Bid Fight
Understand the search environment, then plan your keyword strategy to optimize your search budget
February 2006 By Andrew Goodman
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Paid search advertising has been with us for nearly eight years now, since GoTo.com pioneered the concept in 1998. Growth was rapid, as Overture and Google fought for paid search supremacy. Google alone boasts about 400,000 advertiser accounts worldwide and exceeded $5 billion in revenues in 2005, 97 percent of that from advertising. Judging by my clients’ accounts, Overture (now Yahoo! Search Marketing) generates about half the spend and click volume of a typical Google AdWords campaign.
The typical layout on sites such as Google Search places small text ads in the right-hand margin next to search results on a given user query, as well as a limited number of ads highlighted above the non-paid, “natural” results, at the top of the page. The total number of ads on the page may vary based on these companies’ ongoing tests; 10 is a typical number. Advertisers have made increasing use of these paid slots, as they have more control over placement than they do in unpaid results. However, as anyone with a paid search account knows, the process can be complex.
Jockey for Position
Today’s leading search engines maintain a rigorous church-state separation between search index (organic) results, and the keyword-triggered ads appearing nearby. In spite of relatively clear labeling on the page, many search engine users do not distinguish between paid and unpaid results. Jakob Nielsen, the Web usability guru, has written that the very top result on the page, paid or unpaid, appears to users as a “default choice,” and attracts many clicks because searchers crave unambiguous direction.
Recent eye-tracking lab studies confirm the importance of appearing as high on the results page as possible. The so-called “golden triangle,” a hot zone at the top of the screen, garners the preponderance of user attention. Moreover, at least on many high-volume queries, listings appear to generate a higher click-to-sales ratio out of the top three positions on the page, according to a recent study by Atlas Research.
Of course, the highest ad positions come at a higher cost. A look at a typical bidding war on a popular query shows that ad costs may ramp up exponentially when moving from the middle of the pack up to the first or second ad position. For example, a query on the keyword “high-ratio mortgage” reveals that the first spot costs three times as much as fifth position.
Thus the paradox: Advertisers may gain greater legitimacy and generate higher volumes of clicks and sales if they appear in the top two or three ad positions, but if advertisers attempt to outbid one another to reach those positions, the cost can become prohibitive. So, do you have to bite the bullet and bid more? Let’s review recent changes in the search environment to keep in mind when planning your search engine optimization strategy, and talk about some tactics to help you run a more efficient campaign.
Changes in Search
The leading search destination sites regularly tweak the way ads and search results appear on a page to maintain high clickthrough rates (CTRs) on ads without triggering a backlash from users. The most recent change made by Google increased the font size of the right-hand-margin ads, making them look more similar to organic search results. This might make CTRs drop off in a different place on the page depending on where the “fold” now lies on different users’ screens. Likely, it also makes the top two or three ads in the right-hand margin more visible. Ad positions one through six may all be viable depending on how many premium ads are showing at the top of the page. Experiment and watch your data.
Formerly, Google’s formula for ranking ads multiplied the CTR and your maximum bid. In August 2005, Quality Score (QS) replaced CTR. While CTR still is the “predominant” component of QS, according to Google spokesman Richard Holden, other factors, including ad relevance, account history and even landing page quality, may come into play. Study the new guidelines and optimize your campaign so you aren’t losing ad position unnecessarily.
It’s no secret that Yahoo! Search Marketing (Y!SM) intends to incorporate CTR in its ad ranking calculation. The company also plans a major overhaul of its substandard Direct Traffic Center (DTC) bid management interface. No official rollout dates are available, but I wouldn’t expect the full upgrade to be available before June 2006. In the meantime, advertisers should pay special attention to areas of Y!SM that could get them into trouble, such as Advanced Match, Content Match and the reporting delays that can lead to blown budgets.
Meanwhile, MSN Search has entered the scene in earnest. The company’s paid search platform innovates on a couple of fronts. An improved keyword research tool is available, and advertisers can target their ads to demographic segments if desired. But for now, reach is a more important consideration than feature sets.
Content Bidding
Both Yahoo! and Google now offer advertisers the ability to bid separately on content-targeted ads. These are typically ad placements triggered by the keywords in your paid search account, which show up not on search engine results pages, but near different forms of content, such as articles, GMail inboxes, and parked domain pages (Web pages of content-targeted links that domain registrars serve when typed-in domains are inactive). Ads are matched to pages based on linguistic matching technology that reads pages for meaning and compares them with ads and keywords in your account. Advertisers should bid on this inventory separately and use a proper ROI tracking regimen to track it. Content targeting has improved as the two leading players seem to be “cleaning up” their networks, but the worst spikes of low-quality traffic still occur on the content side. When in doubt, bid very low on this inventory, or don’t use it at all.
