Most observers believe that even if the mortgage crisis affects online advertising in general, Google is immune. Some of the logic used to support this position is sound. Some of it is not. Some of the flawed logic goes like this:
“Even if 25% of mortgage companies go out of business, the others will still be bidding on keywords, so Google will be fine.”
“Even though there are fewer mortgage companies bidding on keywords, prices haven’t dropped, so Google will be fine.”
Here’s why this logic is flawed:
Imagine that BEFORE the mortgage crisis there were 100 mortgages sold at an average price of $10 apiece, with an average search marketing budget per mortgage of 10% of revenue, or $1 apiece. The total search marketing spend on those hundred mortgages would be $100, or $1 apiece.
Now, imagine that AFTER the mortgage crisis there are only 50 mortgages sold at the same average price of $10 apiece (in the real world, the price would probably drop), with an average search marketing budget per mortgage of the same 10%, or $1 apiece (in the real world, the price might rise slightly as the market became more competitive). Now, the total search marketing spend on those hundred mortgages would be $50, even though the marketing spend per mortgage (e.g., the keyword price) never changed.
In the first scenario, assuming $1 per keyword, Google’s revenue would be $100. In the second scenario, it would be $50. In other words, you could have the same number of mortgage companies bidding on the keywords, and the keyword pricing could be exactly the same, and Google’s revenue would still get cut in half–because a reduction in consumer demand for mortgages would reduce the number of clicks.
The problem here is NOT that a few mortgage companies go out of business. It is that consumers are buying fewer mortgages. You can argue forever about the impact of share shift (old media to new media), increased marketing-as-a-percentage-of-revenue, greater competition among mortgage companies for the few remaining mortgage sales, and so forth. But these are different issues.
All else being equal, if the number of mortgages sold drops, Google’s mortgage revenue will drop commensurately. So don’t let yourself be persuaded that there is some magic in the PPC model that renders the company immune from the laws of supply and demand.
See Also: Google is Not “Immune” From the Mortgage Crisis