Vinny Lingham’s Blog

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).

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!

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.

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!

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!