What will Google do with Yahoo Search?

Techcrunch has just announced that Google & Yahoo intend to do a partnership around search. This is a great move by Yahoo, as they clearly did not do a good job with Panama (Yahoo Search Marketing). I was one of the search marketing experts that assisted the guys at Yahoo back in 2006 with planning Panama, and not many of my suggestions back in 2006 were followed. They thought they knew better…evidently not!

So, what’s is Google going to do with Yahoo? The right thing! The key to Google’s success is global distribution and billing (any customer, any language, any time, any country). Google will consolidate all the Yahoo marketplaces in all the different countries, and enable anyone, through a central interface, to bid on search terms from one central location. Yahoo should have done this from day 1, and Microsoft hasn’t realised this yet either. The politics around setting up a different “market” for each country clearly overcome good business sense by both Yahoo & Microsoft. Google did it right. This was the critical flaw in Panama. It just took too long to roll out a separate market for each country and then they didn’t achieve any of the benefits that a large advertiser base could achieve, across different markets. In other words – they reduced the Return on Effort for advertisers.

The problem with CEO’s such as Steve Ballmer & Jerry Yang, is that much of the knowledge around their advertising systems lies with Product Managers, and technical folk that are much closer to the customer and this information does not float up to the top. They are too far removed from the detail to understand how to run a good search operation – it’s not their fault, it’s just how large organization works. Google is so efficient at extracting value from search, and have been doing it for so long, that unfortunately, hiring a product manager with 5 years experience in search just won’t cut it.

As I said before in this post (2 years ago), Microsoft & Yahoo will never beat Google unless they understand first principles of search marketing as a business and industry – and as yet, I’ve not been proven wrong. If anyone has Steve Ballmer’s email, tell him to give me a call and let him know that I’m more than happy to help him fix AdCenter – no charge!

Update: Ok – now this proves how dysfunctional Yahoo’s thinking around search is. The announcement was just made and it only applies to US & Canada. Google is obviously happy to get a foot into the door without taking the rest of the world with them. It’s not a complete takeover of the search function, but more of a supplement to their own efforts with Panama. I’m very interested to see how this will be implemented, and if foreign searchers will see their local results on Yahoo.com (i.e. if they are not in a local Yahoo site).

Search Engine Marketing Training Course with KeyJam.net

I’m pleased to be able to announce that Llew Claasen (incuBeta co-founder) and myself have just launched a new company, KeyJam.net.  KeyJam.net is going to focus on delivering training courses and seminars in South Africa that will allow corporates, media & marketing companies, and SME’s to learn more about Search Engine Marketing.  Here is some media coverage on Biz-Community for the launch of the company late last week.

Our first set of courses will be around Search Engine Marketing Fundamentals, focusing on delivering the essentials knowledge that people need, in order to understand and become more effective search engine marketers.

We are expecting a lot of corporate demand for these courses, and spaces are limited, so book early if you’re interested (and get the discount!).   See you there!

Adwords Preferred Bidding Option Announced

Google now offers a secondary method of bidding, called Preferred Bidding – this will add additional liquidity to the Google Adwords marketplace and allow merchants more control over what they would like their final CPC to be. My view is to stay with the existing bidding model, until more research is done on this new option and the implications of it on advertisers.

AOL Only Adwords – Marketplace & Revenue Impact

So, if you haven’t heard by now, AOL is receiving their own version of Google Adwords (Private Label deal).

I’m not going to rehash the background and deal info, referenced at SearchEngineLand, but instead, I’ll try to explain what I see the market impact as being.

I’ve long argued the point that we should be able to price keyword by partner on all the major search engines, as they all have quite different conversion rates and “Not every click is created equally”, to paraphrase. The AOL deal has forced Google to make this move, and I think it will probably hurt their margin numbers and not just their revenues. Overall, it’s probably close to a zero sum gain as the money will flow to AOL, but their cut will just reduce. I haven’t done the math, but they might be just slightly worse off on revenues, but definitely down on margin.

Also, this impact will hurt many of Google’s partner sites that relied on high conversions from AOL to “slip” clicks through the door at higher than market value (respective earning or value per click), because of the fact that marketers cannot price each partner differently.

This is quite a complicated post, so please bear with me – I’ll try to explain this as simply as possible.

Currently, when buying Adwords ads, you pay a single price for a click & keyword that goes to Google’s distribution network.

For example (and I’m using hypothetical, BUT REALISTIC numbers here), let’s say that a keyword received 100 clicks and the breakdown by partner is as follows:

25 Clicks from AOL – 5 Conversions
50 Clicks from Google – 4 Conversions
25 Clicks from Google Partners – 1 Conversion

Total Clicks = 100 x CPC of 25c = $25 in costs
Total Conversions = 10 divided by $25 in costs, leaves us with a $2.50 CPA (Cost Per Acquisition)
Assume an average position of 3 and as you can see from above, AOL has the better conversion rate.

Let’s assume that your breakeven point is $2.50 CPA. Now, because Google runs a single blind marketplace, there is no price discrimination, which means that there is cross subsidization of keyword value (you pay an average price for everything, yet some clicks are worth more and others are worth less).

