August 13th, 2006
The state of search marketing was on full and vivid display at the 2006 Search Engine Strategies Conference in San Jose this past week, masterfully orchestrated by Danny Sullivan and Co. (thanks for the invite, Danny). I came away with pages and pages of notes, but here are some observations that rose to the top (caveat: these are largely driven by anecdotal evidence from the conference — lots of listening to presentations and Q&A, and lots of conversations with advertisers, SEM agencies, and search engine reps):
1. Search marketing has come of age
You can see this in the standing room only sessions in the ballrooms at the San Jose McEnery Convention Center. You can see it in the parade of representatives from Google, Yahoo, Microsoft, Fortune 100 companies, small businesses from every imaginable sector, and the swarms of SEM consultants, agencies, and software vendors. You can feel it in the energy of the conference that everyone knows search marketing has driven the renassaince of online advertising (and, and one might argue, advertising in general). I haven’t attended SES conferences in years past, but many people commented to me on the tremendous growth in the size and stature of SES, which reflects the maturing of the industry.
2. Goolge’s dominance is still growing
You can see this in the competitive analysis charts from Hitwise, comScore, and Nielsen/Netratings showing Google’s still growing dominance in visits and total searches. You can see it in the way AdWords dominates the case study presentations. You can see it in the Google clone features of Yahoo’s new Panama platform. You can see it in the widespread hand wringing over the negative impact of Google’s landing page quality score. You can see it in Google’s ostentatious display of power and wealth at the Google dance. You can see it in the packed auditorium listening to Danny Sullivan’s conversation with Google CEO Eric Schmidt.
Google’s dominance was evident when makers and users of search marketing management software railed against Google’s “API tax,” i.e. Google’s decision to charge advertisers for the once free access to Google’s AdWords API. They also complained about the Google API terms of service that prevents Google data from being used in apples-to-apples fashion alongside data from competing search engines — its clear to many SEMs that Google wants to control the whole search marketing landscape.
Google is to this decade what Microsoft was to the last decade. In a session on “Search Engines: Friend or Foe,” I asked David Jakubowski of Microsoft’s AdCenter about the irony of Microsoft’s effort to be the anti-Google, and he wisely declined to comment.
What struck me most is that few people were ready to concede the war to Google — of course, you hear this from Yahoo and Microsoft. But you also hear it from SEMs, who are begging for Yahoo, Microsoft and others to give Google a better run for the money.
3. Effective ROI measurement is far from universal
There is no shortage of software and SEM consultants that do a great job helping companies measure the ROI of search marketing — but my sense is that many companies are still far from state of the art. You can see this in the rudimentary questions that advertisers ask — and these are companies that had the wherewithall to attend Search Engine Strategies — and the way SEM consultants talk off the record about the state of practice. On the click fraud panel, Lori Weiman of KeywordMax cited statistics that 1/3 of advertisers arenÃ¢â‚¬â„¢t tracking post-click customer behavior, and 50% of those who are don’t analyze the data to make bid adjustments and optimize performance.
There was undoubtedly a huge learning curve on display at SES, and all to the good — companies are making progress on ROI with the help of consultants, agencies, and new platforms. But the amount of learning still to be done makes me more skeptical than ever of arguments that assume most search advertisers are operating at best practice when it comes to ROI and optimization, e.g.
– The market can compensate for click fraud
– Pay-per-click key word prices reflect a high degree of market efficiency
– Pay-per-click arbitrage will diminish as the market becomes more effient
Of course, paid search remains several step functions more efficient than tradiitonal paid media advertising — effective ROI measurement is actually possible for the first time — but in practice, it still has a long way to go.
4. Transparency is declining and the black box is growing
In Yahoo’s new search advertising platform, Panama, advertisers will no longer be able to see how much their competitors are bidding — like Google’s AdWords, which Panama imitates, this data will be drawn into the “black box.” Yahoo had little choice but to reduce the transparency of its ad system in order to compete with Google.
