The Googlization of Everything

NYTimes.com:

Online Ads to Thrive in a Lousy Economy
By Miguel Helft

Most retailers, online and offline, appear to be feeling the pain from the rotten economy. But, of course, even in bad times, some businesses manage to do well. Take Raymond Galeotti, the owner and president of Evesaddiction.com, a five-year-old online seller of sterling silver jewelry. Mr. Galeotti said his business, whose annual sales are approximately $10 million, is up about 25 percent this holiday season.

The secret to his success: more aggressive online advertising, especially on Google.

Mr. Galeotti said he is bidding higher for Google ads and paying more per-click than he used to. But because of better targeting and measurement tools from Google -- as well as offering selective discounts at Evesaddiction.com -- his "conversion" rate, the percentage of clicks that turn into sales, has grown as well, more than offsetting his higher ad budget.

As an example, Mr. Galeotti said that he may be paying 80 cents a click this year, up from 50 cents a click last year. But because he gets four new customers for every hundred clicks now, instead of two new customers for every hundred clicks last year, he's coming out ahead. His "customer acquisition cost" has gone down from $25 a customer (50 cents, times 100 clicks, divided by two) to $20 (80 cents, times 100 clicks, divided by four).

"We're bidding higher, yet it is more cost effective," Mr. Galeotti said. "The conversion rate has gone up disproportionately."

Obviously, this is the kind of story Google and other search marketers like to promote. The search companies, and many analysts, have long said that, even in a recession, search marketing should fare better than other forms of advertising, precisely because it is a cost-effective and measurable way for retailers to get customers into their stores.

Mr. Galeotti said that because of the better results, he has increased search ad spending on Google by about 25 percent this year, to about $1 million. "I'm on cloud nine," he said about his results.

Of course, Google will need a lot of stories like this to offset what is likely to be a difficult quarter. And it is impossible to know how many Mr. Galeottis are out there, funneling ever more money into Google. To judge by analysts' predictions, which seem to be getting gloomier with every passing week, the answer is "not enough."

Incidentally, Mr. Galeotti said he is also placing search ads on Yahoo and Microsoft. They too are cost effective, he said. There is one difference, however: "The amount of traffic we get from them doesn't compare," Mr. Galeotti said.