So despite Google and Yahoo! having a smaller, more specialized market, their rate of growth is far out-pacing their more traditional competitors. That $4 billion in spending has to come from somewhere, and it's coming from areas like B-to-B trade magazines and newspapers.

Gary Stein, an advertising analyst for JupiterResearch spelled it out in an article at InformationWeek. "The traditional media companies have been in a tough situation for a while in terms of getting ad dollars. Many newspapers get better than half of their revenue from classified, which are really susceptible to the type of ads that Google and Yahoo are offering."

The strong ROI's that are generated by search related advertising are drawing advertising dollars that used to go toward more traditional ad methods like yellow page listings and print ads. With businesses discovering how lucrative search engine marketing programs can be, traditional outlets are looking for ways to get back in the game.

Earlier this year, The New York Times bought the popular content site About.com. Purchases like that one allow companies to immediately jump into the online advertising mix without taking the time to develop and test their own properties. About.com already had a solid content-based advertising deal with Google, along with clearly divided content categories that are ripe for other types of online advertising.

The new findings don't necessarily spell doom for traditional media outlets. A $60 billion industry is certainly nothing to scoff at. What it does show is that search engine marketing has gone mainstream. Marketers that have experienced the low CPC that often accompanies a search marketing campaign will start demanding more cost effective pricing from traditional media outlets.

Discuss this article in the Small Business Ideas forum.
June 1, 2005