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In recent months, the US economy has taken a turn for the worse. The lucrative “housing bubble” of past years has metaphorically burst, the stock market is exhibiting even more instability than usual, and long standing financial institutions have crumbled under the ever increasing weight of defaulting loans. All are interrelated and I point them out because they are clear signs that the US economy is in a period of slow down. Realistically, it is more a period of normalization from the over abundance and overreach of years past.

Prices at the pump will easily soar beyond $4.00/gallon this summer causing a far reaching chain reaction on the economy. This has already begun to play out in certain industries. Just last week, Delta Air Lines said it is going to offer voluntary severance payouts to roughly 30,000 employees–more than half its work force–to deal with soaring fuel prices. Unemployment will no doubt rise and more Americans will be left looking for work that isn’t there. So how is Search Engine Marketing, an industry dominated by businesses with small advertising budgets, going to remain unscathed and possibly flourish?

With more Americans losing their jobs, people will turn to the only alternative they have to sustain a decent living: the Internet. One could argue that the most economically effective way to market a small business is through online advertising. It is the only place where a relative newcomer or innovative start up can actually compete with industry heavyweights. For a couple hundred dollars per month, a small time entrepreneur can effectively advertise through the search engines. By comparison, a 30 second television ad on one of the nation’s top 10 shows will set you back anywhere from $300,000 to over $1 million.

Under these circumstances, search marketing is less of a discretionary income expense and more of an essential expense. I’m sure my college economics professor would disagree out of principle, but this brings up an interesting point. If during a market recession, an individual’s/family’s sole income source is their home business, then doesn’t the advertising of that business become a necessary expense–an expense so essential for survival that it becomes intertwined with other necessary expenses, such as clothing and shelter?

This means that during a market recession, when stable income is much harder to come by, the demand for effective search engine marketing actually grows. This is not necessarily just applicable during a recession, but the trends become much more exaggerated in this instance. In times of financial strife, online advertising is the one saving grace for consumers trying to keep food on their table and clothes on their backs, by means of their personal businesses.

The main difference between search marketing during a recession and during times of financial growth is that the type of expense changes. During bull markets, search marketing is more of a luxury expense for people trying to start another business, often to create a secondary source of income. This definitely places this form of advertising in the discretionary income column, but this systematically changes to necessary income with the degradation of the economy. What was once a luxury for a secondary source of income now becomes the sole means by which to promote a single source of income.

A market downturn will not affect every industry in the same way and in cases like search engine marketing; it will actually help spur growth. The decline in traditional forms of advertising, with their extreme barriers to entry due to high costs, has been both created by and continues to weaken as a result of search marketing. This further increases the impact of online advertising on the economy. As the economy continues to change, it will no doubt create new challenges for the search engine marketing industry, but at its current rate of growth and innovation this should have little effect on its continued development.

Obviously, this is a hypothetical exercise in economics and its effect on search marketing. Many of the examples are generalizations and the aforementioned effects are always more pronounced at the lower end of the income spectrum. But it is still useful to engage in such discussion because it better helps discover why consumers turn to search marketing and as a corollary how we can better tailor our services to fit their needs. While a recession is never good for anyone, it can have some dramatic unforeseen effects on certain industries. And while no industry is completely recession proof, at this point in its very young history, search engine marketing is about as good as it gets. Class Dismissed.

Comments

2 thoughts on “Recession Good For SEM?
  1. D-Train says:

    Thank god I read the whole thing and not just the end. I didn’t want to be marked absent from class. You know, because you check attendance in the beginning of class.

    Online advertising can actually, in the long run, help the economy. If you need to spend money to make money, then the more our clients spend; potentially, the more they can make. Thus helping two businesses. With a simple referral from the client to another potential client, we can help yet another business profit.

    Basically we are Robin Hood. Taking from the rich, (consumers, with money to spend, looking for our client’s sites and thus products/services) and giving to the poor (our clients in need of profits).

    Can we leave third period early Professor Fishkin?

  2. Mike Block says:

    I was just making this very same argument the other night. It may not always be the case, but I feel like search marketing is at least somewhat insulated from recession at the moment. Hopefully, if and/or when that insulation no longer exists, we’ll have the recession long behind us.

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