Declining Search Engine Marketing Effectiveness?

Jeff Matthews has a fascinating post deconstructing a recent FTD Press Release. Worth reading the whole post, but I will excerpt the key points here. The press release says, in part:

“During the Christmas season, certain online search engine costs increased significantly over the prior year, and as such we made the decision not to pursue the resulting high cost order volume.” stated Michael J. Soenen, President and CEO of FTD Group, Inc. “As a result, despite this slight decline in order volume for the Christmas season, we are reiterating our EBITDA and EPS targets for the year. Further, we have begun making additional investments in our marketing staff to help build a more diversified marketing portfolio.” (emphasis added)

As Jeff rightly points out, this likely means “the marginal cost of a new customer has reached parity with the marginal profit from that customer. Which is not something anybody expected happening any time soon.”

This is a potential huge problem for search engines – if there is no net value, growth will slow and possibly even go negative.

How widespread an issue is this? I don’t know. But there are some reasons to believe it could be an emerging widespread problem. After all, search queries are pretty concentrated in a small number of topics, including shopping. And, as Nick Carr pointed out a few days ago, the click economy incents publishers to figure out how to get consumers to click. Quality of lead flow has not traditionally been an issue of concern for search engines; their model is pay per click, not pay per acquisition (unlike, say, Amazon’s affiliate model). It will have to start being a concern soon, if this data point starts to morphs into a trend.

UPDATE: Battelle and Carr have both picked up the thread…