How do Google changes affect businesses?

[mikeb]

[mod: split from this thread: http://experienced-people.net/forums...-are-NOT-dead]

Sorry to pick this one thing out of your otherwise informative and well argued post but it's the only part I disagree with. No, you don't have to rely on it and anyone who relies on something that they have no control over is an idiot.

I wish the real business world were like the idealised oversimplistic version people are fond of pretending exists here.

Are transport businesses "idiots" to rely on having diesel to put in their trucks?
Are ecommerce businesses "idiots" to rely on a merchant banking facilities?
Are service businesses idiots to expect their staff to come in next week?
Are retail businesses idiots to hope that the road outside their shop does not get closed, rerouted or double yellow lines? or bypassed on the whim of a transport policy?
And so on...

The reality is all businesses have finite margins, and in the "valuable economy" that is the economy that makes things, digs things out of the ground, builds things, grows things or takes things to where they are used , the margins are generally not high 10-20% max. It is the parasites on that economy who make most of the money with far less capital and risk.

That finite margin has to subsume all the business sensitivities and risks. All are hitting together. Cost base increases, people and things, loss of sales due to recession in europe (25% in spain!!) , increase of distribution costs, increases by all the parasites like banks, governments . accountants and all the rest.

When the cost base jumps by 10% on fuel because of speculators in banks who can no longer mess with property derivatives. Government hikes taxes. The cost of goods increases, recession bites, between them pull margins down to nothing. Then even if your traffic component is only 20% directly from search (hardly total reliance)

Then matt cutts getting bored so tweaking a few things can send the business underwater. No one thing of course, but one that is plenty enough to kill in combination.

The reality is all businesses rely on the rate of change being slow enough to allow them to adapt. With google change is too violent. They are the present custodians of search based traffic, soon to be replaced I hope.

Not a subject for this thread, but I think a world economic meltdown , starting with greece and spain and the bankrupt US catalonia and a county in alabama are already bankrupt!! causing this time an unstoppable domino effect in banks, is not just possible , it is actuallly probable, if not inevitable now Are businesses "idiots" to hope , expect and need that the world does not go into economic decline?

I have run a lot of businesses. I only ever had to close one. I had a consultancy / system integrator that won the respect of almost every big blue chip in the north of england, and many souther companies too. Our client base was a "who is who" of British industry. Then in 1992 literally ALL the corporate cheque books closed except for essential maintenance work. Did that make us "idiots"? - noone has seen the like of it either before or since. The fact is all business "rely" on a lot of things to continue at some level.

Businesses only have a finite number of sources to get work. And finite margin. They can hedge their bets between a few, but ultimately they rely on some of the chickens coming home to roost. That does not make them idiots. That just means they live in real world.

I am out of that now. I just do what I do from home, with no employees or overheads so i can survive indefinitely. Not so the valuable economy.

It is pretty galling when despite the real risks of real business the likes of google can trash these struggling businesses for no apparent advantage, to make something different not better. And then they make the crass remarks "it only affects 10% of sites"...as if that were a good thing

[JJMcClure]

I wish the real business world were like the idealised oversimplistic version people are fond of pretending exists here.

Are transport businesses "idiots" to rely on having diesel to put in their trucks?
Are ecommerce businesses "idiots" to rely on a merchant banking facilities?
Are service businesses idiots to expect their staff to come in next week?

I don't think these are valid comparisons.

Diesel will be available till the sources dry up and the manner in which it's dispensed won't change, only the price. Merchant banks aren't likely to change the criteria by which they accept clients and suddenly close thousands of accounts. People need jobs and that's enough to have a reasonable expectation of them showing up for work.

So the answer to your question is no.... none of those people would be idiots to rely on those things. Expectations are not all created equal. I expect diesel to be in the pumps, I don't expect Google to continually send me traffic. If you were a bank evaluating someone for a loan and their model depended on Google traffic (known to be fickle and unreliable and 'whimsical' and subject to regular change), would you give them the loan? I doubt it...

[Clinton]

mikeb, when was the last time you heard of a transport company going bust because their source of diesel dried up completely?

[mikeb]

mikeb, when was the last time you heard of a transport company going bust because their source of diesel dried up completely?

