Paid Search: Not a One Horse Town

By Jeff Campbell, Vice President

I was recently asked by Google why we spend any money on other engines when there are still major opportunities on Google. Once I regained my balance, I realized this was an honest and good-natured question and one they were truly struggling with. According to the latest ComScore study, 65% of searches occur on Google properties. Fish where the fish are, right?

Wrong, Paid Search is not just a volume game; it’s about efficient volume. If I wanted to reach the greatest number of searchers in the easiest way possible, I’d certainly start with Google…but that shouldn’t end my journey.

Similar to the TV ad world, you can buy the major networks and target only premium shows on those networks and reach major audience volumes – hence the hoopla around the Super Bowl ads which is the biggest audience of all. Unfortunately, that Super Bowl spot is going to cost you $3MM for 30 seconds. Alternatively, with the proliferation of 100s of niche stations, TV buyers are able to laser target an audience and gain efficiency while still having the volumes. There is room in the sandbox for both major networks and smaller niche channels to play, depending on the media strategy and goals. For TV, Paid Search, or the stock market, diversified holdings will perform differently and a manager must balance out the entire portfolio to show a growing, efficient return to keep investors happy.

With Q4 retail being on the minds of most, let’s say Amazon.com’s Paid Search market size on Google is $10MM/month (it’s actually much bigger). It’s safe to say there are over 15,000 competitors bidding against Amazon.com on most days. Based on my experience (which has not been with Amazon), when I’m spending $2.5MM monthly, CPCs are around $1.00, I’m showing up about 20% of the time (SOV) and I’m averaging 4th place when I do. If I was to spend double that amount ($5MM monthly), CPCs triple to $3.00, SOV grows slightly to 30%, and I’ve climbed to 3rd in average ranking. In other words, I’ve paid double but only gained about a third more traffic. Finally, during the highly competitive 4th quarter, Amazon wants to spend $7.5MM/month as competition has intensified as consumers are purchasing at higher rates. Tripling spend, they’ve hardly doubled SOV to 40%, but CPCs are now 20x ($20) and average rank barely improved to position 2.5! In TV land (and when I visit Costco), I enjoy bulk discounts - the more I purchase in media the lower my price per impression (or GRP) with the publisher. Paid Search (specifically Google’s model) has flipped this media model on it’s head.

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So now, it’s up to the data crunchers (or automated modeling technology) to find the breakeven point in which Paid Search media is no longer profitable for each engine. For those more advanced, this should be done at the Campaign, AdGroup, and even Keyword level.

Back to Google’s question: the answer is, at some point, it is no longer efficient to spend another dollar with Google because their Paid Search algos start to work against the advertiser. As for where that next dollar is spent (Yahoo!, Bing, Display, Newspaper, TV, etc.), it’s the savvy advertisers who can answer.