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Friday, September 25, 2009

To Ev and Biz: Click Arbitrage Tips for Twitter

Hi Twitter,

In light of your impending $1 billion valuation, juxtaposed with Bill Tancer's observations that Twittermania might just be leveling off, we thought we'd propose an easy, short term way that you can cheer up your investors and slow the burn rate on the large sum of cash they're about to fork over. Slower losses, less buyer's remorse for the investors... while you get the business model really figured out.

The beauty of it is, our method increases your traffic and member base, rather than demotivating your existing user base.

Since everyone from Google to Seth Godin to Iran has been donning hats ranging from grayish to dark black this week (Sidewiki, Brandjacking, and nukes, respectively), we figured our plan might not even get labeled evil. Ethics, schmethics.

The idea is simple. Buy Google AdWords keywords on every topic under the sun and run them globally, avoiding the US where the Quality Score bar may be a bit higher. Bid low. Use a lot of automation and dynamic keyword insertion.

Let's say someone is reading an article about the fashions of the G20 leaders and learns that one of them was wearing a Hermes tie. So for some strange reason, they go to Google and search for "G20 Hermes Tie." You are using an automated tool to build ad groups around broad matches of major breaking news items, like G20. So of course, you've got this one covered!

Example ad:

G20 Hermes Tie
Tweet or read tweets about
G20 Hermes Tie. 140 chars. only!
http://twitter.com

Now, you set up a custom landing page loaded with relevant text ads (from another CPC ad network, say, Yahoo), and hope the resulting ROI on the arbitrage is at least breakeven. As a secondary goal, you hope more people sign up for Twitter accounts. Insofar as this turns a profit, you can even cut into the monthly cash burn.

Target average CPC on text ads in USD: 19 cents
Target average revenue per click on same ads: 25 cents

Profit on ten million clicks per quarter: $600,000
Profit, minus management fees: $450,000

Annual revenues from ads: $10.0 mm
Annual profit: $1.8 mm (gotta start somewhere)

Annual traffic increase: 40mm visits

Presto, now you're monetizing and adding visitors without even placing ads on existing pages. Just like eBay does!

If you run into Quality Score problems - no problem. There is still a massive content targeting inventory you can use. That's a legitimate way of building an audience. And oh, so, so, so much cheaper than Yahoo's $100 million planned ad campaigns.

Your traffic and user counts will resume growth, and Mr. Tancer will have to admit as much.

Good luck with it! We know you don't need the money, but we sure are curious as to how you will eventually monetize the Twitter juggernaut. You could charge corporations for some way of putting a shiny face on their brand reputation, but something tells us this could blow up in your face.

Sincerely,

The Team

P.S. - You're welcome.

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Posted by Andrew Goodman




Thursday, September 24, 2009

Adam Lasnik: Super Top Secret SEO Takeaways

When Google spokespeople for the organic search side, such as Matt Cutts or Adam Lasnik, share their thoughts in Q&A's on the conference circuit, typically what you expect to get is three parts official Google philosophy, and one part personal insight. Sometimes you get that little extra interpretation that helps you sort out where things really are now with the algorithms, and where they may be headed. In that regard, Adam didn't disappoint in his talk yesterday here in Oslo at the SEM '09 conference, hosted by IAB Norway.

Leaving aside a relatively well-traveled topic, underscores vs. hyphens in URL's, Adam explained a couple of other interesting nuances in the Q&A part of his talk.

He put this into overall context by saying (paraphrasing here) that there are often points made by speakers at conferences where he wishes he could jump in to discredit a myth or otherwise set the speaker straight. So often, it's possible to overanalyze something and take it in a direction that just doesn't stack up with how Google's technology really works.

On that front, Adam seemed to take issue with the overall point (jumping off the SEOmoz expert survey of ranking factors, and correlations with what appear to be real rank) that keywords in URL's and domains help with rank. He suggested a couple of other reasons why this coincidence occurs (other actual causes that are actually in the algorithm). I think the point is valid, and could think of a couple of other reasons why savvy companies who happen to be putting keyword-rich URL's into the public domain happen to do several other things well; and it's these things that really cause them to gain higher rankings. IMHO a disproportionate number of high organic referral type companies (Yelp, TripAdvisor, Kijiji, etc.) have the keywords-in-URL thing covered. These guys rank well for all sorts of reasons. And as a proportion of high ranking pages, they take up a large number of 'em. So there's that skew. It doesn't follow that any old company will see a great ranking benefit from pursuing relatively trivial changes to their site architecture or nomenclature. It's a small piece of the puzzle at best. But the mindset that causes companies to do it (user experience) is the right mindset to have.

