Paid Search is Least Profitable Channel - says Orbitz's HotelClub

[Whitey]

Online accommodation powerhouse HotelClub, with annual gross bookings of more than $500m, has dramatically cut its marketing reliance on paid search.

“The paid search stream provides the least amount of revenue for us. In the early part of 2002 it represented 50%. It’s very dangerous for a company to rely solely on paid search.”

Other companies are also finding the cost of paid search – marketing through the likes of Google – uneconomic. Some big travel operators are paying Google more than $2m a year.

[traveltrends.biz...]

Least amount of revenue ? Unprofitable ? Not worth being involved with ? Too hard to compete ?

What's the verdict ?

[smallcompany]

What's the verdict ?

It’s the puppy called Algo. After having Google getting all data just like they were sitting in financial departments of these companies, watching the earning/cost ratio, and adjusting the "puppy" accordingly, plus the competition driven by folks that want to be on the top, including agencies that earn based on how much their clients spend, what else would anyone expect?

Algo says "woof $$$ woof." :)

BTW, there is this part too:

Last month car hire site Oodles cut its $40,000 monthly Google spend by 40% and is now focussing more on affiliate marketing.

If they let fellow affiliates take the bigger part in PPC, the cost would not be as dramatic as when they do it themselves and through agencies.

Why?

Affiliates cannot afford the money these other can as their margin is much lower, so they become a self-catalyst, as long as its governed through trusted people on both merchant and affiliate side.

[sem4u]

It isn't really much of a surprise that companies are cutting back on PPC and spending more time, money and effort on SEO and affiliate marketing. This is common in many, many companies.

[Lord Majestic]

The way PPC auction system works makes inevitable that profit margins are eroded, especially if there are new people out there who are prepared to sustain losses so long as they get traffic in hope they will make it up in repeat buys. Additional limit is that only a handful of people can be shown for very competitive terms, this makes bidding more active and results in faster margin erosion. This moment was coming from the day they devised the system.

[toast the most]

I'm in the same paid search space. It is most definitely not small profits, revenues and is definitely worth being involved with.

I suspect their campaigns are poor!

[RhinoFish]

I know the answer to what's happening here, but if I told you, you wouldn't entirely believe me. I'll say that Orbitz couldn't measure their shoe length with all the crap they have happening because of poor partners they've chosen to be involved with, so they sure as heck can't measure their channels correctly. If you believe this story, your view of how internet channels work is clouded and naive. And yep, I know, little old consultant me claiming I understand things better than giant, successful Orbitz... I don't expect you to believe me. The only reason I post is because I get disgusted by mega company's blindness and how it legitimizes scum that has spread everywhere, including into my little tiny corners of activity on the internet.

[netmeg]

Heh, given my own experience with clients, perhaps not as big as these, but pretty big and competitive in their own right, I absolutely believe you, RhinoFish. I suspect if they were doing it right, they'd be increasing their spend, not decreasing.

[smallcompany]

I agree with “doing it right vs. wrong”, but still say that the margin has shrunk, compared to what it used to be. If Google helped it work it the other way, we would still all be spending more as we could afford it. Our volume would cover their margin.

company's blindness

Sickness called “the budget”. Go and kill it so we get it next year. And then they kill their own conversion and all other folks around. It’s like a cassette bomb.

[shorebreak]

I'll say that Orbitz couldn't measure their shoe length with all the crap they have happening because of poor partners they've chosen to be involved with, so they sure as heck can't measure their channels correctly.

RhinoFish, what partners - or types of partners - are you referring to? Agency? SEM tool provider? Analytics firm? Other?

[RhinoFish]

Yes, among more than one of those, lies the problems. My opinion here has nothing to do with how well (or poorly) they run their ppc, it's the other channel issues that they are ignorant of. And there happen to be several overlapping and unrelated schemes in play here to cause them to make misguided conclusions.