Digital Marketing, Digital Media, Search Marketing Advice

Why PPC is about to skyrocket – and then CRASH

ppc search marketing headed for a crash 300x246 Why PPC is about to skyrocket   and then CRASHTimes are tough.

But one area that is ready to soar is pay-per-click search marketing (PPC). That most measurable and controllable of digital marketing opportunities, PPC looks like a no-brainer in this economy.

Have you called a newspaper lately and asked them if they’ll charge you per phone call generated? Even with ad sales down 14% year over year, they won’t do it. 

Thus, with the holiday season approaching and a flinty consumer base not exactly killing themselves to buy the latest electronics or must-have toy (it’s Foreclosure Elmo), PPC looks like a no-lose proposition for retailers and e-tailers.

PPC – The Rich are Going to Get Richer

With PPC spend already up 52% in Q1 2008 versus 2007, the number of PPC advertisers and the money they’re going to throw at clicks is about to get insane. The competition for clicks, leads and sales in the 4th Quarter is going to be fierce, and I suspect there will be some “make us #1 no matter what” money in the game as casual PPC advertisers pull money from TV and print. 

It’s going to require exceptionally smart bidding (think day-parting) and a serious commitment to landing page testing to succeed. 

ppc average cost per click by search engine 300x151 Why PPC is about to skyrocket   and then CRASHThe problem is, this huge thirst for clicks is going to drive average cost per click through the ceiling. Google is already substantially most expensive on a per click basis than is Yahoo or MSN. Further, according to Efficient Frontier and their excellent Q2 search engine report (PDF) Google is getting $1.10 of each new dollar of PPC spend (Yahoo is minus 9 cents, and Microsoft is minus 1 cent). 

PPC – The Rich Are Then Going to Get Poor

ppc ad price spike causes people to eat big smokey Why PPC is about to skyrocket   and then CRASHThe price of a click on Google is going to go WAAAY up over the holidays. So much so that ROI on those clicks will inevitably diminish, especially with consumers in “I think I’ll go to the Hickory Farms store in the mall and have 11 free samples and call it lunch” mode. 

At the end of January, hundreds of thousands of PPC advertisers will look at their reports (especially Google) and say “this isn’t worth it anymore.” 

February 1 will be the day the music died for PPC, and a long period of very modest growth will ensue as newcomers adopt a “we tried that back in 2008 and it almost broke us” mentality. 

Get yourself a killer test plan, a shot of Jim Beam (hat tip to Jason Falls) and manage client (and your own) PPC expectations. It’s going to be quite a ride. 

 

 

 

  • http://www.socialmediaexplorer.com/ KatFrench

    Spot on analysis, and it’s already starting.

    My main focus for paid search clients for Q4, across the board, is going to be focusing on CPL and increased conversions, rather than click volume, and doing multivariate landing page optimization with Website Optimizer.

    If you don’t turn your attention from the many browsers to the few buyers, and retool your paid search strategy around them, life is going to get really un-fun by about Q2 09.

    Oh, and I’ll let Jason know about the hat tip. :) He’s in Indy presenting at the Masters of Business Online conference.

  • http://www.socialmediaexplorer.com KatFrench

    Spot on analysis, and it’s already starting.

    My main focus for paid search clients for Q4, across the board, is going to be focusing on CPL and increased conversions, rather than click volume, and doing multivariate landing page optimization with Website Optimizer.

    If you don’t turn your attention from the many browsers to the few buyers, and retool your paid search strategy around them, life is going to get really un-fun by about Q2 09.

    Oh, and I’ll let Jason know about the hat tip. :) He’s in Indy presenting at the Masters of Business Online conference.

  • James Widnrow

    Interesting take Jason and a good read.

