Financials’ splurge on Adwords: #OccupyGoogle, or opportunity cost of not innovating?

Google racked up profits of  $33,3 billion in the year ending July 1st. Fully 97% of this comes from AdWords sales. The infographic below (source: Wordstream.com) shows who buys all those words, and for how much:

Where Does Google Make Its Money? [ infographic ]

What is going on here? Does Google exploit a quasi-monopoly and are financial firms its biggest victims, or does the lack of new  value innovations force financial companies to oversize their marketing expenditures?


When you count the financial offerings in any series of radio and tv ads (link in Dutch), it becomes clear that big marketing budgets for financial firms are nothing new. The financials justify themselves by pointing out that their products are abstract and hard-to-understand and cannot by themselves excite prospects and customers. In short, they are low-interest, but must hit sales targets nonetheless. Hence the lavish budgets.

Moreover, making low-interest products stand out is very hard. Apparently, price has become the industry’s weapon of choice to boost sales: when googling “car insurance”, for instance, the only accompanying words appearing in the search result “snippets” are: rates, quotes, cheap, discount, off. There are zero words describing the product, or how it stands out. Granted, that may reflect Google-optimized tactics. Nonetheless, it is obvious that expensive AdWords and cheap product prices add up to squeezed margins.

Click here to donate 50 bucks to Google

Until recently, big marketing budgets made sense in the business models of most financials. That is because, as Wordstream.com points out, the sale of a financial product used to represent a high average customer lifetime value. Customers tended to stay with a provider for a long time, generating ample revenue which made pricey customer acquisition tactics worth their while.

However, the internet gave financial firms not just AdWords, but aggregators too (like http://www.confused.com). They showed up negative impacts of the industry’s traditional acquisition (and CRM) practices on customer loyalty. In the words of a UK insurance executive:

[…]the entire industry is bad in the sense that it has manufactured a process of selling that rewards consumers for being disloyal. In the sense that the best way for a consumer to get the cheapest price is to keep shopping around every year.[…] Aggregators are thriving […] and will continue to do so until the industry wakes up […].

To sum up: churn rates are up, margins are down, and advertising space is more expensive. This is not ‘just’ about squeezed margins anymore, this is about financial survival (link in Dutch) in the medium term. Now that unquestioning customer loyalty is a thing of the past, low-interest products will come to signify low life expectancies for their producers.

Is Google exploiting a quasi monopoly? Undoubtedly. It has the best advertising space on offer and simply rents it out to the highest bidder.

But the biggest victim of this model was always going to be the industry most fond of calling its products low-interest (and most reluctant to adjust outdated elements of its business model). On Google AdWords, advertising really is the tax you pay for being unremarkable.

It all adds up to a  do-or-die-size  opportunity cost of not innovating. Financial executives would do well to keep that in mind when poring over the business case of their next opportunity to innovate.

Related articles

2 thoughts on “Financials’ splurge on Adwords: #OccupyGoogle, or opportunity cost of not innovating?”

  1. We’ve been adding and organizing hundreds of innovation videos onto the InnovationCourses.org site. Do you have any videos that you’d like us to add? Perhaps you’ve done a Ted Talk, presentation, demo, shared some tips, etc. Or, maybe you have a video about innovation you would recommend to others.

    Like

What's your take on all this?

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s