Monday, September 10, 2007

The Google Factor in Valuing a Business.

I am devastated. I suppose it had to come in the end, if you cheat on your partner you are going to get found out and the consequences can be bad. We really got to know each other about a month or so ago having had fleeting meetings some times before that, but really, really started to get on in July.

Problem is I started playing around with someone else at the same time and it looks as though I have blown it. This weekend was the last straw, I think, I did not hear from them at all. I have to say I am heartbroken. I am going to keep doing things that I hope they will like and maybe, just maybe the trust will come back. The thing is, as a friend my new partner is good to me also, but I just don't think my true love understands that we are just friends and nothing more. I just don't know what to do.

But I guess that is just how Google is. Having had unique visitors to the site increase 5 fold in July and August I installed Kontera (the ads that come up in the text, just to see what the fuss was all about, and they appear to be popular), all appeared to be going swimmingly but this weekend I got virtually no hits from Google at all. The party maybe over, it's sad.

This got me to thinking about how Google are just the giants of marketing these days. Our site was never intended to be anything other than a good resource for clients and potential clients and a way of letting those who deal with us (and those that don't yet) know what our philosophy is on various aspects of the market. We have since been picked up by the Wall Street Journal, the excellent and other sites. This is great but it doesn't necessarily drive our business. But what if it did?

The reason we got to thinking about it is that we look at, amongst other things, Web based businesses to invest in on behalf of clients. But the Google issue is such a huge factor these days it is difficult to calculate in your research.

For example, if you have an online business that is extremely popular on Google, which drives the revenue in ads and sales and you are making £5mn a year, that would be excellent. However, if Google changes their algorithm and you now don't appear on the front page for your chosen search, to replace that traffic would be expensive, with ads etc and this would have a material affect on the valuation of a business.

It strikes me that there is a fundamental piece of analysis that could be done on the basis of the sector your business is in, the keywords, the popularity of those keywords (the search frequency) and the cost of acquisition of clients in that industry as a whole.

I would do it, but I believe that the guys at 'Freakonomics' would be a better bet. (Have you read that yet? Please do it is an excellent read).

I had a quick look on Google for figures for the 'cost of acquisition' figures of clients but couldn't find any (I guess Google is having a real sulk at me). But what I do know is the cost of acquisition figures for mailing campaigns, at least in the stock broking business.

Basically if you mailed 50,000 people this would cost, in the UK, about £25,000. Approximately 1% would respond giving 500 prospects and of that 20% would do business over a six month period.

This gives a cost of acquisition of those clients at around £250 per client. It seems to me therefore that there is a 'Google Factor' in there somewhere. For example, if you were to spend £25,000 on search engine optimisation, would your cost of acquisition be the same? Also a well optimised site, with that amount of money spent on it would be longer lasting than a one off mail, so there would be a time factor in there also. This would, obviously, bring down the cost of acquisition considerably.

Also, how would this compare to spending 25,000 in online ads? I guess it would produce faster results, but again not as long lasting.

If anyone can point to some kind of research like this on the web I would be most grateful, as it is definitely a factor in the evaluation of on and offline businesses these days, whether we like it or not.

Me, I am just going to write some more posts and do all I can to rekindle my relationship with Google. If I am successful, someone may actually read this!

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