If I’m honest, I read the article after seeing it posted on twitter and was a little bit underwhelmed. Dreller pens the theory as something new, something never before considered, and that the paid search bubble has finally been burst! When really, any search marketer worth their salt was well aware of the point of diminishing return. Every campaign has one, and after a certain point, incremental traffic comes at a premium. You reach bands of cost in paid search which once breached, are unlikely to meet your ROI targets when analysed in isolation.

This isnt a new theory, this is something which has always been present. Whenever considering increases in PPC budget and advertiser should consider the incremental costs of the sales and the impact on ROI. It has never been a straight line equation where the more you spend the more you get, at the same cost per acquisition and if Josh Dreller has been running paid search campaigns on tis basis, Im glad I have never been a client!

Whilst the points made are true, the fact remains that in some cases, ROI isnt everything. Many industries need a critical mass of volume to stay afloat and so need to be willing to pay the additional price for the additional sales. PPC agencies should be presenting their clients with the right information and data to make their own choice. Invariably, in my experience, this is in the form of a number of forecast options for the client to choose from; x applications at x cost, or y applications at y cost. Or in the case of retail; a spend of x at an ROI of x, or an increased spend of y with a lower ROI of y, but increased revenues. I know this is what the top specialist agencies have been doing for years.

The other factor to consider is the options for the spend above the ROI threshold. Dreller mentions the alternative of spending the additional budget on other marketing, and whilst this is always an option the advertiser has, they must also consider the return they are going to get from these alternatives. For whilst the incremental PPC sales will come at an increased CPA, the chances are, this higher cost per application could still be way lower than could be achieved from other advertising activities. So whilst, in isolation, they may look expensive, they could well still be cheaper then the ones available elsewhere.

Don’t get me wrong, I am a full advocate of holistic, multi channel, media planning and effective allocation of digital budgets based on each channels merits. But the article portrays this theory as the downfall of PPC, when in reality it is something that has been present all along.

You can read Dreller’s article here

I have written in the past about how the difficult economic climate could reap rewards for affiliate marketing and other paid on performance models, but I have to disagree with the statement that the advertising industry will need to move towards a CPL/CPS based pricing model in order to maintain its growth in popularity.  Whilst pure performance based advertising models are very attractive on the face of it, they are not as straight forward, and simplistic, as they might sound.  In fact, the downfalls of PPC advertising identified in the article could quite as easily be applied to CPL and performance channels as well:

“Increasing costs of keywords”: could quite easily be applied to increasing costs of leads.  The increased cost comes from competition, the more advertisers wishing to “buy” the lead or click, the more expensive it becomes, simple supply and demand.  This is potentially even more magnified in affiliate and cost per lead advertising as the market is more finite and less developed.  A CPC advertiser in a search market may be priced out of the more generic, high volume keywords, but can still gain traction in the lower volume specific keywords.  In affiliate marketing all the leads go to the highest bidder, and there is less of a long tail for those with a smaller CPL target.

“Increasing click fraud”: The author doesn’t state how he is judging it to be an increase just states Google’s Q3 stats.  I have worked in search marketing for 5+ years and I think that there is less click fraud around now than in the days of straight bid auction systems.  What has increased is awareness of the problem and the ability to report the stats.  I have also worked in affiliate marketing and from my experiences I would say there is far more fraud in affiliate marketing than you ever see in search.  Affiliates and partners try everything in their power to claim the leads which come through your website.  From filling in bogus details themselves, to cookie dropping to claim leads which weren’t directly theirs.  I have seen fraud as high as 70% through affiliate marketing!

“Lack of Transparency”: Ditto with CPL advertising!  multiple affiliates claiming each lead, lack of number tallying between affiliate tracking systems and in house technology, lack of clarity on the affiliates driving the leads, the list could go on.

“Difficult to tie in with business metrics”: Whilst you can build a CPL model which “should” fit your business goals, the points made above make this very difficult.  More difficult I would say than with paid search.

Whilst I am not trying to discredit CPL/CPS advertising I think there is a long way to go before it becomes a replacement for CPC advertising.  Paid search and other CPC forms still represent the most measurable and trackable form of advertising and they are still much more measurable than other channels, both on and offline.  I believe paid search is set to grow as it gains budgets originally allocated for display advertising online, and similar offline channels such as TV, radio, billboard and magazine, all of which have much less accountability.

A quick view of the authors profile produces the reason for his apparent bias, he is the Co-founder and CEO of a lead generation market, that explains a few things! Performance based advertising may be the future, but it has a long way to go before it replaces CPC, the main reasons for which will follow in part 2…

In a press release reported on Search Engine Watch MSN rather honestly admitted this was done in response to requests from their advertisers for more clicks. It is interesting to hear MSN provide this reasoning ad it goes against the usual lines used by the search engines. In most case the search engines do things, or report to do things, for the benefit of their users and to enhance user experience rather than for their advertisers (who incidentally are the ones who pay them!).

