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Henry Blodget interviews Andrew Goodman,
SEM expert and founder of Page Zero Media

Thought Leaders is published by Cherry Hill Associates, LLC, an industry research and analysis firm. Cherry Hill Associates, LLC is not an investment adviser, and this publication does not contain investment advice. We do not represent that the facts or opinions in this publication are accurate or complete, and we assume no liability for the use of all or part of it. Please see the end of the article for additional information and disclosures. For information on becoming a subscriber, please visit

Thought Leaders
April 17, 2006

Henry Blodget interviews Andrew Goodman, the founder and principal of search marketing boutique Page Zero Media. Page Zero is a small SEM firm in Toronto that focuses primarily on paid search.

Andrew founded the firm in 2000, and recently published Winning Results with Google AdWords (McGraw-Hill, Sept. 2005). The interview covers spending trends, keyword prices, click fraud, and the (poor) outlook for Microsoft AdCenter.

Andrew believes:

  • High keyword prices are prompting a shift back toward organic (free) search. Organic will never be the whole solution, however.
  • In some verticals, keyword prices are so high that small advertisers are getting priced out. However, companies with strong follow-on sales efforts are still getting attractive customer-lifetime ROIs.
  • Keyword prices have flattened of late. Andrew believes this is because the market is in a “research” phase and that prices will eventually double again.
  • Click fraud is real but not as big a problem as the media suggests.
  • Most companies do not audit click streams. Doing so would be of limited value because Yahoo! and Google already perform audits and have the last word.
  • Click-stream audits often reveal traffic spikes with disappointing conversion rates, but this is not always the result of fraud.
  • Advertisers have little control over bad-click refunds. Refunds tend to run at less than 5% per month (which does not include clicks that the engines have not charged for).
  • The outlook for Microsoft AdCenter is poor. MSN’s conversion rates are attractive, but Google and Yahoo have better talent, and AdCenter is in “chaos.”


Blodget: Andrew, thanks in advance for sharing your thoughts. Perhaps you could start by giving us a sense of Page Zero?

Goodman: Our importance dwarfs our size [laughs]. We’re an eight-person company, and our clients range from small- to mid-sized retailers to offbeat business-to-business enterprises and Fortune 500-type companies. We focused entirely on paid search and related analytics until recently. We don’t sell our SEO service [unpaid organic search listing optimization] actively, but our clients have become interested in having us work on that.

High Prices Prompt Shift Back to Organic Search

Blodget: Some suggest that, because organic search accounts for the vast majority of traffic referrals, advertisers don’t yet pay enough attention to organic, at least relative to paid. Do you agree?

Goodman: I still think advertisers are justified in focusing on the paid side. Unfortunately, the unpaid side is still a realm of fairy tales and magic. Also, the business has evolved to the point where some companies need to change their approach to organic because their upside is permanently lower there. Since Google started taking action with Florida and different updates, users are simply given less commercial results—deliberately. So, there’s a sense that you can’t get in the results unless you’re doing something more content-oriented or unless you’re the best of a very short list of exact matches for what the person is searching for. It’s just harder to rank with a commercially oriented page.

Blodget: So in terms of total spending, there’s no change in terms of advertisers allocating more money to the SEO side?

Goodman: I have heard people say that they’re swinging back to SEO. As frustration grows with rising costs on paid search—as we would have expected as everyone
joins the party—it is still free over on the organic side. Whether this shift back pays any dividends remains to be seen. We’ve got a number of clients for whom we’re going undertake organic efforts. But I’m certainly not one who touts organic search as a solution. It’s part of the mix, but there have to be losers there. There’s only one first page of search results on popular commercially-oriented queries, so there have to be losers.

High prices driving out small, unsophisticated advertisers.

Blodget: Is “frustration” the right word to describe attitudes toward pricing on the paid side? One of the big questions industry analysts have, obviously, is how long keyword prices can continue to go up.

Goodman: “Frustration” probably isn’t the right word. You tend to get frustrated if your expectations were too high. If you’re too small a company playing in too big a field, it’s always frustrating to be crowded out of something that requires more capital. We are certainly seeing that. People with a long view have no problem with X cost per customer acquisition, whereas someone who thought that $5 was going to be their customer acquisition cost and now it’s $17 thinks it’s terrible. But relatively speaking, it may still be good. You don’t have to get overly optimistic about lifetime value [to justify the cost]. You simply have to have a realistic sense of what you do with customers with email follow-up and all those things to create even several more sales in the same year. So “frustration” is probably the wrong word. “Shakeout” might be a better word.