    Though I think Paid Search is already skyrocketing and has been for a while. Only those companies that lack the sophistication to truly view their website as a lead generation and customer acquisition tool have missed the boat. Like you, I continue to expect to see those ad spend dollars continue to grow wildly but not because new companies are getting into the mix but simply because its the nature of an open auction to continue to drive prices upwards and the absence of something better (immediacy, targeting, tracking). Notice I left out ROI, because I also agree that the days of Paid Search having the best ROI are nearly gone.

    Some areas to consider for future posts:

    1. The death of the Long Tail as a bidding strategy but the real emergence of that methodology as a means for driving greater quality prospects.

    For example, I have a client that recently expressed disappointment because I wasnt actively spending their budget on the term “direct mail.” They saw themselves as a “direct mail solutions provider.” I had to explain that they received far more targeted prospects with a far greater conversion rate from terms like “automotive direct mail advertising.”

    The interesting spin is that in years past the CPC on that long tail phrase would have actually been considerably cheaper than “direct mail.” But because so many paid search marketers flooded to the long tail to increase ROI that strategy is effectively dead as those terms have become just as competitive as the primary terms. In addition, those terms are now even more expensive than the root because of the increased value of the lead.

    And if you really wanted to connect the dots you could talk about how searchers are becoming more knowledgeable and sophisticated in their searching behaviors which has really fueled the effectiveness of the long tail as a lead generation activity. Prior to a couple years ago most people were still searching only for generic terms like “direct mail.” When they couldnt find what they wanted on the first couple of pages they would leave. Now they know they need to be more specific with their queries.

    That change in behavior has already increased the importance for brands of making the first page with their SEO and Paid Search activities. Even though research has always shown people rarely search beyond the first page of the SERP that trends continues to grow steeper because people know to enhance their queries when they dont immediately see the results they want so its even more unlikely someone would view search engine results beyond the first page.

    2. The emergence of PPC as a revenue model for other advertising networks and the continued death of CPM. Facebook is a great example. There is such tremendous potential but so few networks take advantage of it, I see this trend definitely changing as these networks start to see the true potential in terms of $$. Though honestly 5 years ago I thought that model would be extinct by now and its made a strong reemergence as advertising networks do a better job of targeting ads and tracking. Yahoo being an excellent example.

    James

  • James Widnrow

    Interesting take Jason and a good read.

    Though I think Paid Search is already skyrocketing and has been for a while. Only those companies that lack the sophistication to truly view their website as a lead generation and customer acquisition tool have missed the boat. Like you, I continue to expect to see those ad spend dollars continue to grow wildly but not because new companies are getting into the mix but simply because its the nature of an open auction to continue to drive prices upwards and the absence of something better (immediacy, targeting, tracking). Notice I left out ROI, because I also agree that the days of Paid Search having the best ROI are nearly gone.

    Some areas to consider for future posts:

    1. The death of the Long Tail as a bidding strategy but the real emergence of that methodology as a means for driving greater quality prospects.

    For example, I have a client that recently expressed disappointment because I wasnt actively spending their budget on the term “direct mail.” They saw themselves as a “direct mail solutions provider.” I had to explain that they received far more targeted prospects with a far greater conversion rate from terms like “automotive direct mail advertising.”

    The interesting spin is that in years past the CPC on that long tail phrase would have actually been considerably cheaper than “direct mail.” But because so many paid search marketers flooded to the long tail to increase ROI that strategy is effectively dead as those terms have become just as competitive as the primary terms. In addition, those terms are now even more expensive than the root because of the increased value of the lead.

    And if you really wanted to connect the dots you could talk about how searchers are becoming more knowledgeable and sophisticated in their searching behaviors which has really fueled the effectiveness of the long tail as a lead generation activity. Prior to a couple years ago most people were still searching only for generic terms like “direct mail.” When they couldnt find what they wanted on the first couple of pages they would leave. Now they know they need to be more specific with their queries.

    That change in behavior has already increased the importance for brands of making the first page with their SEO and Paid Search activities. Even though research has always shown people rarely search beyond the first page of the SERP that trends continues to grow steeper because people know to enhance their queries when they dont immediately see the results they want so its even more unlikely someone would view search engine results beyond the first page.