Adam went on at greater length about why H1 and H2 tags, etc., don't correlate with rank. More to come on this. It's time for dinner.

Posted by Andrew Goodman




Tuesday, September 22, 2009

First Impression: Inside Larry and Sergey's Brain

I've had the chance to race through Richard L. Brandt's new book, Inside Larry and Sergey's Brain. It's a compelling read.

Because Brandt uses no groundbreaking method (no brain scans, for example), and didn't get insider access to the Google cofounders, I was worried that there would be no original or interesting material here. That fear proved unfounded. Others around them, including Eric Schmidt, are pretty talkative. That combined with dogged, traditional research, and a judicious way of selecting the important parts of the past ten years of Google history, provides an original insight into what makes Google tick. In particular, it's a bracing reminder that Larry and Sergey alone created or fostered most key aspects of this company and (with much help of course) continue to review a vast array of innovations, technology decisions, and operational decisions at the company.

Industry pros, in particular, should read this book to sharpen their game and to improve the accuracy of their assessments of the company's motivations and intentions. The relentless innovation and product focus sets Google miles apart from competitors not only on search and advertising as a whole, but right down to individual feature decisions in a wide variety of emerging product areas.

As someone who has watched the ad auction and the search products, in particular, emerge, I'm struck once again by just how far behind and how dismissive Yahoo and Microsoft were at various stages of innovation, on key areas like how the paid search auction worked, but also, in how much to prioritize search and paid search in overall company priorities.

Mentally "sitting in" on Google's intimate decision-making meetings helps us to remember just why it is we, and consumers, adopted their superior solutions. The others weren't really trying.

The others also lacked a moral compass at many stages of evolution. It's interesting to notice how "in sync" Google was with the zeitgeist of the industry, and with the clearer thinkers and analysts who defined terms for others to debate (such as Danny Sullivan, on the issue of paid inclusion). Google was, many times over, prepared to walk away from money to treat the search engine user experience the way they felt it should be. The founders were always interested in reaching business success, but they were also extreme idealists around core principles.

In their first talks with AOL in 2000, Sergey Brin reportedly marched out of a meeting asking for a can of gasoline and a match to "burn the scum of these people off me." It's little wonder the company was so grateful at the arrival of eventual CEO Eric Schmidt.

Watching the competition unfold today, you get a recurring sense that many of us out here are being too forgiving of Microsoft and Yahoo for their fuzzy focus and follow-the-leader approach over the years on principles, features, and transparency.

Entering the Google mindset, you just want to see people buckle down and work on a product, for heaven's sakes. That's why we rallied around the YSM "Panama" development team, hamstrung as they were by weak management support. That's why we are generally excited about Bing, as a no-nonsense, full scale product effort.

But on the flipside, I think (staying within that mindset) we have every right to be impatient with dithering and corporate-speak. We have every right to feel vindicated when we look back at highly-touted search engines (like the first generation of Ask Jeeves) and conclude that compared with Google, they weren't really doing much except talking.

Staying within the Google mindset makes me very impatient with their competitors on a whole number of fronts. Microsoft's promising efforts are offset by annoyances like the CashBack program for search - a cynical program that flies in the face of why many of us showed for work in this sector in the first place. The quiet shutdown of Microsoft's analytics project, Gatineau, makes us question the true pace of product development.

I'm not a fan of quibbles, so I'm happy to look past the odd factual error or weird turn of phrase in what is otherwise a highly instructive and entertaining book. If it does have one major shortcoming, it doesn't probe enough into the dark side of Google's current power, and the sinister potential inherent in nearly unbridled idealism. It takes Eric Schmidt to say that the founders have mellowed and are more likely today to compromise on major issues of principle. Is he just saying so to appease our fears?

At the end of the day, none of us asked for a single entity to build the next Great Library of Alexandria or to organize and make universally accessible "the world's information." Anyone who believes in decentralization of power, and sound institutional design to prevent a dangerous concentration of power, would agree that the mission in itself -- conceived as the mission of a single, powerful actor -- is inherently a much greater threat than Google would like us to think.

Maybe that's why it's so irritating when Google's competitors, let alone publicly funded institutions and traditional libraries and media, won't work harder and focus better on their products and platforms.

