Search Ads Are a Hammer, But Not Everything is a Nail

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 (s goog) 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.

[inline-pro-content] 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.

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Post and thumbnails courtesy of Flickr user Igor