Paid Search’s Diminishing Returns: Nothing New!

There has been a lot of publicity in industry channels, and a lot of retweets on twitter, surrounding a search engine land article and the point of diminishing returns in paid search. The author, Josh Dreller, argues that, in world of holistic digital marketing multi channel media planning, sometimes the accountability of PPC only gets it so far, and with every campaign there is a point of diminishing return.

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

Yahoo! Wins Keyword Legal Case

Yahoo! has won a legal case in the US which puts a different slant on brand and trademark infringement in PPC, but also goes to show the search engines have covered themselves against such cases.

As reported in media post, Yahoo has come out on top in a case brought against them by Heartbrand Beef, of Yoakum Texas.  Heartbrand, who claim to be the only seller of Akaushi beef in the US, didn’t believe Yahoo! should allow their competitors to appear on the keyword “Akaushi” as it was misleading to their searchers and of the products their competitors provided.  This would have been an interesting judgment had it gone the other way.  It is different to other trademark disputes of past or present as it wasn’t actually a trademark or brand term owned by Heartbrand, just a product exclusive to them.  I can’t honestly see how Heartbrand thought they were going to win this case but the result does go to show that the search engines are covering themselves for any such cases through their practices and T&Cs.  Google, Yahoo and Microsoft aren’t stupid, they aren’t going to open themselves up for potential legal backlash through the changes they make to policies, they are going to be pretty sure they aren’t liable before making such as Google’s most recent changes to trademark bidding.

This is not the first time the search engines have come out in battles such as these, and it certainly isn’t the final say in the argument over brand and trademark infringement in paid search.  But the more cases like this which come out in the search engines favour, the less chance there is of one going the other way, which in turn means less companies will be tempted to try their luck in the courts.

I predict in 12 months trademark and brand bidding in PPC will just be a common practice, give it 2 years and search engine marketers will be reminiscing about the good old days when there was no competition on brand terms and you got all the clicks for next to nothing.

Why bid management software can never replace human PPC management

Automated bid management software is becoming more and more popular and the technology and algorithms powering it are becoming more advanced.  There are a number of providers who have built extremely powerful software solutions for automating PPC bid management and the functionality they offer is immense.  But I really do not believe they can ever fully replace human management of pay per click campaigns, here are few reasons why.

Conversion Attribution – Beyond CPA

Conversion attribution is something that I believe is at the heart of a truly integrated digital marketing programme.  The ability to allocate conversions and contribution to conversion across multiple digital channels will revolutionise the allocation of digital budgets once a truly accurate method of measurement is found.  It has been the principle of multi-channel digital campaigns for a long time, build brand awareness through display which will lead people to the search engines and conversion.  But very few, if any, tools exist which can effectively prove, more importantly, accurately report, the affect each channel has had on an individual conversion.

Automated bid management software analyses individual keywords in isolation and doesnt account for the impact a click on a non brand keyword might have on a brand keyword for example.  By managing each individual keyword at a set CPA you arent giving them the credit they may (or may not) deserve and you could be seriously limiting the volume of leads available through PPC.

Critical Mass and Sales Volume

Profitability and return on investment is great, and it is the main advantage digital channels and PPC have over our offline counterparts, but it is not everything!  Many businesses have a critical mass of leads or sales they need to keep themselves afloat, I deal with them all the time.  And whilst they buy in to the accountability and measurability of PPC if the phone stops ringing, or the leads stop coming in, this all goes out of the window as their business depends on a certain level of sales each day.  Rule based bidding is useless in this situation and you have to go after the volume.  This is especially prevalent in finite markets where a large research process isn’t undertaken.

Variable Conversion Value

Each conversion is not necessarily worth the same as another, and it is difficult to accurately provide an individual value for each PPC conversion.  In this way it would take a lot of human analysis and intervention outside of the software to manage and maintain profitability.  This often occurs when the online action is an enquiry which results in an offline sale.  One online enquiry might have a resulting sales value of £20 and another might be £2000, in this situation, how can you effectively provide a profitable CPA for these enquiries?