I will warrant at least some went bust during the last fuel strike.

Complete bust is not the point I was making - I was making the point that businesses are FORCED in the real world to rely on sources where price and avaialability outside their control. They are not "idiots" for doing so, although they have a tough business model.

This much is certainlty real. The cost of diesel rising due essentially to energy speculation is taking/and has taken a lot of businesses close to the wall and under. Listen to the haulage associations next time the budget is due. Airlines have been put out of business by rising unhedged fuel prices too.
A straw that broke a camels back.

I would not want that business model for you MBA folk because of "supplier power" under harvard forces /porters model makes it a tough business but hey! somebody has to get goods from a to b. We cannot all be bankers.

As an interesting aside - I knew a big airport accountant who told me the margins on fuel are so low, they made more from the carwash than their permanently full 12 car filling stations....So greedy are the oil companies.

[mikeb]

I don't think these are valid comparisons.

Diesel will be available till the sources dry up and the manner in which it's dispensed won't change, only the price. Merchant banks aren't likely to change the criteria by which they accept clients and suddenly close thousands of accounts. People need jobs and that's enough to have a reasonable expectation of them showing up for work.

So the answer to your question is no.... none of those people would be idiots to rely on those things. Expectations are not all created equal. I expect diesel to be in the pumps, I don't expect Google to continually send me traffic. If you were a bank evaluating someone for a loan and their model depended on Google traffic (known to be fickle and unreliable and 'whimsical' and subject to regular change), would you give them the loan? I doubt it...

There are a lot of issues in there.
1/ The price of fuel changes dramatically because of speculation. And that makes severe problems for people forced to rely on it.
2/ Merchant accounts are withdrawn on a whim by banks. As are lending facilities and payments You may not have heard the screams in your business.
3/ If a source of sales is material to a business, then the withdrawal causes problems particularly when these companies are under pressure as they are now.
4/ The problem with google is the reckless speed of the changes that give nobody time to adapt. Let us hope more sensible people take over in the fullness of time.

Have you ever actually run a high or fixed overhead business? You do not appear to know the score.
Real businesses are defined by:

Variable sales - big fixed number - variable costs = ver small profit. The sensitivity to 20% loss catastrophic loss of turnover in many real
businesses is pneumonia, if not terminal. So even if the company only gets 20% sales from google, it can be a killer blow to lose it completely and instantly.

Take standard retail at small margin, carrying substantial illliquid stock, a big lease, huge rates, and irremovable staff.
They get stuffed by rapid changes in turnover if they cannot plan ahead. Been there. Got the t shirt.

No that cutts knows that. Or cares even. The main point I make is we live in tough times. The pips are already squeaking in many primary businesses. It does not take much to keel them. They are not "idiots" they are just trying to survive.

I fear we are on the cusp of a global financial meltdown, and this time, I cannot see anywhere with the funds or will to stop it.

[Chabrenas]

a transport company going bust because their source of diesel dried up completely?

No. But I've seen one in serious trouble because their finance 'director' didn't pay the fuel account and did a runner with the money...

[Clinton]

I'm sorry mikeb, fuel is still not a good comparison. You can't run a fleet company without fuel. You can run an internet business without Google traffic.

Ecommerce businesses that are reliant on a certain bank's facilities can move to another bank if they are not happy. Who would you convince to send you Google volumes of free traffic if Google stops?

If staff don't come in next week, I'll hire new staff.

The point is ... there are options when you're paying for something.

Real businesses are defined by:

Variable sales - big fixed number - variable costs = ver small profit. The sensitivity to 20% loss catastrophic loss of turnover in many real
businesses is pneumonia, if not terminal. So even if the company only gets 20% sales from google, it can be a killer blow to lose it completely and instantly.

I beg to differ. Your financial exposure to risk is dependent on the size of your fixed costs relative to overall costs. Where your total costs are composed of low fixed costs and high variable costs you can easily absorb fluctuations in sales - you simply scale up or down as needed. If you're reliant on Google for "free" traffic then you'd be smart to operate only a model that has low fixed costs.

I fear we are on the cusp of a global financial meltdown, and this time, I cannot see anywhere with the funds or will to stop it.

