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Scientists Baffled by Strange GoTo Phenomenon
TRAFFICK WEEKLY COMMENTARY by Andrew Goodman, August 12

GoTo is the clear leader in the pay-per-click space. That is to say, it's a search engine operated entirely on the premise of advertisers bidding on placement in search results. For a full explanation of this "search engine as bazaar" concept, please see an earlier Traffick article: Paid Search Results are Here to Stay.

Microsoft bCentral to Display GoTo Search Results

The company is making strides of late, signing up major partners in agreements to drive more traffic through GoTo's keyword auction. GoTo's revenues are sure to increase as a result. Two major recent converts to driving some traffic GoTo's way are Microsoft bCentral and Compuserve.

The question to ask now as GoTo's traffic and revenues seem set to surge is: can there be too much of a good thing? Will the increased desire of companies to squeeze GoTo results into their usual search offerings in order to make a buck have unforeseen side effects which could come back to haunt them?

First things first. GoTo, like more than a few other Internet startups, is rampantly underestimated. A recent Forbes.com report (see GoTo.com Deals Go to Investors' Heads) on the recent GoTo portal partnerships, to put it charitably, demonstrates a weak grasp of the variability of portal deals. The Forbes article brings in the irrelevant example of moribund DrKoop.com and its enormous payout to AOL to drive visitors to its site. That's not what GoTo is doing. It's not buying links on portals and saying, hey, come and see our great site. Every time a visitor to bCentral, Earthlink, Compuserve, or Dogpile clicks on a sponsored keyword result, both the partner and GoTo get paid. That money comes from the advertiser bidding on the keyword. As one search infrastructure company's CEO commented recently in another context: "No shit, it's called revenue sharing." All portal deals are not created equal.

Pay-per Click Shoring Up Weak Balance Sheets?

Why are so many companies partnering with GoTo? Recently, as we know, the loss of confidence in the Internet sector from an investor standpoint has caused share prices to tank, and has led to a laser focus on profitability. Those whose business models weren't within spitting distance of break-even started looking around for ways to get paid for what they do. Profits are no longer optional.

Dishonesty in Advertising

But some of the companies resorting to the pay-per-click keyword auction are not of the struggling variety. Some are comfortably nestled as subsidiaries of AOL or Microsoft. Seems like I can't go anywhere without tripping over a "cloaked" pay-per-click result which drives traffic to a GoTo advertiser. A Gateway.net (Compuserve partner) search result I looked at recently had the paid-for GoTo results featured at the top of the page under the heading of "Premium Results" - but no evidence of "cost to advertiser" anywhere to be found.

Netscape's portal page is piloting an integration of the GoTo search results into its portal, as well. Its deployment, when we took a quick peek at it, was considerably more responsible, calling them "Partner Links." Partner Links seems like a more honest nomenclature than "premium" links.

Some GoTo partners, by contrast, make no mention that GoTo rankings are determined by a keyword auction to advertisers. Example: Ask Jeeves. Jeeves is supposedly this awesome search tool for the average user. Yet it now folds someone else's pay-per-click auction into their results to pick up a bit of spare change (while not being very forthright about that fact).

As GoTo's auction becomes available at an increasing number of major web search destinations, its peculiar approach to search relevancy is gaining more footing all the time. Search has always been supported by advertising, but most people believe that it needs to be distinct from advertising. Just look at how quickly users have taken to the innovative Google, which focuses on great searching capability and lets the profits fall where they may (of course wouldn't it be nice if every startup had that luxury.) GoTo results are advertising. But at Ask Jeeves and Gateway.net, we're not really told that they're advertising.

Like any perfect solution to all of life's problems, you suspect there's got to be an unforeseen side effect lurking in this increasingly popular decision to partner with GoTo. (Even if cold fusion were a pollution-free solution to the world's energy problems, you suspect that it might turn the planet an ugly shade of beige at a most unopportune moment.)

Milking Advertisers Dry?
This trend won't be brought to a halt by consumers alone. Technology and media companies have been screwing consumers since Bill Gates was knee high to a grasshopper, after all, and that hasn't always led to their undoing. I'm looking at it partly from an advertiser's standpoint: GoTo advertisers must readjust their understanding of which GoTo partners their successful keyword bids are going to be showing up on, since everyone and their brother is bringing traffic to the GoTo keyword auction. And GoTo advertisers must now come to terms with the variety of, er, "innovative" ways those results are being displayed.

Needless to say, as more consumers are exposed to GoTo results, more traffic will start coming to the bidders' sites. That's going to create unforeseen and unpredictable market adjustments. For one thing, the pool of advertiser dollars is finite. So if they get more traffic from GoTo in a given week, their budgets will be exhausted faster. As a result, the average bid amount per keyword will decline. We're seeing this already on the more popular keywords. You only have to bid a nickel per click to get the same amount of traffic on some popular keywords as you would have received in the past for a bid of fifteen cents.

This will have unpredictable impacts. One impact will be on the GoTo portal partners. If you're one of three major GoTo partners, and the average cost per click is a healthy 14 cents, you stand to make terrific revenues from your percentage of the deal with GoTo. If there are 100 major partners and the average cost per click is 3 cents, you don't make as much. Ultimately, the revenue potential may not be seen as a good tradeoff for diluting the editorial content of your site or the relevancy of your search results, and you'll end the partnership with GoTo. The customer is king, but as always, only at several removes.

And that's the issue, isn't it. Short term, it's easy enough to ratchet up revenues by stuffing more advertising and partners into every online impression. But if you go overboard, consumers will cease to view you as a credible source of information or a useful research tool, and will move on.

The Perils of Rampant Partnerism

Some companies, like Ask Jeeves, seem to have been built up on a foundation of rampant "partnerism" as opposed to search relevancy. There is plenty to dislike about the cluttered Jeeves interface these days. In an online search for bicycle air pumps, one expects and even welcomes a certain degree of consumerism. But is the answer to the question (offered after a couple of clicks around Jeeves' place) "Where can I buy bicycles online?" really best answered by an automatic redirect to a particular biking retailer?

Great for the advertiser, bad for the searching consumer - that model can only last so long when people have many web navigation options. We're not idiots. We know that there is more than one bicycle retailer.

It makes you wonder, further, if this principle applies to companies which boast of getting great revenues per page view - ExciteAtHome is one. "Demographic targeting technology" aside, if the higher revenues are also being "squeezed out" by stuffing more ads all over the site, are you really looking at a long-term business proposition? We suspect that consumers might grow tired of the Excite start page as it's currently constituted, with the lowest-common-denominator stuff always pestering you ("Shopping! Bikinis!")... as if you couldn't figure out how to look up a bikini store...as if some generic Excite partner will mean more to you than a trusted brand name.

Advertising can't be a dirty word for members of this new dot com world - if it is to you then you had better expect a sharp downturn in the economy - but an excess of anything seems likely to sow the seeds of its own undoing.

Hey, I could be wrong. Then again, one of these days, the whole planet could turn beige without warning.

Related links:

Beefing Up Auction Selling Power
http://c.moreover.com/click/here.pl?k8827786
Computeruser.com

GoTo.com to Provide Searches for Microsoft's bCentral
http://c.moreover.com/click/here.pl?k8744725
CBS Marketwatch

 

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