Vinny Lingham's Blog

I has barely finished the eComXpo session and no sooner had James from the InsureMe Blog expanded (stole ) the themes of one of my upcoming blog posts that I was planning! Thanks a lot James! I’m going to write about it anyways!

Basically, James already details what I said during the show, but just to clarify what I mean by Return on Effort, here is my short and simple take on things:

The question was asked as to whether or not it is worth spending time on 2nd tier (non-Google/Yahoo/Ask/MSN) search engines and running campaigns with them.

There are a couple of key issues here, one is market growth (momentum) that Google in particular has, and the second is ROE (Return on Effort)
Let’s make the following assumptions for the US market search engine market (taken from VastPlanet):

Google Market Share = 53% (with AOL)
Yahoo Market Share = 28.1%

MSN Market Share = 10.5%

Ask Market Share = 5%

The Total for The Titans is a whopping 96.6%.

Now, until Snap, Become, Miva & all the other 2nd tier engines send traffic out of the massive :- combined 3.4% market share that they have & I can’t see the logic in advertising with them, and here is why:

If in one of our campaigns at Clicks2Customers, we have to allocate a campaign management resource to setup a campaign on a 2nd tier engine (which we don’t deal with). Now let’s assume for a decent sized researched campaign of 5,000 keywords with dedicated ad copy (as all engines are different and have differing editorial rules), it takes them 100 hours to do (and that’s quick, using our technology and existing processes).

Let’s assume that currently on Google, we are running with 50,000 keywords and generating $100k a month in sales and in our category, we’re getting 5.3m impressions (searches) per month. All things being equal, by the ratios above, the maximum searches we would get out of ALL the 2nd tier engines combined, would be 340,000 searches with 50,000 keywords. Let’s further assume that we went with the largest 2nd tier engine (not even sure who that is) and the engine had a 20% market share, then I’m going after a market of 68,000 searches related to my product/service – if you divide that further with the fact that you’re only loading 5,000 keywords – it would get scary, so I will neglect to include this in my calculations.

Again, ceteras paribus, if you just work out the back of the envelope stuff, then the absolute maximum that this traffic is worth to me if it converted even just as well as Google does is $1,283 in sales (which I highly doubt, as there are large amounts of Clicks Fraud on 2nd tiers). And that’s with a 20% market share which is not even possible in such a fragment tail-end market.

So, assuming I could spend my 100 hours on Google, and push my campaign performance up by just 10% with an extra 5,000 keywords, then I would be pushing the needle on my revenues by $10,000 (a nearly 400% increase in ROE), why would I bother with 2nd tier engines? I know the argument (from the 2nd tiers) is that it’s cheaper, etc – but at the end of the day, spending those hours improving clickthrough rates and other metrics like conversions etc, will translate into greater savings anyways on the majors like Google – so I don’t buy that argument.

Most Google PPC campaigns I have seen are not even 50% at peaking in terms of digging into traffic in the long tail, and most people are so worried being on other engines that don’t matter and waste their time there. Mine the Google keyword gold instead, and when you’re finished making triple digit gains, then go visit Yahoo and then MSN, and then finally, Ask.

Lather, rinse & repeat.
Someone today said to me that no one ever made a fortune by worrying about the numbers after the decimal. I think that this definitely holds true in this case.

I’m not going to rehash my previous post on this topic (still highly applicable – I highly recommend reading it before continuing with this post), but Google has finally launched Pay Per Action across their Adwords Network for US advertisers onto Adsense (not Search Network yet). I still believe that there are severe problems with the model, and Google will discover that it is not sustainable.

Search Engine Watch believes that Commission Junction’s days are numbered – I don’t think so! Andy Beal also has a similar view. We’ve been running CPA campaigns through Google for nearly 4 years now, and I think Google vastly under-estimates the risks and relationships at play with CPA marketing. The biggest concern though, is that Google’s internal arbitrage of CPC to CPA (which is what they’re doing, effectively), pushes prices CPC prices up in the short term, while they make mistakes that we’ve forgotten how to make, in our Clicks2Customers business.

Also, from the Inside Adwords blog, it’s not clear how they will deal with chargebacks – I’m guessing that the merchants have to factor this in? Can you imagine what’s next? Click-Order-Return (COR) fraud (i.e. Website owner clicks a merchant, places an order – merchant pays Google, Website owner returns goods – Google doesn’t refund merchant and Google pays Adsense site share of CPA). What if I’m a Google stockholder and I make a $1m purchase in order to boost the earnings, and then return or cancel the order – in theory, Google still gets paid and their stock goes up, but the merchant is out of business – just summising here, but I still don’t think CPA is viable for Google.