Posted by Andrew Goodman




Sorry-We're-Not-Google Campaign #385

Do you, uh, Yahoo? Yahoo hopes you do, and is spending perfectly good advertising money to remind you: hey, we're out here!

Yahoo's often fallen behind when it comes to technology, but one thing's for sure: you're mighty important to them. Whatever it is you want to, uh, make of that.

Posted by Andrew Goodman




Friday, September 18, 2009

DoubleClick Ad Exchange: Myth (2009) and Reality (2012) of Display Ad Market Efficiency

Google has finally launched DoubleClick Ad Exchange with full plans to integrate the system with the AdWords platform. Although a long-anticipated development, it's still a "wow" time for our industry.

Google joins a number of other true exchanges of note, companies that have pioneered the idea of a true "bid-ask" system on display ad inventory. The most notable of these are ContextWeb, having gone so far as to dub their system "ADSDAQ," and Yahoo-owned Right Media.

The designers of such systems are the best ones to provide detailed explanations of how ad exchanges differ from ad networks, but transparency of bid and ask prices is probably how to sum it up. If you're a publisher in an ad network like AdSense or the thousands of others that have graced the industry since the 1990's, there is no direct communication with ad buyers. The intermediary tells you what you're going to get on a CPM or CPC basis, either in advance, or after the fact. You don't get to enter into a direct transaction with the buyer, and you don't have any clear sense of what the intermediary's "markup" is. That might lead publishers and advertisers to want to make a lot of individual transactions with one another, to cut out the intermediaries.

And that leads to a patchwork quilt whereby inefficient individualized ad buying and selling is taking place on "premium" inventory, and networks are stereotyped as buyers and sellers of "remnant" inventory only.

Meaning: the state of display today combines two unattractive qualities: a lack of transparency and a lack of efficiency. That there are too many networks just adds to the inefficiency problem: it's an industry ripe for consolidation.

Jonathan Mendez, in one ("The Market Forces Killing Display Advertising") of a series of complex posts, seems to agree that this is the sort of problem facing the display advertising sector. He also, however, predicts that the new exchanges will only make the problem worse: they'll "drive down media costs even further and become a new haven for performance advertising at the expense of [publishers]." If so, I suppose that's great news for advertisers. But there could be a different long-term dynamic at work. Mendez's point seems sound in that he integrates it with a perspective that shows market forces from search advertising being rudely applied to the formerly fat and happy world of display. In short, direct response is what drives much of paid search, whereas something else entirely (brand integration) is supposed to drive display, like it does on radio and TV. If display is being forced to play in the direct response world, those who formerly profited from that channel are at a loss as to what to do next as their margins (and raison d'etre) fade. If I interpret even 10% of Mendez's message right, it's sobering food for thought, regardless of how many brand channel strategists Google layers on top of its direct response and search-savvy core.

Perhaps, though, it's simply far too early to make this call. I'm drafting a potential counterpoint to Mendez's analysis that roughly says: maybe the display ad market today is simply prehistoric and inappropriately organized as far as buying and selling dynamics goes; what if it's like Google AdWords in the pre-CPC, fixed-CPM, non-tested, non-measured, clueless-buyer era of 2001? What if the number of participants in a well-designed auction matters a lot to publisher revenues, and we simply need more? What if measurement and attribution right now are in the dark ages, and the introduction of assists will help? What if new technology (features) to rate publishers, classes of inventory, characteristics of content, got built into the system for either manual or automated use? But that could be another 1,500 words.

For now, a few more thoughts on where the DoubleClick ad exchange may take us.

Here are some principles to consider:
  • Interoperability of networks: ecosystem sensitivity
  • Continued migration of ad dollars away from inefficient media
  • Applying the efficient auction principles of paid search to media buying as a whole
  • Chicken-egg scale issues
  • What kind of market is this? Will Google win with a capital W?
First, if a variety of networks can plug into the exchange and act as buyers, publishers may have a decent floor on their middling and remnant inventory. A "buyer" for a particular ad impression, then, could be any number of direct bidders participating in the DoubleClick exchange, or it could come in through outside networks who are also publishing in the DoubleClick exchange. That could mean a dual role for Google: (1) on one hand, hoping to create "the" platform for buying and selling ads, that improves the overall viability of the industry as it grows in size; (2) on the other, keeping the better outside networks in business, allowing them to buy and sell and even play around with arbitrage opportunities.

