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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.
- High keyword prices are prompting a shift back toward
organic (free) search. Organic will never be the whole
- 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
- 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
- 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.”
PAGE ZERO MEDIA:
Blodget: Andrew, thanks in advance for sharing your
thoughts. Perhaps you could start by giving us a sense of
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.
PAID VS. ORGANIC SEARCH:
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
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
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
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
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
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
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
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
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
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.
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