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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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