Google AdWords – Destroyer of Small Business

AdWords advertising. We often find ourselves telling clients “Don’t do it.” Or, at the very least, “Don’t rely on it.”

Years ago – like 6 – 8 years, which in Internet terms is a millennium, Advertising on Google AdWords was a grand equalizing force. Any Tom, Dick or Harriett could create a campaign and start delivering high quality traffic to their website at a reasonable cost. Win-win, no bones about it.

But nowadays, the metrics of this channel have changed dramatically, making it impossible or nearly impossible for small and mid-sized business to turn a profit using AdWords. In fact, most small businesses can’t break even using AdWords.
This goes for many large businesses as well, but they don’t care. And that is the key difference, and precisely why small brands using AdWords nowadays are being bludgeoned out of existence. Let me explain:

AdWords is was so great at acquiring customers that large organizations have carved enormous budgets devoted to AdWords spending. It’s not unusual for a big brand to spend $300,000 to $500,000 – per month on their AdWords campaigns. The large e-commerce websites spend much more than that. (yep, the stock market typically gets things right). But it’s not just these colossal budgets that uneven our playing field. It’s the economics of their ROI:

Large companies have a per-acquisition dollar amount that is not tied to profitability. (Sometimes not even grounded in reality, but that’s off-topic for today) If you don’t care what you spend on acquisition, or don’t care if it’s even remotely profitable, you’re at a tremendous advantage over smaller organizations, who must tie acquisition budgets back to sales and profitability. Heck, I remember my days in corporate America – I was often yelled at for not spending enough. Never mind that I had AdWords maxed out in numerous countries, and more clicks weren’t ever going to convert – one had to spend his entire budget by the end of the fiscal year. No exceptions.

You can try to use Lifetime Value to rationalize very high per-click costs. That’s what managers in big online marketing departments are doing. But this sort of economics is far, far riskier for smaller brands and companies. They don’t have the cash flow or often a 12-month or 3-year plan required to make this work. They don’t have the market dollar war chest needed to make this work.

A few years ago I had the pleasure of working with Scott Galloway (@profgalloway) and his L2 Think Tank – an innovative online marketing consulting team. Scott shared the story of when he had founded the catalog/e-commerce brand Red Envelope. Back then, Scott explained – or perhaps I should say reminisced: AdWords terms like “Buy Gift,” “Gift for Mom,” or “Present” were all way below a dollar. Can you imagine? Making money for a start-up like was easy!

But marketers, in their typical ruthless and greedy fashion, have killed the goose and divvied up the egg. Or, perhaps another way to look at it: AdWords has become a victim of it’s own success. It’s worked too well.

Either way, smaller brands are essentially shut out of the AdWords channel (and perhaps soon the Internet as a whole, but don’t get me started). They simply can’t compete on the CPC basis. I recently had the pleasure of working with a skincare start-up. The products were of high quality, packaging great, brand messaging good, and so on. But they wanted to market using AdWords. The Lauders and L’Oreals of the world have terms like “moisturizer,” or “best anti-aging,” kidnapped, and held at enormous ransom. No sane start-up is going to pay $5 or $7 per click for these terms. Certainly not one that’s well managed. It’s time to move on.

Don’t chalk this post up to an anti-Google rant. I’m a huge fan of Google and many of the tools they provide. Concept 5 could not even exist if it wasn’t for their integrated suite of services like Gmail email hosting, Calendar and Drive. And we frequently steer clients towards Google+ and the excellent online marketing opportunities it provides. And, in the name of full disclosure, we also run AdWords for some clients. (Hint: it can still work if you go hyper-local, but that’s not a strategy for most brands. Hint 2: it’s a requirement for research-driven SEO)

Have I become the archetypical old man remembering better days and screaming “get off my lawn?” Possibly. But there’s no denying that AdWords just doesn’t work for smaller, nationally-focused organizations. So please — try Content Marketing. We’re on even when your wallet is empty…