Flat, but ROIs still positive when including follow-on sales.

Blodget: Has the cost gotten appreciably different in the last year or two? Is it starting to level off?

Goodman: It did seem to level off at some point and in a lot of industries is going sideways now. If I had to guess, there is a research phase going on. The bigger companies are still thinking, and they take a long time to decide. But I do think we’re going to see in a couple of years an assessment that the space is still quite undervalued. I would expect it to take a while, but in some industries, I think we’re going to see prices double again.

Blodget: What do you base that on? The traditional argument that most people have no idea what customer acquisition is costing them in other media? Or does your analysis just suggest that in some categories prices really are only half of they should be?

Goodman: With any chart where something rises quickly, it usually pauses. If I look at housing values, people will say “That’s just crazy.” But if the playing field has changed, if commuting times are longer, if more young people want to live downtown, then maybe that’s a permanent re-pricing of the market, and it’s still on its way up. There’s always a pause, and there’s always talk that it’s too high, but compared to other lead-generation sources, the true level has not been reached yet.

Blodget: And that’s clearly the only relevant measure—ROI. People will get over the sticker-shock of rapid price changes. But you’re comfortable that, compared to other options, this is still by far the most cost-effective?

Goodman: Well, yes, because there’s so much flexibility to it. So for the bigger advertisers the real problem is the size of it. They are certainly willing to spend a lot more in other areas.

Blodget: I’m sorry—what do you mean by that?

Goodman: It’s small. They would like more [inventory] at this price, or even at twice this price, but there are only so many searches and there’s only so much inventory.

Blodget: So supply-and-demand will always drive it to some extent, but you feel that on a purely economic basis there’s still room to justify current prices?

Goodman: Yes, and part of that does come from seeing the results of companies that have a well-integrated back-end or upsell. Effective customer acquisition is still something many smaller companies don’t understand, and many smaller companies are still in those keyword slots. As larger companies move in and understand how much they can make with direct mail and so forth to that new
customer—these customers are worth quite a bit more than current prices in some of these verticals.

Great idea, but local companies don’t get it yet.

Blodget: Everyone has been obsessed with search for three to four years. Are there other products online that are now relatively undervalued, like display or email? Are you seeing any clients start to shift allocation?

Goodman: Email is great for customer relationships, but we’ve seen it face huge challenges in terms of users avoiding it. I’m still obsessed with search, and it may be that there are kinds of search that are set to explode. I’m excited about local search. I like the way Google has attacked that.

Blodget: And you are actually seeing clients start to spend on local?

Goodman: Well, no, I guess that is the issue. As with a lot of local search, endemic to that local listings phenomenon is a very high number of businesses spending relatively small amounts. But when you put them all together… As for my clients, it’s such a small amount from any one client that it doesn’t matter. So when will everyone — and I mean every local restaurant, bar, dry cleaner — figure it out? As we’ve seen with the web, people seem clueless, and then, all of a sudden, one year, they all do it at once.

Big companies still are still inconsistent.

Blodget: So, from a higher level, are you seeing any rate of change in terms of client spending on paid search?

Goodman: The most meaningful dollar swings involve the big companies. Some of them are still up and down and on and off. There is still a lot of bureaucracy. The big firms are not embracing the model Google wants them to embrace. Google will do a presentation and say, “This really isn’t flight-based advertising. This is always-on advertising based on ROI, and you don’t need to have so many meetings about when to deploy the campaign.” Well, they’re not really all buying into that yet. So there are the back and forth ones. And then there’s one big Internet pure-play we work with where expansion is just ongoing. They are moving into every country. So I think that is a source of growth—countries like India and Australia where international presences are just being built out, and they spend on the ads in all those countries.

Blodget: So they started in the U.S. and they’re now realizing that this can be a single buy globally?

Goodman: Yes, this is a major U.S. company, and the progress was then to the U.K., which seems like it’s No. 2 in terms of how close they are to the U.S., and then Canada, India, and wherever in Europe that it’s possible and easy to do business in.

