Search is NOT recession proof

I read a MediaPost summary of a JP Morgan hosted call with DidIt where the question of whether search is recession proof came up. It's not. The common argument (and the point DidIt made) of "the ROI is there and our clients are self funded above certain ROI levels" misses the boat. Henry Blodget points out that query volume declines during a recession, so even if the ROI is constant in a campaign, the search spend declines (since there are fewer searches to spend it on). I disagree slightly - with fewer searches, the initial impact will be lower ROI since the same number of bids happen across a reduced supply of searches will make bid prices go up. This will eventually also lead to lower search spend as companies cut budgets to keep ROI constant (getting to the same place that Blodget points out.)

There are plenty of other reasons search isn't recession proof: (1) Conversion rates will go down, as more people window shop. This will directly impact ROI, and again, lead to lower search spend. (2) Not every search advertiser is ROI-savvy, but in a recession, more of them will be forced to scrutinize ROI. (3) Plenty of small businesses (the long tail of advertisers) will fail in a recession and be unable to spend on search. (4) For websites that make money on leads or advertising, the value of those leads and advertising pages will decline (as their customers cut back because leads and ads aren't converting), so their ROI will decline unless they cut spend (since their top line will go down).

Search is definitely NOT recession proof. Maybe Google the stock (GOOG) is recession proof because (a) they can continue to gain share faster than spending declines, (b) they may have other businesses that are growing faster than spend will decline, or (c) spend is still pouring on to the web faster than the decline in the spend that's already there. (Although even these would still mean slower growth for Google during a recession than they'd otherwise have.) I have no idea whether the stock is recession proof, but the search business certainly isn't. If I were still in it, I'd be planning accordingly. Not hoping that it's unlike other businesses - that feels eerily reminiscent of the "new economy" chatter from 1999-2000.

Technorati: Google, search, recession