As someone who sees dozens of new businesses in the conception stage each week, I’m struck by how many never address the risk inherent in relying on a dominant player’s platform for the
heart of their business. I’m speaking specifically of Google and Facebook. Whether you’re relying on Google search for customer acquisition or AdWords for revenue, or on Facebook for customer acquisition and marketing, you have put your business at the mercy of the competitive whims of these companies, most often without a backup plan.
Google has been regularly tweaking its search engine with an eye toward dinging companies that have developed ways to artificially raise their rankings. Back in early 2011 around the time of its IPO, Demand Media was hit with Google’s Panda algorithm that went after so-called “content farms.” As a newly public company, it fought back, claiming the effect was minimal. However, in the fourth quarter of its first year as a public company, Demand Media posted a $6.4 million loss, largely attributable to the Panda. They’ve subsequently been able to deal with the changes, but they’re a relatively large company. What about startup entrepreneurs who don’t have a ton of resources to act quickly to address the competitive moves of the big companies they depend on? How can they respond?
Google’s most recent tweaking called “Penguin” (at least it’s smaller than a Panda) has hit small businesses hard. The
WSJ reported that companies like San Francisco-based
Oh My Dog Supplies LLC literally dropped from the rankings as a result of Penguin.
Andrew Strauss, the co-owner of the company, claims that traffic to his site through Google dropped by 96%, reducing monthly sales from $68,000 to $25,000. That will get your attention! Strauss has since learned that some of the big no-no’s when you’re dealing with Google include keyword stuffing and paying for inbound links to boost rankings. If you do these things, you’re a target.
Those who have started businesses that depend on Facebook to survive should keep their eyes open to the impact of Facebook now being a public company and how that might affect the way it does business in the future. A lot of talent will take their money from the IPO and leave to start their own ventures or invest in other startups (a great time, by the way, to look for funding from these newly minted millionaires who will probably spend carelessly for a while). Will Facebook lose its creative culture as it tries to keep its public shareholders and Wall Street happy every quarter? Last year 85% of Facebook’s revenue came from advertising, but on the heels of
GM deciding to pull its Facebook advertising because it didn’t pay off, other big companies might follow. If your business relies on ad revenues or customer conversions from ads you strategically place on Facebook, you should be thinking now about other ways to generate those revenues and attract those customers. The number one reason people are on Facebook is to socialize – if your business doesn’t address that, you may eventually be out of luck. If your business’s customers get to you through their mobile devices and want to do their transactions that way, Facebook has yet to become a real mobile platform. They may go that direction in the future, but your business has to survive now!
The bottom line is I can see why so many entrepreneurs depend on Google and Facebook, but that dependence does not come without risk. I could regale you with countless stories of big companies that have put startups and early-stage companies out of business either intentionally or as collateral damage in their quest to get bigger. When you rely on a big company for key components of your business model, you need a backup plan. You also need to look at their history and learn from it so you’re not surprised by strategic moves they make. It’s the old adage that is still true: buyer beware!
