Reading Bizweek (yup, the print edition) earlier this week, I noticed this article, titled “Keywords for Ad Buyers: Pay Up.” (BTW, it’s entirely too hard to find this stuff on B’Week’s site, but that’s another issue.) In the article, Ben Elgin notes Google’s extraordinary earnings, then adds that Google has the enviable position of pricing power:
What accounted for the outsize profits? The high prices Google charges for search keywords, for one. Industrywide, they were up an average of 43.7% last year, according to search marketing firm iProspect.com Inc. And the most sought-after words have become far more dear: “background check” rose 258% in a year. On the day of the earnings announcement, Google CEO Eric E. Schmidt told analysts: “There does not seem to be price resistance” from advertisers.
But the pricing power cuts two ways. Elgin goes on to give eBay as an example, quoting CEO Meg Whitman:
“It’s incumbent upon us…to figure out how to moderate these quite significant increases in media costs,” eBay Chief Executive Meg Whitman declared in January following disappointing fourth-quarter results, when rising search marketing costs helped pinch profit margins.
If I am reading this right, it seems that eBay, which got hammered after its last earnings for not living up to its reputation as a growth machine, is blaming Google for increasing its cost of goods sold. Now that’s interesting. Recall Paul Ford’s wonderful essay on how Google out-eBay’s eBay (not to mention the Epic piece about “googlezon”).
This is a trend to watch. (And thanks to Lincoln Milstein, head of Hearst’s digital media efforts, and Peter Negulescu, head of SFGate, for heping me put two and two together at dinner last night!)