Friday, January 13, 2006

Has Neilson lost it?

Usability guru Jakob Neilson has a screed on the evils of search engines.
Search Engines as Leeches on the Web
Summary: Search engines extract too much of the Web's value, leaving too little for the websites that actually create the content. Liberation from search dependency is a strategic imperative for both websites and software vendors.
The problem is that if you advertise on Google, say, using their Adword program, and they charge 5 cents a clickthrough, then any value you get from improving your website (resulting in, say, more sales if you are an ecommerce site) will simply be captured by Google as they raise their rate. In this way, all the benefits from investment are being captured by the search engine, not the person actually doing the investing.

When you search on Google you get two sets of search results -- "paid search" (on the top and side) where companies pay to have their names pop-up when you type in certain keywords, and "organize search" which is what pops up in the body of the page. Google makes all of its money off paid search, but it's worth noting it did not invent the field -- the first paid search company was Overture (bought by Yahoo!). Unfortunately, Overture forgot the whole organic part and therefore was ignored by users, while Google's organic search is quite excellent so it could get more users to then offer to its paid search customers.

Google's ability to price adwords are constrained in by alternative advertising vehicles (Yahoo!, MSN etc.), organic search, and other ways to get your URL well known. Buyer and seller power in general is constrained by substitutes. Neilson argues that sites should improve customer loyalty -- if customers come directly to the site you don't need to pay the greedy search engines. He is incorrect in this matter -- if the average new lead is worth $1 because of the chance they will buy and the amount they will buy, then the search engine can charge up to $1 for that lead. If the site improves its customer loyalty and now that same lead is worth $2, the search engine can simply charge $2 up front.


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