    2. The emergence of PPC as a revenue model for other advertising networks and the continued death of CPM. Facebook is a great example. There is such tremendous potential but so few networks take advantage of it, I see this trend definitely changing as these networks start to see the true potential in terms of $$. Though honestly 5 years ago I thought that model would be extinct by now and its made a strong reemergence as advertising networks do a better job of targeting ads and tracking. Yahoo being an excellent example.

    James

  • Jason Baer

    kat –

    Thanks much for the comment. I should have hat tipped you as well, because everyone knows YOU are the real brains at Doe Anderson!

    Cheers,
    j

  • Jason Baer

    kat –

    Thanks much for the comment. I should have hat tipped you as well, because everyone knows YOU are the real brains at Doe Anderson!

    Cheers,
    j

  • Jason Baer

    James –

    Wow. Perhaps the meatiest comment I’ve ever received here at C&C.; Many thanks. I completely agree about the death of the long tail. Basically, anything that works online gets beaten to death by the second and third waves of adoption, and then we have to go find something else that works. It’s a vicious cycle.

    Interesting angle on moving PPC into formerly CPM areas. I agree there’s potential, but the problem I have with it is values impressions at zero. Impressions matter, and if create a revenue model that doesn’t require payment for them, digital marketing will always be led by direct response thinking. If we’re really going to expand this business, it needs to be at the expense of TV, not at the expense of direct mail. That’s why I’m encouraged by the research and findings coming out with regard to engagement and brand lift with rich media and online video. Given that many people will NEVER click, I’m not sure it’s a payment model that’s sustainable at scale, even given it’s spectacular efficiencies.

    Thanks again for the comment.

    Cheers,
    j

  • Jason Baer

    James –

    Wow. Perhaps the meatiest comment I’ve ever received here at C&C. Many thanks. I completely agree about the death of the long tail. Basically, anything that works online gets beaten to death by the second and third waves of adoption, and then we have to go find something else that works. It’s a vicious cycle.

    Interesting angle on moving PPC into formerly CPM areas. I agree there’s potential, but the problem I have with it is values impressions at zero. Impressions matter, and if create a revenue model that doesn’t require payment for them, digital marketing will always be led by direct response thinking. If we’re really going to expand this business, it needs to be at the expense of TV, not at the expense of direct mail. That’s why I’m encouraged by the research and findings coming out with regard to engagement and brand lift with rich media and online video. Given that many people will NEVER click, I’m not sure it’s a payment model that’s sustainable at scale, even given it’s spectacular efficiencies.

    Thanks again for the comment.

    Cheers,
    j

  • http://www.airmarketing.com/blog Shailesh Ghimire

    Jason,

    Very good analysis. The bidding is certainly higher today from what I can tell. You can still drive great ROI – and like you said so much of the conversion is going to depend on the landing page and other variables. PPC can get you traffic, but once it comes the onus is on you to increase your chances of conversion.

    With limited budgets and uncertain times Feb 1st is indeed going to a day of reckoning! We’ll see.

  • http://www.airmarketing.com/blog Shailesh Ghimire

    Jason,

    Very good analysis. The bidding is certainly higher today from what I can tell. You can still drive great ROI – and like you said so much of the conversion is going to depend on the landing page and other variables. PPC can get you traffic, but once it comes the onus is on you to increase your chances of conversion.

    With limited budgets and uncertain times Feb 1st is indeed going to a day of reckoning! We’ll see.

  • http://hip-shots.com/ James

    What we are observing is the normal ebb and flow you would expect for a new product and for most advertisers Search is still relatively new. There will be Johnny-Come-Lately advertisers who will dive in and bid up the first position to unprofitable levels. Your emphasis on analysis and optimization, both of the SEM bid strategy and landing pages, is the way to go. The first position is rarely the best position in terms of ROI. Stay focused on analytics and optimization and the serious search marketer will be OK.