Blodget: Do you know if that sort of spending is factored into estimates of advertising spending by country? It sounds as if this is a huge opportunity—U.S. companies expanding their spending on Yahoo, Google, and others elsewhere in the world—versus just the local companies starting to spend online.

Goodman: I don’t know what the accounting looks like, but it does seem potentially huge.

Real, but not earth-shaking.

Blodget: Click fraud. Are you as concerned as the media is? Have you seen any?

Goodman: Oh, of course, we’ve seen a lot of it. But I’m not nearly as concerned as the media. When you’re down in the trenches working on campaigns, clearly you are beholden to the ROI numbers, so problems ultimately come down to that. It’s a question of where the fraud comes from. We all know that the biggest culprits seem to be content partners that are not quality partners or were actually set up to defraud. So advertisers either adjust their campaigns to de-emphasize the content-targeting side of it, or Google and Yahoo start policing it better.

Blodget: Do your clients audit their click streams?

Goodman: By and large companies aren’t auditing. There are companies trying to sell these services, and I think you would be open to that if your spending was high enough. It becomes an issue of difficulty and relations with Google and Yahoo. They are already using mechanisms to not charge you for the bad clicks. So a lot of the bad clicks your system might identify, they might already have not charged you for. So then it’s a question of how much the refund is. At the end of the day, Google and Yahoo! will still decide how much it is, and I’m not sure that your audit is going to influence their decision. If you have a long-term relationship with these companies, it’s as much a matter of getting their attention as it is having incontrovertible proof of something. They don’t admit anything, and they’ll rarely explain whether or not what you claimed was true. They’ll refund you, but they won’t divulge details. The exception to that is Google. We’ve seem a number of cases where they told us that there were rogue content partners and they have been eliminated from the network.

Blodget: Have you had clients where they have done audits with outside services and compared that to what the search engines have said?

Goodman: We’ve done it by looking at raw IP data. I wouldn’t say we’ve made a lot of use of outside services.

Blodget: Have you had cases where you feel like the vendor’s internal assessment is way off the mark in terms of the amount of fraud?

Goodman: Absolutely. There are times when it’s been a mistake on their part. It’s slippery—and this is what maddens advertisers and is also to the advantage of Google and Yahoo—but sometimes there are spikes in traffic that seem suspicious. Sometimes those spikes do not have good results, but, nonetheless, they may be legitimate increases in traffic. These spikes can come from changes in how the search engines’ matching algorithms work. Both Yahoo and Google experiment with how broadly they add traffic to your steams, and that can create spikes in traffic. And that can create bad traffic. It’s definitely the search vendor’s fault for giving you spikes in traffic that you don’t want without being transparent about the matching, but it may not be fraud.

Good luck getting search engines to listen or care.

Blodget: So what happens when you do feel there is fraud? Are the search engines responsive when you go back and say, “We need a bigger refund?”

Goodman: Sometimes. But usually the refund they give is the refund they give. It’s the inconsistency not just on fraud but in all areas that is so disturbing. In my personal experience, the inconsistency is much greater with Yahoo. The model is much more rep-based. There are tiers of service that are difficult to understand: Platinum, Gold, Diamond, etc. They don’t necessarily mean anything. They will refuse to look at things at odd times, even for a large client, and in other cases they’ll refund you without even being asked. It comes down to policy: You have to have one, and you have to follow it, and in my experience, Google is a little tighter in having a consistent story. But they’ve both grown so quickly, and they both have so many people. They never foresaw the amount of human interaction they would have to have in all this.

Blodget: If all of your clients decided to do click-stream audits, how much would that change the ROI equation in terms of keyword pricing? For example, if I didn’t audit and the maximum I could pay for a keyword was $1, and now I’ve decided I have to audit and press for refunds, etc., how much is that going to cost? What’s the new keyword price I can pay?

Goodman: Well, I would hope that the actual audit wouldn’t cost that much. But one side effect of this would be that, if you’re getting more refunds, and everyone’s getting more refunds, then of course click prices would actually go up. It’s the fear of fraud that causes everyone to back off on their bids.

Blodget: Are you seeing any of that?

