When Should You NOT Use Search Marketing?
By Anna Johnson on June 17th, 2010The experience of Dropbox, which offers an online back-up service, provides a cautionary tale to Internet marketers thinking that investing in search engine marketing (SEM) will automatically pay off. Actually, it may cause you to go out of business!
Dropbox, which provides both a free and a paid version of its online backup service (the free version offers less features), began using paid search to attract users to its service.
Unfortunately, however, Dropbox ended up attracting tons of free users who tended not to upgrade to the paid service. In fact, when Dropbox looked at the numbers the company discovered that its search engine marketing investment resulted in an extraordinarily high cost per acquisition.
According to Dropbox CEO Drew Houston, Dropbox ended up with a “cost per effective acquisition per paid user (that) was thousands of dollars for a hundred-dollar product.”
Initially, Dropbox tried to increase paid conversions (and reduce its average cost per acquisition) by hiding the free version of its product to people who came to its site through SEM. This only caused visitors to become confused, however, and backfired on the company.
Dropbox subsequently dropped SEM as its lead acquisition strategy, finding that user referrals was actually the biggest driver of customer growth. By introducing an incentive program, Dropbox increased customer sign-ups by 60 percent and its referral program now accounts for 30 percent of total signups.
What’s the lesson in all of this? As Drew Houston puts it: “search is great for harvesting demand, not creating it.”
Since Dropbox is the kind of product people don’t know they want or need, search engine marketing is unlikely to yield leads who are ready to take out their wallets.
Think about how you use search engines. If you’re like most people, you use search engines to find information or find products.
If you are looking for information, your first instinct is to find FREE information. When you arrive at a website offering to SELL you information, that site has to work very hard to convince you to get out your credit card.
This is why information marketers go to such lengths – offering free reports and other freebies to get visitors on their lists, presenting long, elaborate sales letters and/or videos, and going to other extremes to get people to buy.
It’s also why conversion rates among information marketers are so much lower (usually around 1 percent) than those of online stores (for instance, ProFlowers’ conversion rate is a whopping 31.1 percent – see What’s a Good Ecommerce Conversion Rate?).
Which brings us to the second reason for why people use search engines: to find products.
In this case, search engine users are specifically looking to buy a product and therefore have their credit card ready to go. If you have the product they want at the price they want it, and you make it easy for them to buy, you’ll likely make the sale.
Sounds great, except that it sounds great to a host of competitors too! You’ll be fighting hard to attract these search engine users via a high ranking search listing – either because it’s difficult (in relation to the organic results) or expensive (in relation to the paid search results).
Nonetheless, your cost per acquisition – the much more important cost to consider as opposed to the cost per click in paid search – can be prohibitively high if you are paying for search users who don’t know they want or need your product, or are looking for information rather than a product to buy.
None of this means you should not invest in paid search. The ‘marketing cost’ of bringing people to your site and, ideally, enticing them to join your list, can still lead to a cost per acquisition that is low enough for the investment to be profitable. The point is to know your numbers.
In Dropbox’s case, the numbers didn’t justify its investment in paid search. You might discover the same thing, or you might find that even if you can’t convert most paid search engine users into customers, all the other tactics you put in place make paid search pay off. Ya just gotta test!