I share your fears.

[JJMcClure]

I fear we are on the cusp of a global financial meltdown.

We've been on the cusp of a global financial meltdown since there was global finance, they happen all the time and the most bizarre thing is that nothing will actually change except people's confidence in money. In the Story about the emperor's new clothes, the only person who doesn't realise that the clothes don't exist is the emperor, with money it's the other way around.

[mikeb]

I'm sorry mikeb, fuel is still not a good comparison. You can't run a fleet company without fuel. You can run an internet business without Google traffic.

Ecommerce businesses that are reliant on a certain bank's facilities can move to another bank if they are not happy. Who would you convince to send you Google volumes of free traffic if Google stops?

If staff don't come in next week, I'll hire new staff.

The point is ... there are options when you're paying for something.



I beg to differ. Your financial exposure to risk is dependent on the size of your fixed costs relative to overall costs. Where your total costs are composed of low fixed costs and high variable costs you can easily absorb fluctuations in sales - you simply scale up or down as needed. If you're reliant on Google for "free" traffic then you'd be smart to operate only a model that has low fixed costs.


I share your fears.

1/ JJMs point was that anyone relying on something outside their control are "idiots". Most businesses rely on something outside their control - and when those things change too quickly it can be terminal, particularly when times are tough and the businesses are at limits. Almost every marketing process relies on something or someone outside the organisation.

2/ Ratios of fixed to variable costs, the essential llimits of stock turn, work in progress, and other ratios, are set by and large by the type of business and custom and practice in that industry not by the cleverness of the owner who can only tweak a few percentage points. The toughest industries are also the most important. Manufacturing generally has a high fixed cost base for the automation and plant that makes things and the relatively high fixed cost of trained staff to operate it. It is hard to make any economic sense of running plant at 60% capacity because of fixed costs. So if demand changes dramatically even temporarily it can be a killer

3/ Staff and related legislation are a serious problem in the UK. I have made hundreds of jobs over the years. Never again. The rules are now ridiculous. Trying to change size quickly to meet violent changes in demand , or indeed when business models change, rapidly is more or less impossible. Take UNITE systematically destroying british airways hanging on to the "old ways" even though they cannot compete in the airline market with 20 year old cost base. Take public employees who in simple terms contracted to die before the age of 70 , now living longer expecting the same deal on pensions. All the rules are too inflexible.

4/ It is a sad fact that the closer an industry becomes to prime essential, generally the lower the margins become, and the more sensitive they become on twitches in the cost base and demand. The middlemen, sellers, and the army of parasites in financial and other services, want to take all the cream. When the economy catches a cold, the real wealth generators catch pneumonia.
Stobart was making more from selling memorabilla than trucking at one point. Dear old Eddie himself died bankrupt.

Internet marketers - I suspect most on this forum live in a bubble protected from most of this harsh reality.

One thing real business does not need is unnecessary disturbances caused by geeks disconnected from reality playing games with demand - turning on and off traffic like taps like google does on a regular basis. For the present Google has taken over from the directories and yellow pages as the custodian of "people searching" for things. I only hope their tenure is short - I already have the embryo of an idea for something that might replace them. At very least they should programme changes to kick in slowly so demand drops and changes over months not days to allow businesses to adapt.

The fact that internet businesses and small service businesses are by and large low fixed overhead, high margin, rapidly scaleable, does not make internet marketers clever. It means they have opted out from tough business.

[JJMcClure]

1/ JJMs point was that anyone relying on something outside their control are "idiots". Most businesses rely on something outside their control -

I thought it went without saying when I made that point that there are degrees of things that are beyond our control and when it comes to Google it's totally out of our control, as opposed to the diesel/banking/employees examples that you listed which are much more inherently reliable.

Let me be more explicit: Anyone who relies on something totally beyond their control and which is known to be unreliable, prone to extreme change, has a reputation for putting their own services first and which is constantly in a war with people trying to spam them which often causes serious collateral damage, is an idiot.

How's that?

The fact that internet businesses and small service businesses are by and large low fixed overhead, high margin, rapidly scaleable, does not make internet marketers clever. It means they have opted out from tough business.

Clever enough to opt out of tough business? lol.