Eric Schmidt reaffirmed the black box party line in his conversation with Danny. Google will not release data on anything, from click fraud to spending on search vs content ads — Google has developed a number of standard “reasons” for this lack of transparency:
Competition — this is a universal catch-all excuse
Bad actors — they can’t disclose click fraud data because that will help the click fraudsters
Misinterpretation — they don’t want to release data without context because it can be misinterpreted — this was a new one for me
Every Google rep I saw at SES — Shuman Ghosemajumder, Business Product Manager, Trust & Safety; Kim Malone, Director of Online Sales & Operations; Shashi Seth, Product Manager for Google Co-op — was carefully tight-lipped about revealing any data of any sort that might help anyone understand what’s happening inside the black box.
And the frustration among advertisers and SEMs over the search advertising black box is growing. With all the talk of market efficiency and ROI, it’s sobering to listen to Dana Todd of SEMPO and SiteLab make an impassioned plea for a full click-by-click data audit — who clicked on each ad, how much they paid, etc. — and she knows she’ll never get it.
The battle lines have been drawn in the war over data — the issue of click fraud is of course front and center, with Google’s surprise attack against third-party click fraud measurement at the SES panel.
But I was also struck by the view of some SEMs that paid search is getting harder, given the risk of triggering Google’s quality score algorithm, which can explode keyword prices overnight. Because Google’s effort to prevent abuse of the system is done with so little transparency, it may have the unintended consequence of stifling innovation and making advertisers afraid to do the kind of experimentation necessary for optimization and better ROI.
5. Advertisers are getting frustrated and suspicious of search engine hegemony
I asked a diverse set of advertisers whether they planned to use Google Checkout — NEVER, was the near universal answer. I’ll never share my data with Google. I’ll never put my data into Google’s black box, because then they will know how much I’m making on keywords and they can raise prices to squeeze my margins. I heard similar attitudes towards Google’s conversion tracking tool and Google analytics. The collateral damage of the landing page quality score has only hardened this view.
Dana Todd talks about Google addiction — the inability to look beyond Google’s unequaled capacity to drive traffic. She is clearly worried that advertisers are becoming blind to the risks of over-reliance on Google.
The risk of over-reliance on Google is nothing new — advertisers learned that lesson after Google’s “Florida” algorithm adjustment in 2003, which drove so many merchants out of natural search results and inevitably into paid advertising. But the introduction of landing page quality scores and the growing awareness of click fraud is leading more advertisers to question Google’s degree of control.
On the click fraud panel at SES, Jessie Stricchiola of Alchemist Media pointed to a little publicized section in the Tuzhilin Report which disclosed that Google waited until 2005 to stop double charging advertisers for double clicks:
The change in the doubleclick policy that was considered in Winter 2005 and implemented in March 2005. It turned out that the change in the doubleclick policy (i.e., not to charge advertisers for the immediate second click in a doubleclick) had non-trivial financial implications for Google. Being a publicly traded company at that time, this change would have had a noticeable effect on GoogleÃ¢â‚¬â„¢s total revenues with corresponding implications for the financial performance of the company.
Advertisers, of course, had no idea that they were being double charged because it all took place inside Google’s black box. And advertisers are starting to wonder what else may be going on inside the black box to maximize Google’s revenues at their expense, with click fraud being only the most publicized issue.
6. Search marketing is still in its infancy
Most SESers agreed that we are just at the beginning of the road with search and search marketing — with the notable exception of Eric Schmidt.
When Danny Sullivan made the observation to Eric Schmidt that search is “boring” and wondered whether it has matured like the TV set or whether there was something new and exciting over the horizon, Eric looked at Danny like he had three heads and said defensively (regarding Google’s simple interface): “People like that. Don’t you?” When Danny pressed him, Eric responded by saying that anyone wanting a “complex” search experience could use Google’s personal homepage with RSS feeds and gadgets.
Yes, indeed, we’ve still got a long way to go.