Why your marketing investment becomes less effective with every passing day

Have you noticed that search engine advertising seems harder now than it used to be? You might disagree, maybe it’s not like that in your segment, or perhaps you think I’m wrong. Either way, take a moment to consider my reasoning – I think you might be surprised.

AdWords is primarily governed by two things: Quality Score and bid. If we momentarily disregard the quality of the ad itself, there is something interesting to observe. Despite relevance being such a large part of AdWords work, it is reasonable to ignore it when looking at advertising purely from an economic perspective. After all, it is reasonable to assume that advertisers will not suddenly become much worse at relevance.

If we therefore look only at bidding, in a constantly ongoing, lightning-fast auction, an interesting phenomenon appears. What you are actually buying in the auction is revenue. Targeted traffic to your webshop or company website can be converted into sales, and if you have worked with AdWords for a while you know what each visitor is worth to you in revenue. You are therefore paying amount X for amount Y. The fact that you do not receive amount Y from Google but from a third party is irrelevant to you as an advertiser. At present, it costs X kronor to earn Y kronor.

You of course know what margin you have on your products, or at least roughly. That tells you how large amount X can be. If you earn 10 kronor per visitor, you can pay up to that and still make money. If your main competitor has the same product, the same margin and the same conversion rate – which for simplicity we can assume – then you have a problem. The problem is that your competitor can bid the same amount, and only one of you can get the click.

The solution is, of course, to return to the things we set aside earlier: conversion rate, Quality Score, and margin. If you become better than your competitor at any of these, you can once again buy traffic for less than you earn from it. But, just like with bidding – only a bit slower – your competitor will of course also work on these areas. All business owners try to reduce acquisition costs and thus increase margins. Everyone who sells something tries to increase their conversion rate, and everyone who advertises on AdWords will work to improve their Quality Score. Then you are back in the same deadlock. You pay 10 kronor for a click that earns you 10 kronor. The only one making money is Google.

The only times you will make money are when you have an advantage over your competitor. In addition, you must be in a position where your competitor does not find it worthwhile to bid more than they earn. There are also other benefits to sales beyond pure profit, and sometimes it can be worth paying more than it returns in the short term to generate sales. Branding is, of course, one such aspect.

But what about Facebook?

Other online channels that are not search-based all share a common problem. The bidding issue described for AdWords also applies to all other channels, even if the changes are not always instantaneous. They also suffer from an entirely different problem that far outweighs ad blockers. Ad blockers (as much as a third of all ad impressions in Sweden are blocked) are not the problem – they are the symptom. We do not want to see ads when we are doing something else. Advertising intrudes when we want to watch a movie, read the news, or like photos from our relatives.
At first it works – an ad we have not yet learned to filter out, or one that still benefits from novelty, can perform. It is possible to advertise profitably, for example on Facebook, but it is far from guaranteed. And it will not get easier. 0.06% average CTR across all types of advertising. I cannot guarantee that the figure is completely accurate, but even if it were 50 times higher, the conclusion would be the same. We do not want to see ads. And if we do not want to see ads, we will stop seeing them. In cases where the brain itself fails to filter them out, we always have the ad blocker to rely on.

If we dare to make a guess, we can assume that Facebook (and all similar platforms) has no intention of drastically reducing its revenue. No major price reduction can therefore be expected despite poorer results in the future. Facebook itself is also struggling with the fact that every other company is present and posting content constantly (which is hardly surprising). This, combined with their desire to make money, leads them to limit company visibility so that it is virtually impossible for even your own followers to see what you post unless you pay. We can expect prices to rise and effectiveness to fall until Facebook extracts as much money from us as possible. How much is “as much as possible”? Probably when, just like in the previous example, they consume all margin – and preferably a bit more.

But surely this cannot be true for SEO?

The unfortunate truth is that this is just as true for search engine optimization as it is for everything else. You may temporarily gain an advantage by having a more skilled SEO specialist, a larger budget, and a stronger site. In the long run, your competitors will have the same budget as you if they draw the same conclusion – that SEO is a profitable investment. Differences in skill between SEO specialists will diminish over time; there will be more out-of-the-box solutions that make the work easier. All CMS platforms improve over time. There is really only one way to stay ahead of the wave and maintain top positions: invest more time, study harder, test more, and have a larger budget. All of this means increasing costs in the long run.

Since competitors are doing the same, this will ultimately consume the margin. It just takes much longer than in the previous examples.

So shouldn’t you work with online marketing at all?

The answer is: yes, of course you should. What I have described here is a long-term process, and the fact that things may decrease in value in the future does not mean you should ignore them today. Especially the slower effects we have discussed operate over very long horizons, and there is no reason not to make money right now. I have still never seen any channel that generates as good an ROI as SEO, even if it is not what it used to be. You can no longer just change a title and become a millionaire overnight – competition has intensified.

What should you take away from this post?

If you agree with my reasoning, there are two things you should remember. The first is that it is better to start now than later. It will only get harder the longer you wait. The second thing to remember is that right now there is much to gain from choosing the very best help for the channel you have chosen. If you invest in SEO, you need the best SEO specialist you can find. If you invest in AdWords, you need cutting-edge expertise there as well. Creating an advantage now gives you a war chest for the day when things get tougher – and not only in the form of money. Customers who have already bought from you and are satisfied also give you an advantage when competition intensifies.

If you want to know more about how we think, or if you want help from someone who truly knows what they are doing, contact us.