The latest Site Reference newsletter is reprinted here. Read the featured article titled “The State of Search Engine Advertising: Reality and Alternatives” by Mel Strocen. [Newsletter Reprint]


The latest Site Reference newsletter is reprinted here.

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The State of Search Engine Advertising: Reality and Alternatives

by Mel Strocen

The herd mentality never fails to amaze me. When the pay-per-click concept was first pioneered in 1997-98 by GoTo.com (now Yahoo! Search Marketing), it was years before the model was widely accepted. GoTo virtually created the market for pay-for-performance search single-handedly and redefined how businesses market online while other search engines sat on their collective hands. Then, when it was obvious that there was “Gold in Them Thar (PPC) Hills” hundreds of search engines entered the PPC arena and hordes of advertisers followed suit.

As a search engine advertising model, pay-per-click was, and is, brilliant in its simplicity. In theory, it is a perfect way to bill advertisers based on consumer interest in their advertisements. Unfortunately, in real life money can bring out the worst in human, and business, nature. In today’s search engine reality, pay-per-click should be on its last legs. But, as anyone with a knowledge of the search engine industry knows that simply isn’t the case.

Let’s first examine the main reasons why advertisers should be abandoning PPC in droves:

1. Cost

According to the Fathom Online Keyword Price Index, the average keyword price paid by online advertisers reversed a downward trend and increased 16.5% percent to $1.48 in the third quarter of 2006, up from a $1.43 per click at the end of 2005.

That’s one report. Another compiled by Click Forensics concluded that the average pay-per-click search-term cost was $4.51 across retail, financial services, health and fitness, technology and entertainment advertising. Whatever the average cost, it’s too high for most small to medium-sized businesses.

More stats and information on PPC trends (conflicting or otherwise) can be found at the links below:

SEM Services: Trends and Predictions

DoubleClick Performics 50 Search Trend Report Q1 2006

Advertisers Cutting Google AdWords Spending With Surge of Keyword Prices

2. Click Fraud

You gotta love stats. In researching this article, click fraud was cited as running anywhere from a low of 2.0% to a high of 35% – a range guaranteed to put a smile on the faces of government flunkies that like to boggle the public with reams of out-of-context figures. Since stats can be massaged to support just about any argument, I won’t bore you with a list of supporting links.

If you’re interested, just do a search on “Click Fraud percentages” or “35% Click Fraud” and review at your leisure.

3. No Accountability

PPC engines bill without providing any backup as to the origin of the clicks received. It’s the “trust us” philosophy of business. Hey, if you’re not savvy enough to look for, or find, fraud, then obviously there wasn’t any. Why would you think otherwise?

Not all advertisers, however, are content to accept the “trust us” approach to customer relations. Expect more suits like last year’s class action suit against Google.

Click Fraud Concerns Hound Google

Google Agrees To $90 Million Settlement In Class Action Lawsuit Over Click Fraud

Of the three reasons noted above, the first and third are known to any PPC advertiser and the second is widely ignored. Why? Because many advertisers would prefer to believe that the big PPC players are doing their best to monitor and control the click fraud problem. And, of course, they believe this because companies that make billions of dollars from PPC ads have no vested interest in padding their bottom line and making their investors happy. Also, there’s the fact that the Internet is immune to scams and rip-offs. Plus, as we all know, history has shown that industries and companies that police themselves are above reproach.

Is this the world we live in? Remember Enron and WorldCom? In the real world, the equation reads as follows:

Money + No Accountability = YouRippedOff

But to be fair, not all advertisers turn a blind eye to the threat of click-fraud. The sad fact is that most are either unaware there is a problem or are ignorant of the extent of the problem. These advertisers simply do not have the technical know how to investigate click fraud as it applies to them or to determine how it affects them – by which I mean how much money they are losing.

Generally, this group is impressed with numbers. If they receive hundreds of clicks per day on a PPC ad, they are in click heaven. The same group is especially enamoured with all things Google. All other advertising models are measured against Google’s AdWords and AdSense programs and found wanting. The problem is that only God and Google really know where their clicks and impressions come from, but why worry since both subscribe to “Do No Evil”.