Goodman: We saw quite a bit of it, actually. It benefits persistent advertisers, because there is a lot of fear-mongering. What’s I think is happening is that on some of these core keywords that we used to suspect were being clicked a few times a day by competitors, that stuff can be filtered out by Google and Yahoo. They can stop charging you for those as they see these patterns established. So, if you just stick it out, others are leaving on principle and fear of fraud, and the next thing you know, there is actually less click fraud, because you’re not being
charged for these clicks.

Blodget: You said that is something you saw happening? Is that something that’s happening now?

Goodman: It feels like it’s happening. A keyword like “web hosting,” as an example, you would develop a real aversion to in the past because of not only high cost but suspected click fraud. So you would have to work extra hard to build as much alternative inventory as possible, build a huge keyword list and move as much of your spending off of those core keywords as possible. Now, I’m a little less scared of that. It seems like we’re not burning through this huge amount on questionable clicks on the core keywords. They seem to be behaving the way they were when people weren’t clicking on them randomly. So it seems like there is either less of this behavior, or Google and Yahoo are controlling it better.

Blodget: On average, what percentage of spending is refunded?

Goodman: Many months go by with no refunds, but it would be less than 5%.

Blodget: And that’s after they’ve run their own audit and said “We’re not going to charge you for 30% of the clicks.”

Goodman: We just don’t know what percentage they’re not charging us for. And then there’s some obvious ones, like duplicates. Most of us feel they could be doing better there, that they should just show a little goodwill. If it’s the same person clicking three or four times within three days, well, you could call that “research,” but it feels a lot better if you don’t get charged for it.

Not ready for primetime. May never be.

Blodget: Microsoft. AdCenter. Any hope there?

Goodman: The average user of MSN search has lower defenses [against advertising], so the higher conversion rates they report are enticing. Potentially, you’re looking at 10%-15% of your search-based online sales coming from Microsoft. And that’s enticing. But I think the platform could get well ahead of the team here. The features are kind of cool. But let’s face it, Google and Yahoo! went through painful years of learning how to integrate everything, how to fix problems. Right now, it really is just chaos there at AdCenter. People aren’t ready for primetime. And better advertisers want more support. They don’t want to have to play with a broken platform. They want to be able to port their campaigns and get them up. That’s just not widely available yet, but I certainly hope it is soon. If that comes on-stream, then a lot of people will be happy.

Blodget: So, what you’re saying is, right now, Microsoft is not getting the spending that it should get based on the conversion potential it has? So it’s not just a function of Microsoft needing to grow its share of queries? Goodman: No, but I do also wonder how that’s going to happen. You read in the paper surface quotes about what a great team they’ve hired or their commitment to
search, but my sense is that if you’ve asked around the industry, anyone who has encountered their hiring process would be quite skeptical about the quality of people. Because who’s left? Google and Yahoo have mopped up quite a large number of qualified people.

Blodget: Thanks, Andrew.



Thought Leaders is published by Cherry Hill Research, a division of Cherry Hill Associates, LLC. Cherry Hill Research is an industry research and analysis firm. Cherry Hill Research is not an investment adviser, and Cherry Hill Research publications are not investment advice.

The value of Cherry Hill Research depends on its impartiality, insightfulness, and accuracy, so we strive to make it as impartial, insightful, and accurate as possible. However, our publications are not objective—they are subjective. They contain not only information, but opinions and predictions—our own and others’. We base our opinions and predictions on information and analyses that we believe to be reliable, but we cannot guarantee that they are accurate or complete. We can guarantee that the opinions and predictions will sometimes be wrong. Sometimes this fallibility will result from the uncertainty of predicting events and forming conclusions with incomplete information. Sometimes it will result from mistakes, ignorance, and/or idiocy. We assume no liability for the use of our opinions, conclusions, facts, or analyses, or those of our sources and interview subjects, which may also be inaccurate or wrong.

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Henry Blodget or other Cherry Hill employees own stock in companies that might be mentioned here, including Yahoo!,, Time Warner, and Microsoft. We do not believe that our publications affect the long-term performance of these (or any) stocks, or that our holdings compromise our impartiality. Still, we prefer that the prices of stocks we own go up, not down, so our opinions might be skewed by self-interest, hopes, dreams, or rooting bias.



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