MSN’s problem to date in the battle for search supremacy has been the sheer lack of search volume produced and this is an interesting way to produce it. The more logical approach would be to attempt to increase their user base but maybe they have decided this isn’t going to happen any time soon.

They have to be careful though as satisfying advertisers is one thing, but you need to make sure you aren’t doing it at the expense of your users. I don’t think the addition of a fourth PPC listing at the top of the results is going to seriously offend people in anyway so Im not suggesting that this will be he case but a balance needs to be struck between ad revenue and user experience. MSN’s problem remains search volume so they cant afford to be putting any of their existing user base off!

Removal of min bid - Firstly it is removing the current system of allocating each keyword a minimum bid amount which must be met for you keyword to appear in the paid search listings. All listings will have the chance to appear on whatever keywords they wish with just quality score and max bid amount dictating the position of the listing (essentially a move back to the old system prior to min bid being introduced). The minimum bid system is to be replaced with a CPC estimate for your first page bid, that is, the bid amount Google estimates it would take to get your ad on the first page.

Dynamic/search query level quality score – Secondly the quality score system is going to be changed so that it is allocated at search query level rather than keyword level. This means an advertiser bidding on broad match phrase loan, will have a different quality score on the term secured loan to personal loan and the phrase loan itself. Also accounting for user data such as location (based on IP and Google account details).

What does this mean to Google?

More search listings!- These changes should see the appearance of an increased number of listings on any given search phrase. With people able to appear on any keyword they wish (so long as they are willing to pay) and a large number of previously inactive keywords will suddenly come into play. 

More money! - Essentially what Google are saying is, “You want to appear? Fine, but it’ll cost you!” and I’m sure many advertisers will pay that money….to begin with. Much like the changes in trademark bidding my prediction is a flurry of activity before things die back down and things return back to normal

More competition and increased CPCs! Linked to the above point, by telling people what it will cost them to appear on first page Google are prompting people to increase their bids to get the exposure. If an advertiser is appearing on the second page and sees that they could be first page for an increase of £0.20 CPC, there is the temptation there for them to make that increase which they may not have previously done. Once this temptation is there for every advertiser the whole market for first page listings should become more expensive.

What does this mean to advertisers?

The return of the long tail - Although it has remained beneficial to have a long targeted keyword list for a lot of advertisers the broad match system has allowed them to be relatively lazy. The inclusion of quality score at a search phrase level will mean that it will become much more important in terms of an increased QS and a reduced CPC to have all relevant keywords in your account

Increased brand term CPC? - This ties in very nicely with the removal of brand term protection a few months ago. The function that stopped this from being a long term issue was the minimum bid. Competitors were struggling to make the most of the changes as they were blocked by not having a high enough bid. With the latest announcement this has been removed. So although people will be forced to pay more to bid on a competitors brand, they will not be banned completely, probably producing the same surge in brand CPC as last time (approx 130%) which would equate to a 169% increase since the beginning of the year!

Higher first page CPC - As touched on in the section on Google the likely hood is that these changes will produce more competition for first page listings resulting in higher CPCs. By allowing people to see what it will cost them to appear on the first page you are giving them the push to bid to that level. Some will shy away and save their spend, to others it will be the carrot they need to make the next step.

The changes are set to be rolled out to “a very small set of advertisers” in the next few days according to Google but make sure you keep an eye on your campaigns as I expect the full rollout will follow on from this soon after.

So cue brands bidding on other brands, hiking the prices out of spite and affiliates of a field day.  But will this be the case?  No doubt initially companies will begin to bid on their competitors terms thus raising the price the brand owner has to pay.  But how will the quality score deal with this? Well you would like to think the competition will have to pay hefty minimum CPCs to even list in the first place given that their websites will have no relevancy at all to the keyword.  But will the big boys care about this?  They will probably be more concerned with stealing their competitors traffic and be willing to pay the price. 

Theoretically they wont be able to include the trademarked term in their creative but that doesn’t account for DKI which, no matter what Google suggest, isn’t going to change any time soon to combat this.  Therefore a clever search engine marketeer will get round this quite easily.

What do I think will happen?  Brand CPC’s increase, affiliates have a field day, the overall cost of PPC increases, and then when it all dies down it is back to business as usual and people forget the day brand protection was in place.  The trick is for companies to have a plan of action for May 5th, to know how they are going to deal with their affiliates, to develop and stance on competitors terms and closely monitor the first couple of weeks after this change comes into place.  Then to reassess and get on with the business of generating leads from paid search, after all we are all at the mercy of Google anyway, so why bother trying to fight it!