How Google Is Fixing Its Small Business Problem

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Small businesses can create big problems for technology companies. Innovations that may appeal to brands often create clutter for smaller marketers, resulting in a product development paradox for many firms.

A few years ago, the paradox threatened to undermine the fundamentals of one of Google’s core revenues-generating products, AdWords. In 2011, the churn rate in its search advertising product spiked, leaving managers, including Joe DeMike, now the head of the customer experience lab at Google, scuttling to find a solution.

“At that time, there was big problems with AdWords,” said DeMike, speaking at Borrell Associates’ Local Online Advertising Conference in New York. DeMike said that over half of the small businesses using the search advertising product would lapse within three months and 45% would only set up one campaign after signing up for the service.

The problems with AdWords followed a series of other failed small business products at the search giant. In 2009, the company attempted to build a native ad product into Maps that allowed companies to pay $25 a month for a small yellow tag next to their location. But eventually, the sales reps began selling the product to large brands, eliminating its value for smaller business owners.

The problems with AdWords were neither unique to the product nor to Google altogether. Technology companies have struggled for years to marry the vast capabilities implicit in digital products with the relative lack of time and skill of smaller marketers. Those problems have been compounded by sales strategies that, in light of the size of the market, have rewarded top line growth in lieu of profitability, creating distrust and churn among smaller marketers.

“It’s an industry with high churn rates, so that puts more pressure on the selling machine, and the vicious circle continues,” said Sharon Rowlands, the turnaround expert who took the reins at the struggling ReachLocal last year. “What happens when you have high churn rates and tough selling models on  the front end? Even if you have rising growth you probably end up unprofitable.”

In a presentation Tuesday, Rowlands said that an emphasis on top-line growth has stymied the local marketing industry. She argued that a revenue-driven model creates the wrong incentives in an organization, driving both product and sales teams to emphasize customer acquisition over satisfaction.

“You need to  be confident that the top line machine can keep accelerating,” said Rowlands. “At some point, it breaks down. That was the case at ReachLocal until a few quarters back.”

The former Thomson Financial chief executive said she has reorganized ReachLocal’s sales and products teams to focus on customer retention rather than acquisition. The company has pulled out of a handful of peripheral initiatives to invest in its core markets, and Rowlands says she has reworked the incentive structures to emphasize customers who “see the value in the product.”

Meanwhile at Google, the company has responded, in part, by rethinking its customer service organization. DeMike now heads up Customer Experience Lab, a small team focused primarily on solving some of the problems facing its small business segment. Its first experiment was to create an education and service program for a sample of 26,000 small advertisers.

Advertisers can set up an appointment, and a team member will troubleshoot problems over video chat. The bulk of the program is built around a three-part over-video education program that aims to teach advertising the basics of internet marketing and Adwords. DeMike said that roughly 60% of the advertisers sampled lacked basic digital marketing knowledge, failing to understand even the most basic questions about the difference between paid and organic search.

The strategy is based in the belief that confidence, not metrics, determine the willingness of a small business owner to invest in an ad product.

“When we measure the satisfaction of advertisers, it’s the most directly correlated with their confidence,” said DeMike. “It doesn’t matter what the performance metrics are; what matters is how confident they are in using the software.”

Steven Jacobs is Street Fight’s deputy editor.