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Pay Per Click: The Crown Jewel of Search

By: Cindy Turrietta, Bruce Clay, Inc., March 2006

Paid search advertising is currently the online marketing strategy du jour, and for good reason. Marketers can readily see its effectiveness and can’t get enough of it. Back in 2003, paid search was growing at three-digit rates (174 percent). Now that the market has matured, projections call for a 26.2 percent growth in 2006.

The annual ad:tech-MarketingSherpa web marketing survey reports for the first time that paid search outperformed email. More than half (52 percent) of the marketers surveyed indicated that paid search performance for 2005 was, “great— [it] outperforms other tactics”, beating email marketing, which came in second at 47 percent.

With so much activity in this marketing channel, it is instructive to discuss the major players in-depth, examining their strengths and weaknesses as well as return on advertising spend (ROAS). First, a look at how pay per click (PPC) works.

Instant Gratification

PPC advertising is highly effective for branding and direct response. Its unique aspect is that you get relatively instant search engine listings. Another benefit is that you can control your rankings fairly quickly by increasing or decreasing the amount of your bid or by improving your ad copy, and you have complete control over conversions with your landing pages.

With Google AdWords, you set a daily budget and a maximum cost-per-click (CPC). This combined with the keyword's clickthrough rate (CTR), relevance of ad text, historical keyword performance, and other relevancy factors determines the quality score which determines your ranking. You are then charged for each click on your ad that brings visitors to your website landing page. This system allows you to bid on targeted traffic and pay as little as 1-cent-per-click; however, popular search terms will cost much more.

The Major Players

There are two major PPC search vendors, Google and Yahoo!.

  • Google AdWords and Yahoo! Search Marketing (YSM) provide sponsored ads on search engine results pages (SERPs).
  • Google AdSense and Yahoo! Publisher Network (YPN) provide contextual ads on a network of publisher sites.

Google Pay Per Click Advertising

Google AdWords lets you create your own ads, choose your keyword phrases, set your maximum bid price and a budget. Google will also help you create ads if you wish. It then matches your ads to the right audience within its network, and you pay only when your ad is clicked on.

You can activate an AdWords account for $5.00, choosing a maximum cost-per-click (CPC) ranging from 1-cent on up; the sky’s the limit. Google provides a calculator for determining your daily budget, along with information on how to control your costs by setting limits. Google has stringent editorial guidelines, designed to ensure ad effectiveness. Payment can be made by credit card, debit card or direct debit, as well as via bank transfer.

Google Jumpstart is available for new advertisers who plan on spending at least $50 a day on AdWords. A specialist creates a customized campaign based on your business and advertising goals. Services include ad copy, keyword selection and bidding strategy. You get a proposal on which you can make changes. There is a deposit of $299, which is credited to your AdWords account to fund your campaign. The Google AdWords distribution network includes Google sites and affiliates like America Online, HowStuffWorks, Ask (US and UK), T-Online (Europe), News Interactive (Australia), Tencent (China), and thousands of others worldwide.

Google AdWords also allows site-targeted campaigns in which you can handpick the sites in Google’s content network where you want your ads served. Site targeted campaigns are based on a cost-per-thousand impressions (CPM) model with $0.25 as the minimum per 1000 impressions. Google has also recently introduced limited demographic targeting, allowing advertisers to select gender, age group, annual household income, ethnicity and children/no children in the household.

The major benefits of Google AdWords PPC advertising are:

  • An Established Brand – Google gets the most searches (41.4% in February 2006)
  • Strong distribution network
  • Both pay per click and pay per impression cost models
  • Site targeting with both text and image ads
  • Costs automatically reduced to the lowest price required to maintain position
  • Immediate listings, your ads go live in about 15 minutes
  • No minimum monthly spend or monthly fees
  • Budget visibility on a daily basis
  • Multiple ads can be created to test the effectiveness of keywords and creatives
  • Keyword suggestion tool
  • Conversion tracking tool helps identify best performing keywords

Yahoo! Sponsored Search Advertising

Yahoo! Search Marketing (YSM) was formerly Overture, and before that GoTo -- the original PPC engine. It differs from Google because its editorial process takes longer for ads to go live and your rank is solely based on your bid. Therefore, the top bidder gets the top position. Yahoo! Search Marketing offers two sign-up options:

  • Fast Track provides assistance with campaign setup, keyword selection, ad copy, budget advice and strategy for a fee of $199. You get a proposal that shows estimated clicks and cost. Ads go online within three business days of your approval.
  • Self Service is processed online as advertisers create their own bidding strategy with ads subject to review. Email notification informs you when the ad goes live, usually within 3 business days. A full-service option is available if desired, where a Yahoo! Search Marketing specialist provides a proposal showing keywords and projected costs within 10 business days, subject to client approval before going live.