Second, the trend that won't appeal to traditional ad agencies and traditional publishers: dollars that can show clear ROI will be happier, so they'll be spend in this medium. The ongoing stampede continues.

Third - and this point is either scary or a forgone conclusion depending on your perspective - these principles will apply to all media someday: billboards, television, radio, product placement, etc. If you're a company like Google or Microsoft, you're thinking about organizing a platform to run that. Google did a pretty embarrassing job of doing this the first time around (radio, newspapers), which just proves you don't just snap your fingers and accomplish something like this. It's very early days.

Fourth, it looks like the early exchanges were sort of unsatisfying in the sense that their scale was understandably limited by how many participants were on either side of the transaction. If the buy isn't big enough, it's not worth the time to monitor your involvement with the platform. Signing up "sellers" (publishers) is a major prerequisite to making this work. And the pitch to them has to say something like: "we have millions of advertisers eagerly logging into our platform every day". Pretty much only Google (and maybe one or two other companies...maybe) can say that. This is a game-changer, potentially.

Point 4.5 is simply along the same lines, but it's probably important not to sidestep this issue. You don't draw up "market maker" logic in the abstract and then from there find great success. If the results to advertisers or publishers are lukewarm, they won't hide that fact, they'll simply stop using you. And unlike traditional ad networks and traditional media buying, your whole principle is that the exchange technology itself drives liquidity and sets prices. If that isn't working, you can't fall back on the sales team to grease the wheels; that would be incoherent. To date, some existing exchanges have suffered from the critical mass problems. Others have meted out condescending treatment to ad buyers, reverting to salespeople who promise to make a custom buy on the system, or work the system for you, as long as you commit to a certain budget. Hey guys, if you're trying to prevent me from logging in directly, then you're a mutual fund salesman exacting a fee; same old, same old.

So, point 5: is this a market like the one Amazon took by storm - a winner-take-all market where Google will enjoy market dominance? Or is it a market where first and second movers continue to do well (like the browser market, where Google only has 3% share, or the -opedia market, where the Google upstart product knol has nowhere the brand adoption of the original, Wikipedia)? How will Yahoo and Microsoft respond? For the record, I caught up with Jay Sears, EVP of ContextWeb, and he said: "We welcome Google to the ad exchange business. It's a terrific market validation to now have the two top exchanges in the market, including one that is independent."

We'll see how things shake out.

Something to think about: interoperable networks -- those less evolved creatures -- may do better in this ecosystem than competing exchanges. A clash of platforms is a true clash of superpowers; non-superpowers die. At most 2-3 leading platforms will win. Meanwhile, "app" creators (sub-players in the system) that work well within the leading platform are non-threatening to the leading platform makers, and don't need critical mass to be profitable within that environment.

In any case, to conclude by explaining what I meant by the title of this post: the display ad business is in a frustrating state, as every company developing products and services to serve that market seems to tell you in their booth pitch. The problem is that virtually none of these companies solve the problem; most make it worse, or sell you a futuristic solution adorned with "truthy" FAQ's, and then revert to old-school methods. In 2009, it's simply a myth that there is any satisfactory display ad system that is built to scale with a scaled-up marketplace of buyers and sellers. If that scale is reached - and I don't think it will be before 2012 - we may be in a quantitatively new ballpark.

Labels: , , ,

Posted by Andrew Goodman




Friday, September 11, 2009

Pump. Dump. Lather. Rinse. Repeat.

No company is too small or too close to the end when it comes to investors taking one last kick at the can, trying to talk other suckers into betting on a rebound.

A couple of years ago, we commented here on LookSmart (LOOK)'s not-dead-yet act. A few would-be investment gurus chimed in with comments, asking us to "look again" at the company's bright future.

As expected, a dead company became even more dead in the ensuing years. The ugly results are plain to see. Since our little chat, investors would have lost 65% on the investment, had they bought that day. One of the company's bright spots, a minor partnership with IAC, is ending soon, as announced in May. Even optimists will have trouble disputing that this company is winding down.


Labels: , ,

Posted by Andrew Goodman




Wednesday, September 09, 2009

The Concept of Paid Search Auction Pliability

Not everyone who follows this feed reads all the columns over at SEL, so I thought I'd draw attention to a core concept in my recent review of Google's new Bid Simulator tool for AdWords: PPC Auction Pliability. That is, on any given keyword, how much resistance is there in terms of bidders above and below you in the auction. Is a change in your bid likely to make a significant difference in your performance, or is it all jammed up so you're more or less stuck where you are, assuming you understand your campaign economics?

