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World’s greatest business model?
Posted by Chris Knudsen on February 27th, 2007
Being laid up for the last couple of days provided me with a ton of time to think about whatever I wanted. So I got thinking - what’s the world’s greatest business model? Is it franchising, which provides an almost plug and play solutions? Is it subscriptions? Is it something affiliate based? Is it Wal-Mart providing the world with cheap and desired goods? Is it auctions?
After a couple of days of thinking this over I came to a conclusion. Pay Per Click (Google AdSense to be even more specific) is the greatest business model ever devised. Why? Check out Google’s financials and you’ll see why. PPC is the most efficient, most profitable business model ever created.
That’s just my $.02. What do you think?
I’d argue that any business model that says “let us come in an make you more incremental money and we’ll split the earnings with you” is the best business model. That’s essentially what AdSense provides. Let us put these ads on your site that don’t directly interfere with your work, and we’ll split the earnings with you (though we won’t tell you how much we split). That last part is non-transparent Google in action.
Left by Blake Snow on 02/27/2007It’s hard to argue with Google’s numbers, but I’m not sure the PPC model itself is necessarily the most profitable business model. There are plenty of 2nd or 3rd-tier PPC search engines that aren’t so profitable. Maybe it’s more in the execution than simply the business model itself. Maybe it works for Google simply because they are so danged popular and have built a huge network of sites showing their ads. Maybe Google could make just as much or more with a different business model. Plus, there are some issues such as click fraud that will continue to threaten the effectiveness of the ppc model–especially for the Adsense-type content ad networks that share revenue with publishers.
Left by Dave Bascom on 02/27/2007Dave:
You bring up some good points. I think in the case of Google the PPC model is so effective because of the AdSense “force multiplier”.
Left by Chris Knudsen on 02/27/2007PPC is pretty amazing. It creates wealth/profit for people on a number of levels. It’s like a win-win-win.
Google wins.
Advertisers win.
People who post the ads win.
There aren’t a lot of business models that can create profit with decent margins on so many levels.
I think Dave brings up a point with click fraud, but it is in Google’s best interest to fight this as much as possible because if it does, they keep advertisers who lead to clicks.
In some ways Google didn’t just build a business model, it build a small economy that requires people to exchange in order for it to be successful. Google in turn seeks to foster exchange as much as possible because if it can foster that kind of atmosphere for buyers and sellers of goods, Google cashes in.
Left by Russell Page on 02/27/2007Right now, I would call it a win-draw-sometimes win.
Google is winning big, and some adsense publishers are winning (though many are just helping Google, but not really helping themselves at all).
Advertisers, however, are often times losing. And, even when they do win, their wins are becoming increasingly smaller as people fight over keywords. In many areas, you have to have the best margins in the industry and/or most efficient sales process in the industry to make ppc profitable at all. I have seen some cases where I doubt anyone in the whole space is actually making money on ppc. For advertisers, I call it a draw only because there are still some people winning. But, compared to Google, they are losing big time. Google has effectively positioned themselves as an affiliate who is getting 95% of the net revenue (or 120% in some cases).
So, the bottom line:
Left by Sean Roylance on 02/27/2007Google => Huge win
Adsense publishers => typically not worth it
Advertisers => usually small win at best
For $.02 worth, you must have a low eCPM!
I have had blogs up for 23 days and have made about $30.00 from Adsense. My best earning site is actually my Little League Blog and my Little League team Blog. My “main blog,” The Hot Dog Truck, gets more views but does not earn like the two “extreme niche” baseball sites. I am new to this, but here’s my thoughts on the subject. Google (and others) have increased the ability of the regular schmuck to publish on what interests them, or, as in the case of my baseball sites, what serves the needs of their small but targetted audience.
My Little League site has relevance to about 1200 families of kids who play LL baseball in our community and possibly a few other folks scattered around the country (grandparents, folks who’ve moved, etc). The team site has relevence to 14 families-and maybe some team alumnae in town. Both sites are/will be used for communicating, allowing people to do game write-ups, posting coaching tips and posting photos in a more open (and FREE) platform than the League’s main site (which I administer).
The sites are already getting hits due to the links from our main site and the fact that there is increased traffic from the League site due to registration form downloads for the upcoming 2007 season.
This is a win-win-win Google has created in this case. They get to sell their ads into an extremely targeted, geographically specific, niche audience. The advertiser benefits because there is less “clutter” than from a broader reaching “tips on youth baseball” site or on a site that’s pitching products to a broad reaching audience. The publisher (our League) benefits from a complimentary (in both senses of the word) internet presence and an opportunity to earn some money for the League. My modest goal for the League and Team blogs is to be able to cover the costs of administering our main League website and to pay for the software we just purchased to do our scheduling.
Google’s going to win in any scenario but what makes this a win-win-win is the niche aspect. Our niche is small enough to be able to provide value to the advertiser but large enough to create value to the publisher.
Now if I could only get more clicks for the Hot Dog Truck…….
Left by hotdogman on 02/27/2007I agree Chris. I just read a really interesting article called: “The new metrics of corporate performance: Profit per employee.” that McKinsey put out. (it’s a premium article behind their site, if anyone wants to read it, email me and I’ll email you a PDF back) Very interesting thoughts about how tracking Profit Per Employee gets you a lot closer to measure the return on investment for the intangibles of business rather than the return on capital. Anyway, I know at Google, a tiny part of their employees work on AdSense. If you allocated Google’s profits to those employees, I would bet all day in Vegas it’s the highest Profit per employee ever seen by any company anywhere. And if the new metrics of corporate performance are better reported based on these new ideas, then Google has built the world’s greatest business model (at least for now)
Left by Jeremy on 03/01/2007Google’s model is so effective right now because of the flood of media in which one can advertise. Many businesses in niche markets are weary of paying tens of thousands for advertising in magazine, TV etc., and having no idea if anyone looked at or listened to the advertisement. With PPC you at least know that the potential client was interested enough look at it. It is also the most effective. I spend about 30-40% of my ad budget on PPC, but I get 80%+ percent of my non-referal calls from PPC.
Left by Rand on 03/03/2007Of course, Google’s success is due in large part to it being the dominant search engine. Once someone figures out a better engine, Google’s PPC will be a little less golden.