Can you survive America’s economic slump?

I’ll admit from the outset that this is a really global post, but one that I’ve been itching to write for a few weeks now. The internet and profit: is it a possibility? In SA circles this topic isn’t as hotly debated as the Telkom’s anti-bandwidth maneouvers. Local businesses tend to use their websites as a marketing tool rather than an international business centre. There are a few tortoise websites, still based on web 1.0, which just present information to their consumers without allowing them any interactive features or improved revenue-generating capabilities. The US however is another story… a world where corporate giants flourish. The big names: Google, Amazon and Yahoo! aren’t just search directories or search engines, but corporations specialising in filtering buying out, buying in and maximising profit. 

Critics argue that it’s difficult to profit from online activity.  Initially, the concern was whether the internet could allow companies to profit in any way. Google countered this with their magic formula and keyword-targeted marketing schemes which charge on a cost-per-click basis and increase the visibility of webpages with every search. The net was cast wide to include additional revenue-seeking businesses in specific regions with opportunities to profit from Google’s search tools.

Google’s 2005 revenue reports paint a pretty picture: “The Internet bellwether on Thursday posted a net income of $381.2 million (R 2 667, 4 billion)… on record revenue of $1.58 billion (R 11.06 billion), up 96 percent from a year earlier on strong global advertising… Excluding $530 million (almost R 4 billion) in traffic acquisition costs, the portion of revenue shared with partners, Google posted revenue of $1.05 billion. (R 7,35 billion)” Most of this revenue comes from ads on Web sites (56%) and 43% was generated from the company’s AdSense program. I’m sure Google CEO Eric Schmidt, who’s worth well over $4 billion (R 21 billion) is sitting pretty in his yacht of a private island somewhere smiling smugly. Here’s what he has to say: Google CEO Eric Schmidt talks about Google’s quarterly earnings.

 

The Google Guys are laughing all the way to the bank. (Eric Schmidt smiles smugly in the centre)

 

In that same year,  Yahoo! also reported an increase in revenue: “Revenue was $1.33 billion (R 9,31 billion), up 47 percent from $907 million (R 6.349 billion) for the same period a year ago. Excluding traffic acquisition costs, revenue was $932 million (R 6.524 billion).” Clearly every click counts. 

 

Which is a huge problem when the clicks just are counting up. As of March 2008, Marketwatch reported that Google shares ahve fallen about 15% due to a slowdown in the number of “paid clicks” on Google’s search advertisements. The Google’s president of North America advertising and commerce, Tim Armstrong, argues that this is an intentional move, one that would was part of their long-term plan. Google also reported a 7% decrease on share price from this Monday. A good look at Google’s 2006 second quarter report shows slight decreases in several areas of the company’s business: operating income, net income and operating income. Is this also part of the plan Tim? Could it be linked to the American recession?

What’s happening in the real world

One of my favourite American bloggers, Stanley Bing, puts a humorous yet realistic tone on the American recession. He gives a few indications of the effects of the recession in a post on the lack of traffic in LA (which by the way, is a virtual miracle). Here’s a snippet:

 ·         I went to the supermarket and there was no pensioner in front of me on line with 10,000 coupons;

·         I took a rush-hour subway in New York yesterday and a group of thugs got up to give an old lady a seat;

·         I went to a Paris boutique last week and they were very friendly in spite of the fact that I didn’t buy anything;

·         I had lunch at a midtown restaurant last Tuesday, and they didn’t offer me $16-per-bottle water five times until I finally relented and bought some;

Two weeks later, Bing is still in shock as he tries to come to tems with a less materialistic world:

 ·         “People are eating less. This is partially because food is more expensive but also because, as a nation, we are physically fat…

·         People are drinking less… It’s hard to see how this is helping the economy any, but it certainly fits in any omnibus of stuff that’s on the decline to no good effect.

·         People are investing less. That’s because many have less to invest. Those who DO invest are earning less from their investments, which gives them less to invest going forward. This is called a “vicious circle,” and we’re in it, although it’s far less vicious for those who refuse to be in the circle at all and put their money in something other than financial instruments, like a mattress or a coffee can.  

·         People are reading less, writing less, advertising their products less, using social networks less, ordering from the prix fixe menu less often, shorting perfectly decent stocks less, laughing all the way to the bank far less…

Clearly, Bing’s world has changed drastically and he’s forgotten that sometimes less is more. Back in SA, the humour is few and far between as consumers pinch their pennies and try to buy a loaf of bread and a little petrol.If that’s not enough, we’re living with the constant drill noise from new stadiums and wondering if our car will be repossessed anytime soon.

 This month, The Rand Today reported that the SA currency was suffering “extended losses against the dollar to more than three percent on Friday (8 August), as the greenback staged a strong rally across the board… The rand has weakened almost 10% to the dollar since hitting a 6-month high of R7.1820 on Monday (4 August).” A 10% decrease in 5 days. Since then, the rand has been increasing in market value, but of course that trend hasn’t weaved it’s way down to the citizens yet. Hey, it’s a dog eat dog world out there. 

This seen clearest in the Google-Yahoo war. Who’s buying whom and for how many billions of dollars is the talk trend for e-traders. A few months ago, the “chew up the competition” strategy saw a huge move in the online sector: Microsoft bought Yahoo for a mammoth $47.2 billion (R  336 billion). But hey, Google’s not being left behind, it’s moving onto bigger and better things… mobile.

No-one seems sure if a Google phone may be in the horizon (especially since US consumers are buying fewer cellphones) but the company is dipping their toe in the handset software puddle with an Open Handset Alliance. Android™ will “deliver a complete set of software for mobile devices: an operating system, middleware and key mobile applications.”  From destop to laptop to mobile, when it comes to media strategy, Google’s got the dog’s share of the pie. Maybe Tim’s got a point.