Offline Conversions

Offline conversions happen in every market, telephone numbers on site, visitors to a store, customer service question which result in sale.  Automated bid mangement software can never effectively account for these sales and so will managing the campaign with only half the information.

So what is the solution?

Firstly, I believe automated bid management software has a part to play in managing large and complex PPC and Adwords campaigns.  But there needs to be a large amount of human intervention and management which leads to the statement made in the title, human management can never be fully replaced by bid management software, so how is this best managed?

One option is to employ the 80/20 rule of bid management.  By allowing a software package to manage the 80% of keywords (the long tail) which generate 20% of sales you cand remove a large burden from campaigns with thousands of keywords and focus you attention on the important 20% of keywords.

Another is to use the human element to analyse the offline and supplemntary data which cannot be interpreted by the software and build complex and evolving rules for the software to follow.  I know some of the software providers are frustrated that many of their customers only us a small percentage of their tools functions and no-one really pushes the boundaries.  By using the human element to analyse the reams of offline data, plug it into the tool, or learn the most effective ways of managing things in an automated manor you can ensure that you:

1. get the most the software has to offer
2. fill in the gaps and analayse the data and factors the software is not aware of

In truth, I dont know the most effective solution.  I am sure software is going to play an increasingly important role in PPC and digital marketing but it can never replace the human touch.  So if you are planning to use one of the available tools, or your agency are going to do so, make sure you dont rely solely on technology, it will never know the full story.

How to Deliver Knockout PPC – The Movie!

Want to know how to deliver knockout results from your PPC campaign?  Well as luck would have it I gave a presentation in January on this very topic, and the nice people at fresh business thinking have posted a video of the “highlights” on their website.  In my defence, they chose some of the worst parts of the presentation for the “higlights” reel, but let me kno what you think anyway – delivering knockout PPC

Yahoo! Cuts Agency Commissions

In a memo to its partner agencies yahoo has announced changes to its commission structure which will see it follow Google’s lead and reduce the amount of Agency commission from January 1st 2009.  It is not going as far as Google in removing commissions completely but it will see a cut of 1% for the majority of agencies but a potential hit of 6% for unlucky agencies which fall into a specific band with a potential loss of all commission for the really small spenders.

At present agencies spending between £20,000 and £79,999 receive a rebate of 5% from Yahoo and anyone spending over £80,000 receives the maximum 10% commission on search spend.  The January changes will see agencies spending between £50,000 and £99,999 receive 4% rebate and anyone spending over £100,000 9%.  This means the removal of commissions for agencies spending less than £50,000 a month and a hit of 6% for those who fall between the £80,000-£100,000 monthly spend bracket.

The announcements come in the same week that Yahoo! has announced it will be closing six European offices in the coming 12 months in a bid to cut costs.  Potentially suggesting that the two decisions are linked in a company wide profitability drive.  After all, agencies will be so concerned with losing their Google BPF that they hardly notice the Yahoo change right?

Its a disappointing step from Yahoo who could have used the Google BPF removal as a tool to grow their market share.  Either by simply pushing agencies on the message that they are still offering 10% or even making the bold move of increasing the commissions to further incentivise search agencies to use their service.  After all, they still offer 15% on display advertising placements so why not search as well?

Yahoo has been failing to eat into Google’s market share for a long time and it has been becoming more and more apparent of late that a merger with Microsoft might be the only way we will see true competition in the paid search market.  But this was a prime opportunity to steal a few more ad dollars from Google and one, in the current economic environment, they probably couldn’t afford to miss.

If Yahoo had been brave and increased their commissions, I for one would have been looking for way to spend more pay per click budget with them but now they have reduced them, I certainly wont be increasing PPC spend with them in the New Year.  I think this can safely go down as an opportunity missed for Yahoo, and could even been seen as a signal of intent not to put up a significant fight against Google in the field of Pay Per Click.