Vinny Lingham’s Blog

I am looking to put together a research paper around why Google is so successful at Paid Search (and Yahoo/MSN are not), from a Macro-Economic perspective.  I’ve written a bit about this in my post called “The Clash of the Titans“, but I want to go a bit more in depth and do some number crunching around the global economics of this contest.  The successful applicant will get co-authoring rights to the report, which will be published on this blog (which reaches about 50,000 unique visitors per month), and potentially some consulting fees if the report stirs enough attention from the right people…
Requirements:

• Reasonable understanding of Macro-Economics & Good Financial Skills
• Solid Report/Thesis writing skills (to prepare a fully researched paper)
• Pay Per Click experience and working knowledge of the industry
• Lots of spare time over the next 6 weeks (Target release date is 15 January)
• Self Starter (I’m just going to point out the things I want covered, and how - and you need to figure out the rest!)
• Enthusiasm!

If you’re interested, please email me at :  vlingham@gmail.com with the subject :  “Research Assistant” (important, in case of spam filters)

Andreas Reiffen, who recently joined the Clicks2Customers team in Cape Town, and who hails from Germany, has done some very interesting research in the field of Performance Marketing, something that I have been a huge advocate of. It’s been the founding belief of Clicks2Customers that search marketing can only exist in a performance metric driven environment and that we see ourselves as an extension of the merchant themselves, as we invest in people, technology and infrastructure, and then leverage that investment across multiple clients on a pure risk basis. The amount of money we spend on R&D around search is not easily covered by all but the largest of merchants. By leveraging this cost across multiple clients, we are able to deliver a superior service, at cost incidental to the revenues.
Those in the know will agree that Search Marketing is infinitely more complex than what 99% of search marketers will agree to - and often this is just to massage their already fragile egos as this industry advances and becomes too complex for them. In most cases it’s their own ignorance which does not allow them to see the true complexities of the situation, and instead, rely on common thinking to solve complex problems around search, to the detriment of their clients. For example, the typical agency will tell the client how they manage keyword bidding effectively over thousands of keywords - keyword bidding is NOT search marketing.

To this end, we have established that the best way for a service provider and a merchant to co-exist is in the performance marketing space, where profit share is ultimately the goal, but an interim measure like revenue share can be a good proxy for profit share, if structured correctly.

When I speak to all but the most sophisticated of search marketers, including merchants themselves, the single biggest issue is that CMO’s, Marketing Managers & others within an organisation do not understand the channel, worry themselves with things like Brand bidding & display URL’s, when in actual fact, they have no real understanding on the impact of decisions made regarding these, but they think they do. And if these are their biggest issues, then they’re doomed to mediocrity in the search world. This reality is that search marketing is in it’s infancy, and during this period of time, education is very important. We’re trying to push the envelope and build the industry by releasing research like the cookie report that we released last month, as well as the profit sharing report mentioned in this post.
Profit shares bring along its own levels of complexity (which is detailed in the report), but suffice it to say that search marketing models with fees based on a either % of spend, hours or fixed fees are becoming as ancient as the Dodo.

Andreas has done a remarkable job of putting together fact, assumption and raw data to establish the argument as to why performance marketing works. Traditional & New Media agencies that offer paid search marketing services are on the backfoot with regard to search, as their metrics are not in line with the search engines themselves and their performance is not linked with their remuneration. I have been to many meetings where all I hear are complaints about their search providers, but they won’t change them, due to fear that the new provider might do even worse. It’s a sorry state of affairs. Often the agency has such a grip on the client due to the fact that they handle more than just search, the opportunity to expand the search side of the business is neglected. This is where affiliates & performance marketers often perform the best, which leads to even more insecurity from the agency standpoint.
What makes our business unique is our relentless belief that satisfying the search end user is of paramount importance and all other metrics will eventually revolve around this. This is the reason why we advocate performance based search marketing as a channel within search marketing. Search engines are platforms for marketing to end users and satisfying the needs of searchers - you still need a partner that is focused on understanding what the user wants, how each engine attempts to satisfy their users, and how to align the merchant’s interests with them. Focusing on the searcher will make any Search Engine Marketers (SEM) successful. Google have done a remarkable job of keeping their eye on this goal, and given their success, it would be a good idea to take a lesson out of their book.

I highly recommend that you read the Clicks2Customers Profit Sharing report!

Over the past 18 months or so, a number of reports relating to the high rate of cookie washing (users erasing cookies from their browsers) have been reported. Affiliates, need to ensure that they receive compensation for the entire length in which a merchant promises to pay within, if a referred user makes a transaction.

From our internal numbers, we had begun to see the return rates of cookie’d users declining, with some of the
affiliate programs that we work with. We figured that there could be a number of possibilities relating to this, including, but not limited to:

A) Changes in online user’s behaviour (i.e. they tended to either purchase immediately or not)

B) Changes on the merchant’s side (not following up with email
marketing etc.)
C) Cookie Washing

In order to determine the extent of cookie washing, we decided to outsource the creation of an independent study to Ben Edelman, a known expert in this space. The main purpose of the report, was to provide Clicks2Customers with a detailed overview of the state of cookie- based tracking within online advertising/affiliate marketing.

This report was initially intended to be for internal purposes only, but we decided that it would best serve the industry if it was released, so this is exactly what we are doing. Ben Edelman has retained full editorial control over the work, as an independent party to this research (he is neither an affiliate nor a software provider).

The report is located here and my analysis of it is as follows: The scope of the report was limited only to cookie based tracking, and some/most networks do use alternative methods (session/URL, batch, etc). In many cases, a large portion (40-50% of the transactions, from our stats) occur on day 1. The tests that Ben conducted related to cookie erasure when the program was initiated, potentially the next day when a computer is restarted, or perhaps longer. It is unlikely that the first day cookies are erased in large numbers but potentially this erodes future return sales.

Merchants are theoretically able to take advantage of affiliate activity, when their users delete cookies with anti-spyware, but only in short term. In the long term affiliates would lower their media spend or even decide not to participate in campaigns, because of too low ROI. Thus, merchants on the one hand sometimes don’t pay pay when cookies are deleted, but on the other hand the overall sales volume decreases in the long term.

The findings are as expected - the larger and more prominent networks are being unfairly (in my opinion) targeted by anti-spyware/adware companies. This does however present the problem that affiliates are often not compensated enough by merchants for users that purchase, post cookie-erasure. If this trend continues, it will potentially undermine the hard work that affiliates put into marketing campaings.

Remember, affiliate networks typically get a cut of affiliate commissions, so it is in their best interest to ensure tracking compliance, however, given the fact that this piece of market intelligence has not been available up to now, I can understand why there has been a perceived complacency on their part. The main issue here is, that these anti-spyware providers tend to see 3rd Party cookies as a risk to the user, but as we all know, in almost all cases they are completely harmless.

My recommendation to affiliates networks is that they implement “Private Labelling” of their services for their clients, so that cookies can be placed by sub-domains which the merchants own (i.e. www.vinnylingham.com would CName www2.vinnylingham.com to the service provider’s server and then when that server wishes to cookie the user, it will not appear as a 3rd Party cookie, but as one placed by www2.vinnylingham.com).

Ben also discovered that Google’s tracking system works very well technically, and from our experiences, the tracking is very accurate - it is worth noting the system that they use, as outlined in the report. Based on this report, up to 43% of cookies are potentially being erased (on a weighted basis), post the initial session the user conducts. This is scary thought for affiliates and I’m sure that this report will spark a lot of debate - so please feel free to post comments on this blog.

Update: I neglected to mention that Ben also put together this nifty cookie calculator, which calculates potential losses from cookie washing.