Competing Online: Are Small Businesses At A Disadvantage In Search Advertising?

I’ve been doing a lot of reading lately on the topic of search engine marketing (SEM) and more specifically, search engine optimization (SEO).

There are two common ways that businesses use search engines to drive traffic to their websites:

1. Paid Advertising, usually through programs like Google’s AdWords
2. Organic Search Rankings, whereby their website shows up “naturally” when users search for specific terms

Clearly, small businesses would prefer to be able to get high rankings organically for several reasons, not the least of which is that they don’t have to pay anything.  However, the process of ranking highly, particularly for competitive terms can take a fair amount of time and is often non-trivial.  Hence, paid advertising is a common way to drive targeted traffic to a website.

With Google AdWords, the price a business pays to get “placement” for a certain search phrase is done through a bidding process.  The more competitive a term is, the higher a price you have to pay in order to get your ad to show up.  Recently, I’ve come across an interesting article that posits that small businesses are reducing their spending on search advertising.  (The article cites a recent article in Business Week, titled “The Small Fry Sour On Search Ads”.)

The reason is that as bigger companies start shifting more of their advertising spend online, they are driving prices up.  Further, larger businesses often have a dual benefit they can get from advertising.  The first is a direct benefit by driving qualified leads and thereby increasing revenues.  The other is the benefit of promoting the visibility of their brand (which ultimately should result in improved revenues).

Small businesses often do not have this dual benefit.  They are generally expecting to get a direct increase in sales as a way to recoup their investment in search advertising.  Brand building is usually not high on the list of priorities.  As such, small businesses can’t afford to pay the same price as a bigger business for the same search term. 

So, what does this mean for you?  Here’s what I think:

1. Getting organic rankings for search terms relevant to your business is more important than ever.  Yes, it will take time, patience and some investment, but the long-term payoff will likely be worthwhile.

2. Spend time finding the right search terms to focus on.  The best terms are those that have a combination of high search volume (i.e. lots of users are typing the term into search engines) and low competition from other businesses.  [We’re building a software tool to help identify some of these opportunities.  This will be like our very popular Website Grader, stay tuned.]

3. If you’re already spending money on paid search advertising, make sure you monitor your results closely.  If you are in a competitive industry, chances are, you’ve already seen an increase in the average price per click you are paying.  Make sure that the value you are getting from these clicks warrant the increased price.

4. Start thinking harder about your brand.  Just because you’re small and focused on a niche market doesn’t mean you can’t benefit from having a brand that has credibility and authority in your market.  Often, a small, focused marketing investment in increasing the visibility of your brand can reap long-term benefits.  If you have a name that your potential clients recognize on the web, you’re more likely to get the click-through when you do show up on search pages.

What are your thoughts?  Is the current trend in search engine advertising prices temporary or do you think it will continue?  Do you have any other ideas on what small businesses might do to optimize their marketing spend online?  Would love to hear your thoughts in the comments.