Yellow Page Book advertising is a BIG business and declining. It peaked in 2006 at $14.4 Billion. As a comparison, Google’s revenue in 2010 was $29 Billion. Picking up the revenue from the fall of the Yellow Pages is a huge opportunity for Google, especially when you consider that Google’s net income is 29% of revenue and local business advertising is virtually costless to Google.
It is not surprising that Google is putting a stranglehold on local service companies driving them into a dependency on Google as their sole source of reaching customers cost effectively. All of this sounds amazingly familiar. This is the same tactic the the Yellow Page companies took from the mid 1950′s to the early 2000′s. The result was a near monopoly position with extortionist level pricing. No said better it was just monopoly level pricing.
The cloaking device Google is using is called Google Places. It displays on the first page of search results (crowding out organic results) and highly favors businesses that are physically located near the searcher. While many small service companies work out of their home and are not physically near their markets, this is a big problem. Moreover, service service companies almost always serve a large multi-city territory. Google Places results exclude businesses from reaching cities outside of their physical location.
All of this in spite of the fact that there is rarely a reason that a customer’s solution to a purchase decision is related to distance to the supplier. Shame on you Google.
Having hobbled businesses from reaching their prospect base, they provide a convenient solution called Google Adwords. Google Adwords, if you are not familiar, allows businesses to put paid advertisements on the front page of Google results. Way to go Google. This move puts Google in position to pick up the major portion of the $14 B small businesses used to spend in Yellow Page advertising.
Even better, Google has managed to replicate the monopoly pricing tactics pioneered by the Yellow Page companies. But Google has done them one better. Where Yellow Page companies had to manually adjust price points to optimize revenues. Google forces the advertiser to create monopoly price points themselves by having them bid in real time for advertising rates.
Google is a very smart company and is exploiting every aspect of extracting revenue from advertisers. I applaud them for their ingenuity and abilities. This is the reality of the market and it is democracy in action (except maybe for monopoly position). I just think it is important that small businesses understand the market dynamics and go into Google Adwords advertising with their eyes open. The best way to utilize Google is work smart and think through the your Google Adwords tactics as thoroughly as Google has done in picking your pocket.