Google also offers a separate program called Site Targeting that allows the advertiser to choose which sites or even parts of sites on which to show ads. Competitors like Quigo offer a similar degree of control. Google’s pricing on this inventory is on a cost-per-thousand-impressions basis. It’s an auction environment with the minimum set at 25 cents. Even at this low level, much of this inventory performs poorly. For the larger advertiser seeking better-quality publishers, a direct buy makes more sense in terms of control over the relationship.
Bid Management
The biggest-budget retail advertisers use bid management software to automate the process. Unfortunately, they may run into technical and methodological issues if they make improper use of the software, some of which may attempt to set bids based on a running ROI calculation. In the real world, many advertisers could benefit from a basic, rules-based “bid-to-position” functionality or simple dayparting, such as turning ads off on weekends. Although third-party vendors offer this, it can be costly for what you get. In the next year or so, basic functionality in this realm could become very cheap or possibly free.
Go Lower
Instead of vying for ad positions one or two, consider that visibility on ad position five, or so, is not bad. On lower-volume terms, conversion rates to sales might actually be better in lower positions. On Yahoo! Search, ad positions four, five and six often will show your ad both at the bottom of the page of search results, and the upper right-hand side of the page. If you’re in for the long haul, consider settling in around these positions and keeping your campaign on all the time, rather than spending in spurts for top spots and then being forced to shut your campaign off entirely. Also, it might be possible to signal your competitors that you want to initiate a “reverse bidding war,” where everyone decides independently to relax their bids, with the result being mutual benefit. By dropping down to ad position seven or so, you might show competitors that you’re not interested in a bidding war. It can take patience, but sending such signals may be better for your bottom line than bidding into the No. 1 spot.
Business Models and Strategy
In many fields, keywords that cost 25 cents four years ago now cost $1.50 for equivalent volume. If your business model is so weak that it only allows you to bid up to, say, 30 cents on your core keywords, the processes of competition and natural selection in the auction environment are literally putting you out of business. Low-margin customer relationships with poor repeat business will be outbid by companies running ads on the same keywords who have comprehensive business models, high margins and loyal customers. Sure, you can restrict yourself to more targeted keywords, or just content yourself with lower volumes. But these trends might require nothing short of rethinking your business model. If you’re a larger company, the best strategy might well be to pay more, stay the course and keep pushing smaller competitors off the page. And then there’s always the faint hope of finding a way to increase your share of that elusive “free” search traffic. You should, at least, resolve to do a better job this year of measuring your referrals from both paid and unpaid forms of online search.
Andrew Goodman is founder and principal of Toronto-based Page Zero Media, and author of “Winning Results with Google AdWords.” He can be reached at andrew@page-zero.com.
The typical layout on sites such as Google Search places small text ads in the right-hand margin next to search results on a given user query, as well as a limited number of ads highlighted above the non-paid, “natural” results, at the top of the page. The total number of ads on the page may vary based on these companies’ ongoing tests; 10 is a typical number. Advertisers have made increasing use of these paid slots, as they have more control over placement than they do in unpaid results. However, as anyone with a paid search account knows, the process can be complex.
Jockey for Position
Today’s leading search engines maintain a rigorous church-state separation between search index (organic) results, and the keyword-triggered ads appearing nearby. In spite of relatively clear labeling on the page, many search engine users do not distinguish between paid and unpaid results. Jakob Nielsen, the Web usability guru, has written that the very top result on the page, paid or unpaid, appears to users as a “default choice,” and attracts many clicks because searchers crave unambiguous direction.
Recent eye-tracking lab studies confirm the importance of appearing as high on the results page as possible. The so-called “golden triangle,” a hot zone at the top of the screen, garners the preponderance of user attention. Moreover, at least on many high-volume queries, listings appear to generate a higher click-to-sales ratio out of the top three positions on the page, according to a recent study by Atlas Research.
Of course, the highest ad positions come at a higher cost. A look at a typical bidding war on a popular query shows that ad costs may ramp up exponentially when moving from the middle of the pack up to the first or second ad position. For example, a query on the keyword “high-ratio mortgage” reveals that the first spot costs three times as much as fifth position.
Thus the paradox: Advertisers may gain greater legitimacy and generate higher volumes of clicks and sales if they appear in the top two or three ad positions, but if advertisers attempt to outbid one another to reach those positions, the cost can become prohibitive. So, do you have to bite the bullet and bid more? Let’s review recent changes in the search environment to keep in mind when planning your search engine optimization strategy, and talk about some tactics to help you run a more efficient campaign.