Besides the time it takes for campaigns to go live, there are also differences in payment policy. Yahoo! requires advanced deposits to cover click-throughs and has monthly minimums. If you fall short, you are charged for the difference. If your account runs out of funds, Yahoo! will stop the campaign and require a minimum deposit of three days worth of clicks based on recent campaign activity to reactivate the campaign.

The Yahoo! distribution network includes AltaVista, Excite, Go2Net, InfoSpace, MSN and Yahoo!. The content partners include Cool Savings, CNN, Consumer Review Network, Knight Ridder and many more.

Yahoo Publisher Network (YPN)

YPN beta has recently added small and medium-sized publishers to the larger publishers in its network. Web content must be predominantly in English and targeted at the U.S. user base. Yahoo! maintains strict quality guidelines for network sites. Plans are to learn from the U.S. beta to perfect the formula and then expand internationally.

YPN offers phone and email customer service and features publisher ad targeting capabilities. Its ad targeting feature allows publishers to influence the type of ad categories served. For best results, publishers should ensure that their content is descriptive and regularly updated.

Ads shown by YPN are categorized by Yahoo!’s matching experts. The experts match ads based on page content, user data and behavioral targeting (geographic and demographic).

The Yahoo! Auto Bid feature allows advertisers to set a maximum bid (Max Bid), and then adjusts CPC to provide the best price. Your cost will be 1-cent higher than the next highest competitor’s Max Bid, and your cost is never higher than your Max Bid. The major benefits of Yahoo! sponsored search are:

  • An Established Brand – Yahoo! is second after Google (28.7 percent of all searches in February 2006)
  • More experience than any other PPC search engine
  • Strong distribution network
  • Ad targeting feature for publishers
  • Keyword Selector Tool
  • Higher conversion rates in some consumer product categories (YSM)
  • Auto bid ensures cost will be only 1-cent higher than the next highest competitor's maximum bid
  • Budget visibility
  • Conversion tracking tool (cookie active for 30 days)

Paid Search Return on Ad Spend

Calculating your return on ad spend (ROAS) in a paid search campaign can help determine which keywords and ads to continue and which to modify or eliminate. The following information is needed to calculate the ROAS on your paid search campaigns:

  • Cost-per-click (CPC)
  • Total Clicks
  • Total Revenue

Once you have these figures, you can calculate:

  • Ad cost = CPC times total clicks
  • Ad profit = Revenue minus ad cost
  • ROAS = (Ad profit divided by Ad cost) times 100

Managing paid search campaigns can be a time-consuming process, especially for the novice. If you have a limited budget with a small number of keywords, you might be able to manage your PPC campaigns yourself with the help of automated bidding and analysis tools and/or calculators provided by the search engines. Some of these tools can calculate the performance of your paid search campaign and compare the data to other marketing campaigns.

However, if your keyword list and competitors are numerous, you need a paid search consultant or SEM firm to handle this for you. It is wise to maximize ROAS for your PPC campaigns. While you may see the term ROI (return on investment) used in place of ROAS, they are not the same. In addition to ROAS, ROI also includes other costs such as time, labor, tools, etc. ROI is more difficult to determine so it’s best to use ROAS in your comparisons.

Who Rules Paid Search?

Without question, Google rules. When Yahoo! purchased Overture in 2004, Google had 33 percent of the total U.S. paid search market. This increased to 49 percent in 2005. eMarketer projects Google will have over 57 percent of the market in 2006. When it comes to revenue, eMarketer estimates Google revenue at $6.5 billion for 2006 and $11.8 billion by 2007.

If you look at paid search market share, projections show that Google AdWords and AdSence combined will receive 66 percent of worldwide paid search ad revenues in 2006, with Yahoo Search Marketing and Yahoo Publisher Network getting a 28 percent share. The remaining 6 percent goes to MSN plus all others (SG Cowen). It is not expected that these percentage shares will change significantly throughout the decade.

It’s hard to compete with Google because it is so popular. Current estimates say 74 percent of U.S. consumers use Google. It literally dominates the online news media, and that alone gives it the edge. For instance, a recent headline on MarketingVOX states, “Ballmer: It'll Be Tough to Match Google Ad Sales”.

But it’s not all roses for paid search. Click fraud and privacy issues are serious problems for all search engines. Google, specifically, is having many legal problems with governmental demand for search data, book copyright issues, Google Earth issues and more.

The Future of Paid Search

Could the future of paid search be in jeopardy? Some analysts think so. The click fraud problem continues to lessen the trust of marketers, placing the whole paid search model in serious jeopardy. But that’s not all -- the problem of privacy and behavioral targeting can lessen consumer trust, which could be even more serious. What would happen to all those clicks? Is there a prescription for the health of paid search? Yes. Search engines and search marketing vendors need to work together for a common cause while listening to the voice of consumers. It will take all three to make paid search work.

Need More Click Fraud Information? Click Fraud — Bane of Paid Search, Eliminating Click Fraud