So, how bad is click fraud? Worse than you think and worse than has been reported and, if you’ve missed what has been reported, the links below provide an overview:

1/ The Sausage Manifesto
By Jeffry K. Rohrs, December 18, 2006

2/ New Click Fraud Allegations, With a Twist
By Kevin Newcomb | December 8, 2006,

3/ The Silent Epidemic of Botnets
By Jim Hedger, December 6, 2006

4/ The Vanishing Click-Fraud Case
By Ben Elgin, December 4, 2006/

5/ A True 2nd Tier PPC Click Fraud Story
By Carsten Cumbrowski, November 15, 2006

6/ Click Fraud The Dark Side of Online Advertising
Business Week Magazine October 2, 2006

7/ Google, Yahoo Click Fraud Audits: When Will Advertisers Demand Them?
By Donna Bogatin, August 25th, 2006 ZDNet

8/ Yahoo Used in SpyWare Click Fraud Scheme
By Jim Hedger, Tuesday, April 04, 2006

Still not convinced? then, listen to the following interview with the CEO of AIT Inc. Clarence Briggs who was one of the lead plaintiffs in last year’s Google class action suit:

http://www.webmasterradio.fm/breakingstory.php

These stories should serve as a wake up call to any thinking person that a large number of clicks don’t necessarily equate to sales or money well spent. And, if you think click fraud is just part of the cost of doing business, then there are thousands of scam artists out there who are ready to be your best friend.

Can the PCC industry be saved? Not without accountability from the major players. In any other industry if you paid for something – say 100 widgets – you would expect to get 100 widgets. If you received 60 widgets, you would want to know what happened to the other 40. And, if the supplier said, “trust me, I sent a 100”, you would demand proof.

Even when there are external and independent monitoring agencies working on behalf of consumers and investors, fraud occurs, as in the case of WorldCom and Enron. When an industry polices itself – well, you figure it out.

So, if pay-per-click is a poor choice for your advertising dollars because of rising costs, fraud and lack of industry accountability, what are the alternatives?

1. Organic SEO: (Search Engine Optimization): The blanket term used to describe the unpaid, algorithm-driven search results of a search engine, and the methodologies used to achieve such website rankings. (Source:http://www.mediumblue.com/newsletters/organic-seo.html)

Entails a learning curve to become knowlegeable in accepted SEO techniques but worth the time and effort given that it’s generally accepted that around 80%-90% of all traffic to websites originates from search engines. If time is money to you, hire a reputable SEO consultant. Use the savings from the money you would have spent on a PPC campaign.

2. Paid Inclusion: Refers to the payment of a one-time fee for placement of a website listing within a search engine’s paid or organic search results. Not as popular an advertising model as it once was (read not as much money in it for search engines) but could be poised to make a comeback.

This model used to be the main revenue generator for a number of search engines with Inktomi being the best known proponent. Advertisers would pay an annual fee to appear in Inktomi’s search results as well as the results of other engines powered by Inktomi. The hook was frequent crawling (every 48 hours) which allowed webmasters to see the results of their SEO efforts quickly.

Paid inclusion hasn’t died, but it has morphed with variations still being offered by Yahoo! and other engines. Probably, the most interesting variation was launched about 18 months ago by ExactSeek.com and the ISEDN (Independent Search Engine & Directory Network). In a nutshell, the ISEDN offers a hybrid advertising model which offers rotating top 10 site listing exposure across a growing network of smaller search engines as well as web, blog and article directories (currently, there are 260 ISEDN members) for flat fee rates. Pricing is based on time rather than keyword bidding. Buying a single ad listing for 3 months costs $12 and $36 for 12 months. The model is simple and affordable, offering all of the advantages of the PPC model without any of the drawbacks. More details at:

http://www.exactseek.com/featured_listings.html

3. Cost Per Action: From an advertiser’s perspective, this could be the ideal advertising model since the advertiser would only pay for an ad when a specific action had occurred such as a sale or a registration. Back in June of 2006, there were several reports that Google was testing a version of its AdWords product using the CPA Model. Not much has been heard since. The CPA model is widely used in the affiliate and lead generation industries, but don’t hold your breath waiting for wholesale adoption by the search engines.

4. Pay-Per-Percentage: Put forward by Microsoft as a solution to both click and impression fraud. Below is a quote from a Microsoft research paper:

“In this system, an advertiser picks a keyword, e.g. “cameras” and purchases, perhaps through bidding, a certain percentage of all impressions for that keyword. For instance, an advertiser might pay $1.00 to MSN Search. In return, the advertiser might receive 10% of all impressions for “camera” for 1 week. What does this mean? It means that for 1 week, one out of ten times that someone searches for the word “camera”, they will see the ad.”

You can read the full abstractfor an in-depth explanation.

The Microsoft PPP advertising model was proposed, perhaps not coincidentally, around the same time Google was testing the CPA model. Again, not much has been heard since then.

Will any of the above alternatives dethrone PPC? Time will tell. Which brings us back full circle to the herd mentality. If and when the advertiser herd twigs to the fact that PPC is a hype driven industry with very little substance and begins to move to a new advertising model, expect PPC engines to shift advertising gears faster than you can say “Who wants to stay a billionaire”.

About this author

Mel Strocen is CEO of the Jayde Online Network of websites and founder of the Independent Search Engine & Directory Network. The Jayde network is comprised of more than 20 websites, including ExactSeek.com,SiteProNews.com , SEO-News.com , and GoArticles.com.

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