As I said in my previous post on this topic – Google has a smart bunch of guys, and I’m sure they will figure it out!

Today Todd Tweedy launched his new company, BoldMouth, a Word of Mouth Marketing company. Here is the email that I received.

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Happy Monday!

It’s official. Today I launched my new company — BoldMouth – http://www.boldmouth.com focused on delivering real word of mouth marketing relationships. And, in January I’ll be speaking at the Word of Mouth Marketing Associations conference on building a word of mouth plan for business. The plan I’ll present is called Interest Recognition and integrates business strategy, organic search indexing, content profiles, content tags as well as alternative forms of content distribution and publishing, collaborative filtering with personal agents – think bots, and finally content positioning and navigation. I’ll be posting pieces of the model prior my January 19th panel on my personal blog about word of mouth at http://www.wordspreadsquickly.com.

Here’s the official release that went out earlier today

And, we’ve even generated some early blog coverage as well:
http://redcouch.typepad.com/weblog/2005/12/todd_tweedy_lau.html
http://www.adrants.com/2005/12/new-word-of-mouth-firm-slams-buzz.php

That’s not all… the entire site was built using a new development language created by Mike Spencer called PTM. I believe PTM will change how we create dynamic websites in the future and I’ve included a link if you’re interested in learning more about the technology we’re using => http://www.boldmouth.com/techoverview.html

And, of course, design credits go to Valerie Cole. She is amazing! She’s worked countless hours on this project!!

Finally, we’re working on a study of word of mouth practices and ethics with Osterman Research. Here’s a link to the survey:
http://www.ostermanresearch.com/survey_2005DEC08.htm. If you want to receive our report on findings and data, drop me an email.

Looking forward to reconnecting soon…

Many thanks,

Todd Tweedy

Guess I’m not posting as often as I promised, but now that I’ve resolved all the technical issues, I hope things will pick up.

In the online marketing arena, what strikes me as very unsettling, I find media owners and publishers seem to consistently overvalue their inventory. Let’s recap on what we have seen over the past 5 years:

Previously flat-rate sponsorships were all the rage – you could not buy on a CPC or CPM. Unfortunately, sponsorships never guaranteed traffic and were volatile at am impression level, to say the least.

Effect: Advertisers stopped purchasing sponsorships and that market collapsed.

Advertisers started purchasing on a CPM (Cost Per Thousand Impressions) and to this day, some still do. To gauge how the market has dropped, I recall being offered inventory 3 years ago at $150-$200 CPM by some silly UK publishers (no names mentioned). Again, an impression does not guarantee a click-through to the advertisers’s website – no click – no customer!

Effect: Advertisers stopped purchasing CPM inventory (in fact the market has declined by up to 80% according to some market research companies).

***EXCEPTION CLAUSE*** In countries like South Africa, where there is low Internet penetration, large corporates with dumb money (“branding” – no direct ROI measurable) seem to be willing to spend money on a CPM basis and line the pockets of the few big media owners which seem to dominate the online space, only because it’s not profitable for more competitors to enter. This is bound to change as soon as South African companies start understanding the revolution of online marketing from an international standpoint.

Cost Per Click (CPC) inventory is all the rage at the moment. Why? Well, firstly it means that the advertiser is only paying when someone visits their website. This is 2 steps closer to performance marketing than sponsorships. The risk of the click converting then rests on the advertiser. Advertisers need to ensure that their websites convert Clicks2Customers in the most cost effective way. There are obviously other concerns like click fraud or poor traffic, but that lesson is for another day.

Effect: Advertisers are focusing on ensuring that clicks they pay for are converted into customers. The higher the conversion rate, the more inventory they can affort to purchase, especially in auction based CPC media buys such as Google Adwords, Overture & FindWhat.

What’s next? Media owners are becoming more favourable to displaying ads on an affiliate basis. Remember that if your traffic converts into customers, there is no reason why you wouldn’t want to take a bit of risk. Networks such as TrafficSynergy and CJ facilitates this type of relationship – otherwise known as performance marketing. Overture has already moved to a Cost Per Lead basis to capitalise on the fact that advertisers are willing to pay more for a lead than a click.

I will be speaking at CJU in Santa Barbara, CA next week, if anyone would like to meet up, please drop me a note and let’s arrange something.

I had dinner at another fine restuarant in Cape Town last weekend, Five Flies. If you ever get a chance to visit it, you will be more than pleasantly surprise. I had my favourite meal there, a seafood platter, with langoustines, prawns and crayfish.

In addition, I finally received my order from Amazon for CSI Season 2 & 3! Looking forward to lots of CSI on the plane – for those of you that are not aware, it’s about 28 hours travelling from Cape Town to Santa Barbara!