    Now here comes the controversial part of this comment. I believe that keyword inflation combined with improved targeting will fuel the shift of ad dollars to display. We, for example, are testing new targeting technology that is bringing our CPL from banners into line with Search. And display bring other benefits to the advertiser: a display campaign impacts awareness, brand equity and, if Search is also part of the mix, it can improve the efficiency of Search.

  • http://hip-shots.com/ James

    What we are observing is the normal ebb and flow you would expect for a new product and for most advertisers Search is still relatively new. There will be Johnny-Come-Lately advertisers who will dive in and bid up the first position to unprofitable levels. Your emphasis on analysis and optimization, both of the SEM bid strategy and landing pages, is the way to go. The first position is rarely the best position in terms of ROI. Stay focused on analytics and optimization and the serious search marketer will be OK.

    Now here comes the controversial part of this comment. I believe that keyword inflation combined with improved targeting will fuel the shift of ad dollars to display. We, for example, are testing new targeting technology that is bringing our CPL from banners into line with Search. And display bring other benefits to the advertiser: a display campaign impacts awareness, brand equity and, if Search is also part of the mix, it can improve the efficiency of Search.

  • Jason Baer

    James. Really interesting on the targeting for display. Tell me more!

  • Jason Baer

    James. Really interesting on the targeting for display. Tell me more!

  • http://www.passagecommunications.com/ Soniac

    Great post Jason!

    I’m in agreement with James on the shift back to display but I think I’m more optimistic on the future of PPC.

    I think advertisers have really started to invest in better tools for analytics (and will continue to do so). These tools have revealed reams of data in favour of branding online and the “latency effect” (view thrus). Lengthening campaign analysis by even just one month after the media activity has stopped, shows delayed effects from display and significantly drives down the overall CPA.

    Display media has been getting a bad rap since day one when in reality, just like every other medium, generating brand awareness is stage one to entering consumers into the purchase cycle and I wish advertisers would take a deep breath and balance their spending accordingly.

    A display revival would be good news for search as in some cases, display media actually drives keyword searches (lifting inventory levels).

    Thanks again for the great post!

  • http://www.passagecommunications.com Soniac

    Great post Jason!

    I’m in agreement with James on the shift back to display but I think I’m more optimistic on the future of PPC.

    I think advertisers have really started to invest in better tools for analytics (and will continue to do so). These tools have revealed reams of data in favour of branding online and the “latency effect” (view thrus). Lengthening campaign analysis by even just one month after the media activity has stopped, shows delayed effects from display and significantly drives down the overall CPA.

    Display media has been getting a bad rap since day one when in reality, just like every other medium, generating brand awareness is stage one to entering consumers into the purchase cycle and I wish advertisers would take a deep breath and balance their spending accordingly.

    A display revival would be good news for search as in some cases, display media actually drives keyword searches (lifting inventory levels).

    Thanks again for the great post!

  • Jason Baer

    Soniac —

    Really good point about display driving search. I wrote a post here about online media (mostly search) fulfilling demand, but traditional media creating it.

    You’re spot on.

    Thanks for the comment,
    j

  • Jason Baer

    Soniac —

    Really good point about display driving search. I wrote a post here about online media (mostly search) fulfilling demand, but traditional media creating it.

    You’re spot on.

    Thanks for the comment,
    j

  • http://twitter.com/scheuguy/status/ Jamie Scheu

    Convince and Convert predicts PPC is going to go through an accelerated bubble and then crash in the next 4 months http://cli.gs/eS171u

  • http://hip-shots.com/ James

    @jason I would tell you more about the targeting technology but then, well you know, I would have to …

    DM me at @jhipkin with a phone number and I will tell you what I can.

  • http://hip-shots.com/ James

    @jason I would tell you more about the targeting technology but then, well you know, I would have to …

    DM me at @jhipkin with a phone number and I will tell you what I can.

  • letstalkandchat

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