A while a go I wrote a post about the pre-eminence of Google from a marketing and informational perspective. However, I read this post from Slate about the challenges facing the credit economy. The Death of the Credit Card Economy by Daniel Gross (August 30, 2008) points to the decline of short-term credit – particularly credit cards that has exceeded the decline of mortgages.
Why did this make me think about Google?
Fair question, Google despite its technical smarts is primarily a media company. It sells advertising inventory. Organisations that have revolutionised by the ‘net include non-tangible services and commodity purchases: think financial instruments and the promotional interest rates on credit cards:
- Given that financial decisions can be some of the most important decisions that the average person makes is their mortgage and up until quite recently mortgage providers were prepared to pay 17 GBP per click in order to be found when consumers went to their first port-of-call on the web. That alone represents a substantial amount of revenue for Google
- What credit card companies don’t spend per click they probably make up in volume since the western world has binged on short term credit. So credit cards represent a substantial revenue stream as well
Those organisations that are on the ‘net and don’t sell financial instruments:but things like books and DVDs instead rely on the ubiquitous credit card payment system to reconcile purchases. You can’t pay cash over the counter at Amazon. And if the credit card payment system is got around, for instance using pre-paid Mastercards, e-commerce may be more affected by the pain of paying without the immediate satisfaction of retail therapy. So there is less consumers to chase and lower margins to spend on customer acquisition. Again, something which would directly impact Google’s revenues from search advertising.
What about PayPal? Good question, imagine if PayPal was plugged into your current account (US English: checking account) and your money got hoovered out by unscrupulous eBayers / organised criminals who took over someone else’s eBay account? I’m feeling warm and fuzzy about that at the moment, I don’t see PayPal as a replacement to the credit card system – and so won’t help Google.
This means that Google is no longer immune to the economy because the financial services sector is so pervasive to its business model. Its customers are e-commerce businesses and the financial services industry, both of which is feeling the pain.
Google will feel that pain as well, its a question of how much?
Local search advertising and mobile have both been cited as big growth areas relying on businesses from local (usually small-and-medium) businesses. But with credit ratcheted down these are the very businesses that will go under. For those businesses that survive, the cost of acquisition of new customers will be much less attractive than retaining existing customers as consolidation rather than growth becomes the driving factor.