How Will the Recession Affect Search Engines and Agencies?

By Aaron Goldman, VP Marketing & Strategic Partnerships

There’s been a lot of talk lately about whether or not search is a recession-proof industry. The consensus seems to be that, while not recession-proof, search is certainly recession-resistant and will weather the storm better than most, if not all, other forms of advertising and media. The conventional wisdom is that, as times get tough, marketers will allocate their budget only to the most accountable and profitable mediums -- and we all know search tops that list.

There is one aspect of how the recession will affect our space that has been largely ignored, though -- the impact on small and medium sized businesses. Most of the speculation I’ve seen in the trades centers on what a recession means for the Fortune 500. This is understandable since the majority of ad spending comes from these companies. However, in search, it’s a different story. There are currently over 500,000 search advertisers. The reason Google has been able to blow away Wall Street’s expectations each quarter is not that the big guys are spending more; it’s that more and more little guys are getting into the game.

While I agree that many Fortune 5’s may keep their search budgets intact during an economic downturn, I don’t think the same can be said for the 400,000+ search advertisers that are spending less than $50k per month on search (note: I don’t have data on what the break-point is with respect to total advertisers and monthly spend so I’m just drawing a line in the sand here).

As the recession cuts deeper and consumer spending pulls back further, many of the mom and pops and mid-sized firms that just started investing in search are likely to back off. To them, search is still an unproven medium. And, to many of them, the Internet in general is still a business-model disruptor that they don’t fully understand. It’s unlikely that these folks will have the confidence and foresight to maintain their search presence through an economic downturn. As for those who still have yet to test the search channel, I certainly don’t think a recession will be the time they try it out for the first time.

This may be comforting news for most search agencies out there since they represent the 100,000-ish big guns that will keep spending, but it’s bad news for the search engines that rely heavily on revenue from the tail to support their continued growth. That said, in the search ecosystem, is what’s bad for the goose bad for the gander? Is the fate of search agencies and engines intertwingled? I’ll probe deeper next week but would love to hear thoughts from the community in the meantime.

Posted by: Aaron Goldman, VP Marketing & Strategic Partnerships