‘Your margin is my opportunity’
I’ve had the idea of writing about the relationship between small business and tech giants on the list for a while. Now I’ve actually got round to putting metaphorical pen to paper, I realise that there’s lots to consider for each one, so here’s the first in a short series of editorials.
Jeff Bezos the founder of Amazon and by some measures the richest man in the world coined the phrase ‘your margin is my opportunity’, which is at the heart of the big tech strategy of gaining market share by operating at a loss, then reaping the rewards later and can also be used to describe the wave of companies now positioned in between the service provider and the customer – think Just Eat, Booking.com, Airbnb etc.
Google is a money printing machine driven almost entirely by search advertising and a long way from its origins as a start up needing funds to keep trading. Times have really changed since the original mission statements of ‘Organise the world’s information’ and ‘Do no evil’.
For many of us Google is a cornerstone of the business; it’s how almost all new customers find us and even regular guests are more likely to search our name than type the website address into their browser. It’s also where we spend most of our marketing budget despite us appearing high up in all the relevant search results. This is because of the positioning of paid adverts at the top of the page.
In case you’re not familiar with how this works here’s a brief summary: The top 3 or 4 search results are normally adverts and Google effectively auctions them off. You enter the most you are willing to pay to appear and the top spot goes to the highest bidder except the twist is that you are only charged a penny more than the next highest bid, a bit like an ebay auction.
Deciding how much to bid and what to say is a subject that has filled reams of books and powers a huge industry but basically you multiply the cost by the average number of clicks it takes to get a sale to get a cost per acquisition and this is the number that really counts. For example if you pay £1 per click with a conversion rate of 1% then the cost to you is £100 per acquisition. That would be just about okay for us, if you were selling cars it would be brilliant except of course your competitors would bid more to get the business and therein lies the genius that pours money into the Google coffers.
Surely this is all good – so why would I describe Google as a Frenemy?
Over the years the format has changed – adverts used to be much more clearly marked so people’s eyes were drawn to the natural search results which are free. Now the results are blended in to the extent that many people don’t realise they are adverts on top and more people are now looking on a phone than on a computer so you only see adverts before scrolling. The next results after the adverts for geographical searches is the map box with links to company Google pages, so the ‘natural’ search results are pushed right down the page. In our industry Google has started to show hotel prices from ‘partners’ here which means they are taking a commission on the sale and it’s surely only a matter of time before they invite us to ‘partner’ with them, ie. give up a portion of our commission.
Thankfully our business is insulated from the worst effects as you can’t book our properties through anyone else but if you’re in a market where identical items can be bought anywhere else you can end up in a game of chicken where the highest bidder may be giving up the majority of their profit to fund the advertising – ‘Your margin is my opportunity’!
Simon Tolson owns Rumsey of Sandbanks, a holiday letting agency. Contact Simon on 01202 707357.