This all is happening faster than many would like to admit. Demand for online advertising will continue to drive prices skyward. Even the most efficient online marketers are feeling the squeeze. For example, here’s what Mark Vadon, CEO of e-commerce merchant Blue Nile, in February told blogger Jeff Matthews about traffic cost inflation:
“To give you perspective, in our top five keywords, our cost per click was up over 80 percent compared to a year ago. … I think if you follow our business, you know that we monetize Internet traffic for jewelry better than anybody in the world, and … there are some people who are deficit spending and perhaps are back to the mentality of 1999. …
So an important matter is how well you can convert. ... You’re going to see more paid-search placements today than a year ago. Furthermore, as more companies advertise on search engines, the value of the incremental customer is dropping. And there’s more people competing for the same traffic ... so what that results in for merchants is downward pressure on the value of those customers.”
—as quoted in the blog Jeff Matthews Is Not Making This Up,
“Google: Thesis Schmesis,” Feb. 10, 2006
Traffic cost inflation is only one factor that will bring down the curtain. Another is how marketers timidly settle for pathetically low conversion rates. According to Shop.org’s study State of Retailing Online, average online conversion rates for 2002 through 2004 were 3.2 percent, 2.4 percent and 2.6 percent, respectively. Yes, sadly enough, those are correct conversion rates. It doesn’t take an accountant to determine the effect of this on the online marketing ROI equation. The mass marketing traffic versus impression model—a model that’s been adopted by online marketers—clearly is driving toward a brick wall. Plus, targeting is a great idea, but it’s easier to optimize your content than for search engines to optimize their algorithms.