For the record, our logs indicate that AOL has the best conversion rate across all Google partners, and this simple means that if there is a separate marketplace for AOL, that prices across the Google Adwords network (especially direct) should fall, IN THEORY (see conclusions).

Now, let’s assume that we removed the AOL numbers:

50 Clicks from Google – 4 Conversions
25 Clicks from Google Partners – 1 Conversion
25c CPC x 75 Clicks / 5 conversions = $3.75 CPA

By AOL moving out of the marketplace, this would effectively mean that the remaining traffic would become too expensive, because AOL would not be cross subsidizing it (and obviously, they know this already, and that’s why they want their own marketplace). This would mean that prices would drop in order to offset the drop in traffic quality.

What would this mean for AOL?

$2.50 CPA x 5 Conversions = $12.50 / 25 Clicks = 50c CPC – almost DOUBLE what Google was raking in for them by cross subsidizing, is what the merchant would be willing to pay direct on AOL, because of the higher conversion rate.

Now, here are the possible conclusions vis a vis Google CPC’s:

1. Google CPC’s will drop as marketers move their spend directly onto AOL and adjust ROI’s according on Google. This will impact Google’s financials, as they will have to pay out a lot more money to AOL.

2. Google CPC’s will increase as dumb money floods the market because marketers are either too lazy or overworked to load AOL campaigns (highly unlikely in the long term) and instead they make it more profitable for Google to show Adwords direct ads for AOL, than AOL marketplace ads. I doubt this would occur though, but it’s a possibility.

3. Google CPC remain unchanged as AOL take-up rates are too low to impact the overall conversion number in the short to medium term.

So, logically speaking, by removing the “bane of mankind” *according to me* (Cross Subsidization) from the Adwords system, we as marketers will be able to align ourselves far more closely with the value per click.

Where do I get this insight from? Well, as an affiliate marketer, we have to watch the earnings per click very closely. EPC is a key metric and we are also able to distinguish (using our proprietary technology) the different conversion rates and therefore effective EPC’s per network partner for all the search engines. This data allows us to derive very accurate statistical models and also understand how the market is interpreted (well, as best as possible) by other players.

Every cent we spend is our own, so we have to ensure that we’re as closely aligned to value per click or EPC as possible, and therefore we’re very excited about the AOL prospects, but realise equally that it’s a lot of work.

I think this is a great move by Google and I applaud them. They’ve thrown the gauntlet down to the other search engines, and let’s see how they respond!

Search Engine Marketing & Digg

Stuntdubl’s post on “The Search Marketer’s Guide to Digg” is really an impressive collection of information pertaining to Digg. Here are some stats on Digg from Hitwise that I got from the post:

Recent US data on Digg.com in regards to their potential acquisition talks:

Digg.com’s US market share of visits increased 231% comparing the week ending October 21, 2006 versus the week ending October 22, 2005
Digg.com US market share of visits increased 176% comparing September 2006 versus September 2005
Digg.com is the third most visited website within the Hitwise US News and Media – IT category for the week ending October 21, 2006
Digg.com is the ranked at 114 most visited website within the Hitwise US News and Media category for the week ending October 21, 2006
Digg.com received 55% of its US traffic from Google for the week ending October 21, 2006

I highly recommend reading the whole post and if you don’t have a free Digg account, get one here!

Return on Effort with PPC Campaigns

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.

Google Multi-Currency Bidding

One of my readers, Marc, posed the following question to me (thanks to my new contact page!).

Hi Vinny,

I have just recently found your blog, and greatly appreciate your views on search marketing, with a SA twist!

I have a question that no one has been able to answer and I hope you can help?
If I am based in the UK, but which to target another country only, such as
SA or USA, what would be the best option in terms of currency to use?
When I would create an adwords account I would select “based in UK”, but
then under “I wish to pay in” I can select the local currency.
Does the option I choose place any advantage or disadvantage over my cpc or ad position?

Your help is very much appreciated.
thanks again,
Marc Samouilhan

Thanks for the question Marc.  Funnily enough, we dealt with this issue many years ago, and I never followed up to see if it changed – maybe other readers can give insight on that.  When we posted this question to Google, the response was that all the bidding in the background is done in US Dollars, and then converted to the currency of the advertiser, using a daily spot rate.  In theory then, all bid increments should be roughly equivalent to increments of USD (cents) x Your Currency conversion rate.
Based on that information that we understood to be true at the time, I’ll answer your questions.

1.  The best currency to us, is US dollars.

2.  If you’re running multiple campaigns for multiple clients, it makes sense to try and standardize it to avoid currency nightmares due to fluctuations.

3.   In theory, there is a disadvantage during your campaign price analysis, as you now have to factor in currency fluctuations into the bid price increase/decrease.  You can also overshoot or undershoot the market CPC by placing a bid which a high currency variance (i.e. paying 5p instead of 9c, because the next step up charge is in 2c increments due to the strength of the pound).

My recommendation would be to use USD, based on the information I got a few years ago.  Does anyone know if this has changed?