Changes in Search
The leading search destination sites regularly tweak the way ads and search results appear on a page to maintain high clickthrough rates (CTRs) on ads without triggering a backlash from users. The most recent change made by Google increased the font size of the right-hand-margin ads, making them look more similar to organic search results. This might make CTRs drop off in a different place on the page depending on where the “fold” now lies on different users’ screens. Likely, it also makes the top two or three ads in the right-hand margin more visible. Ad positions one through six may all be viable depending on how many premium ads are showing at the top of the page. Experiment and watch your data.
Formerly, Google’s formula for ranking ads multiplied the CTR and your maximum bid. In August 2005, Quality Score (QS) replaced CTR. While CTR still is the “predominant” component of QS, according to Google spokesman Richard Holden, other factors, including ad relevance, account history and even landing page quality, may come into play. Study the new guidelines and optimize your campaign so you aren’t losing ad position unnecessarily.
It’s no secret that Yahoo! Search Marketing (Y!SM) intends to incorporate CTR in its ad ranking calculation. The company also plans a major overhaul of its substandard Direct Traffic Center (DTC) bid management interface. No official rollout dates are available, but I wouldn’t expect the full upgrade to be available before June 2006. In the meantime, advertisers should pay special attention to areas of Y!SM that could get them into trouble, such as Advanced Match, Content Match and the reporting delays that can lead to blown budgets.
Meanwhile, MSN Search has entered the scene in earnest. The company’s paid search platform innovates on a couple of fronts. An improved keyword research tool is available, and advertisers can target their ads to demographic segments if desired. But for now, reach is a more important consideration than feature sets.
Content Bidding
Both Yahoo! and Google now offer advertisers the ability to bid separately on content-targeted ads. These are typically ad placements triggered by the keywords in your paid search account, which show up not on search engine results pages, but near different forms of content, such as articles, GMail inboxes, and parked domain pages (Web pages of content-targeted links that domain registrars serve when typed-in domains are inactive). Ads are matched to pages based on linguistic matching technology that reads pages for meaning and compares them with ads and keywords in your account. Advertisers should bid on this inventory separately and use a proper ROI tracking regimen to track it. Content targeting has improved as the two leading players seem to be “cleaning up” their networks, but the worst spikes of low-quality traffic still occur on the content side. When in doubt, bid very low on this inventory, or don’t use it at all.
Google also offers a separate program called Site Targeting that allows the advertiser to choose which sites or even parts of sites on which to show ads. Competitors like Quigo offer a similar degree of control. Google’s pricing on this inventory is on a cost-per-thousand-impressions basis. It’s an auction environment with the minimum set at 25 cents. Even at this low level, much of this inventory performs poorly. For the larger advertiser seeking better-quality publishers, a direct buy makes more sense in terms of control over the relationship.
Bid Management
The biggest-budget retail advertisers use bid management software to automate the process. Unfortunately, they may run into technical and methodological issues if they make improper use of the software, some of which may attempt to set bids based on a running ROI calculation. In the real world, many advertisers could benefit from a basic, rules-based “bid-to-position” functionality or simple dayparting, such as turning ads off on weekends. Although third-party vendors offer this, it can be costly for what you get. In the next year or so, basic functionality in this realm could become very cheap or possibly free.
Go Lower
Instead of vying for ad positions one or two, consider that visibility on ad position five, or so, is not bad. On lower-volume terms, conversion rates to sales might actually be better in lower positions. On Yahoo! Search, ad positions four, five and six often will show your ad both at the bottom of the page of search results, and the upper right-hand side of the page. If you’re in for the long haul, consider settling in around these positions and keeping your campaign on all the time, rather than spending in spurts for top spots and then being forced to shut your campaign off entirely. Also, it might be possible to signal your competitors that you want to initiate a “reverse bidding war,” where everyone decides independently to relax their bids, with the result being mutual benefit. By dropping down to ad position seven or so, you might show competitors that you’re not interested in a bidding war. It can take patience, but sending such signals may be better for your bottom line than bidding into the No. 1 spot.
Business Models and Strategy
In many fields, keywords that cost 25 cents four years ago now cost $1.50 for equivalent volume. If your business model is so weak that it only allows you to bid up to, say, 30 cents on your core keywords, the processes of competition and natural selection in the auction environment are literally putting you out of business. Low-margin customer relationships with poor repeat business will be outbid by companies running ads on the same keywords who have comprehensive business models, high margins and loyal customers. Sure, you can restrict yourself to more targeted keywords, or just content yourself with lower volumes. But these trends might require nothing short of rethinking your business model. If you’re a larger company, the best strategy might well be to pay more, stay the course and keep pushing smaller competitors off the page. And then there’s always the faint hope of finding a way to increase your share of that elusive “free” search traffic. You should, at least, resolve to do a better job this year of measuring your referrals from both paid and unpaid forms of online search.
Andrew Goodman is founder and principal of Toronto-based Page Zero Media, and author of “Winning Results with Google AdWords.” He can be reached at andrew@page-zero.com.
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