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Summary:

A talk by Dropbox founder and CEO Drew Houston about how search-related keyword ads didn’t really work for his company is another worthwhile reminder that search advertising doesn’t work for every situation, and that there are good reasons why Google needs to be afraid of Facebook.

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Search-related keyword advertising is a multibillion-dollar industry for a reason — because it is extremely good at converting people who are searching for information into shoppers who want to buy something. But it doesn’t work for everything, and it’s worth being reminded of that sometimes. Dropbox CEO and founder Drew Houston provided another example of that in a presentation at the recent Stanford Accel Symposium, where he talked about how the cloud-based storage company grew to where it is now, with more than 4 million users. Among other things, he described how search ads didn’t really work for the company in helping to achieve that growth.

The way Houston describes it, Dropbox did lots of things that it thought young startups should do to get attention, such as hiring a PR firm and buying search ads for Google keywords — but none of those worked particularly well. Specifically, he said, search ads were a complete bust as far as getting new users was concerned, because the company was spending hundreds and hundreds of dollars on advertising just to get a single new user — far more than it would ever likely make from them in fees for its service.

So why didn’t Dropbox get much traction from search ads? Houston argues it’s because people didn’t really know what they needed, or weren’t aware of how Dropbox could solve problems for them in their lives, so they didn’t really respond as well to keyword ads for “document synching” and other terms. The Dropbox founder said something similar about the growth of the company at a startup conference Liz attended earlier this year — saying search “is great for harvesting demand, not creating it,” and that the company got far more mileage from referral offers and other tools for spreading word-of-mouth.

This goes right to the heart of something we at GigaOM talk about a lot, which is the threat that Google faces from social media in general, and Facebook in particular. Google does well with search advertising because it involves people who have already made up their mind to buy something and are looking for where they can go to do so — but it doesn’t do as well with people who are just looking to talk or network with others. To the extent that your potential customers are closer to the networking end of the spectrum (as Dropbox’s were, because they likely weren’t even aware that the product could fill a need in their lives) social media is likely going to be far more effective, because it is about word of mouth recommendations.

Where do people get word-of-mouth recommendations and related discussion from Google? The short answer is that they don’t really. Maybe they get some of that from Buzz, but as a mainstream product Buzz is pretty much a bust. That’s not to say Google itself isn’t useful, of course, or that keyword ads are worthless — even in Dropbox’s case, once users heard about how great it was, they would probably go and search for reviews, information about other related products, etc. before trying it out. But Google doesn’t play in the social part of the spectrum, and that is a problem because money follows attention, as Kevin Kelly writes in a piece in the Technology Review.

Houston’s observations are just another example of why Google needs to be afraid of social and what it implies. And it explains why the company is focusing on adding what CEO Eric Schmidt called a “social layer” to its products and services — although being truly social, as I noted in a post, is not the same as simply adding a widget to your existing features, which is why Facebook has a leg up in that department. Regardless of how it does it, Google needs to find ways of incorporating the social element into what it does, or risk losing attention — and by extension, potential revenue.

Related content from GigaOM Pro (sub req’d):

Post and thumbnails courtesy of Flickr user Igor

  1. … but potential buyers are NOT likely to get recommendations on where to acquire users from Facebook either, especially when the service is (i) not well known, and (ii) B2B-oriented. “Document synching” is just as far from any FB user’s mind. Obviously, Google is the holy-grail hammer that can hit every nail, but it comes pretty close. As a matter of fact, I think it performs much better than Facebook in that regard already.

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  2. My point is that potential buyers — or at least users — are more likely to find recommendations about tools to use from friends on social networks like Twitter, Facebook and blogs than they are by doing random searches on Google. Thanks for the comment though.

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  3. “…search “is great for harvesting demand, not creating it,” and that the company got far more mileage from referral offers and other tools for spreading word-of-mouth.”

    So true. I’ve seen interesting products, news links, causes catch like wildfire on Facebook.

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  4. Great article, and hits the nail!

    From our learnings, using the Google content network is a better way to create demand. We have seen this work better for products and services that are newly launched.

    And yes – the efficiency isnt as high as in Google search!

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