There are many ways to optimize paid search performance. I favor an integrated array of techniques, heavy on response testing.

But the "old school" concept of finding "sweet spots" in the auction, keyword by keyword, is a nice way to do a little extra legwork to decide whether to bid higher or lower in certain instances.

It's not always a good idea to look for so-called sweet spots, as some formal academic theory might suggest that in many cases, especially if you use enough automation, there aren't any. But the ideal world aside, it might be nice to know if there are a lot of "bids overhanging the market," as they say in the financial world. If a keyword auction is particularly "busy" above your bid, then you'll have to raise your bid an awful lot for little improvement in volume.

On the other hand, if you're stuck in between a couple of bidders but there isn't much activity above or below them, I consider those auctions to be more "pliable." You could go up a bit in your bid and reap volume associated with higher ad positions on that keyword. You could go down a lot and not lose too much volume (with the caveat that Google is under no obligation to serve your ad in every auction if your quality score won't support low bids, so lowball bidding can reduce volume if Google really doesn't want your dime that day). The more pliable the auction, hypothetically the more room you have to pick a bid strategy that suits you.

Case by case, it gets interesting. Take, for example, an account where you figure you've done a great job whittling average CPC's down to 23 cents. Now on a lot of the keywords that you're getting for 15 cents, you're not doing great ROI-wise, but you're reasonably content since the price is low by historic and industry standards, you don't feel like risking the effort to go down to 11 cents.

I think the bid simulator may be helpful in helping advertisers decide when to take risks like that. Shaving those few pennies on lukewarm keywords, across several hundred keywords and a thousand clicks a day, can add up to a lot of saved cash you can then turn around and devote to better performing keywords or channels (or simply, profitability).

I'm told that the Bid Simulator is now in limited release. So despite the fact that you may see it in your account or several client accounts right now, it's not in full release by any means. Its impact on Google's revenues, and advertiser performance, isn't likely to be felt until 2010.

"Old school" PPC auction jockeying may not be everyone's idea of fun - but different strokes for different folks. We're also keenly interested in when Bid Simulator data might be available through the AdWords API. This might be helpful for (for example) running dramatic one-day volume tests across an account, based on more keyword-by-keyword auction intelligence to help decide where to shake things up.

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Posted by Andrew Goodman




Wednesday, September 02, 2009

The Recession in Opportunity

This is a bit high-level to be a post here, but far too long for 140 characters. So here goes.

The past couple of years in the economy has been a period of extremes not seen in many decades. To anyone familiar with historical financial indicators it will be no surprise that there is far-reaching fallout.

Standing beside the more obvious indicators, there's extreme cyclicality happening in a variety of aspects of the labor market.

During the bubble - for some people - we saw an excess of compensation, title inflation, reward for appearances as opposed to demonstrated expertise, etc. When the economy was hit hard, a lot of highly paid, widely-lauded, highly-positioned people landed in the job market. It takes time for those folks to find similar challenges in new positions. And for the undeserving, it takes time for them to adjust to more ordinary pay scales and harder work.

But that can swing the other way, as it now seems to be doing. For the most recent graduates, if this recession persists, a number of outstanding candidates won't be getting the opportunities they need to progress into responsible, upwardly mobile roles in 3-5 years time. Languishing too long in underemployment and unemployment skews the distribution of opportunity to make one's mark and "learn one's way" up the ladder.

Of course, I'm optimistic and I see plenty of jobs for the right people. But rationing out great opportunities to only a select few won't cut it. Every generation deserves a fighting chance at relevant entry-level opportunities, and the economy functions better if they get it.

That's why I tend to be an advocate of the "hold your nose and bias towards stimulus" approach, and we can't declare victory just yet. I'm no fan of the way the bubbles got created nor of the horrendous decisions to reward automakers and Wall Street for the troubles they got themselves, and us, into. But the alternative to a continued search for creative ways to jolt the economy out of freefall is no good: one of the best-educated, flexible-minded crops of recent graduates in history, sitting around gathering dust.

Sorry, Starbucks, but I'd rather see fewer baristas, and more skilled knowledge workers entering Creative Class occupations. I can get my own coffee for awhile.

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Posted by Andrew Goodman




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