Is a Pay Per Click meltdown inevitable?

A report recently published by Forrester suggests that Pay Per Click bid costs have risen by an average of 33% in just 12 months. The "US Interactive Marketing Forecast, 2007 To 2012" surveyed click costs for the 1st quarter of 2007 and compared them to the 1st quarter of 2006.

This is no surprise to most online marketers who are facing an uphill battle to maintain the profitability of their PPC campaigns in the face of an explosion in the number of new advertisers over the last couple of years. Pay Per Click has become a widely used advertising tool and an established component of nearly every business's marketing plan.

So what does all this means for the typical PPC advertiser? For a start they will be getting 33% less visitors than last year for the same ad spend. More importantly, they will need to increase their conversion rates by 33% just to maintain the same campaign ROI.

The reason for this inflationary pressure is the continually increasing number of advertisers that have been drawn to the PPC model and, as a result, more and more advertisers are vying for the same limited search space.

This has been exacerbated by the fact that many companies have based their whole online business model on PPC advertising (especially Google Adwords), and they are being driven to bid higher and higher in a desperate attempt to maintain their prominent position for the most lucrative search phrases.

At the same time, many of the larger businesses that have traditionally dismissed search marketing as unnecessary have gradually come to the realisation that it is, in fact, a powerful sales and branding tool. These large businesses take a different economic approach to PPC advertising and are not necessarily playing to the same ROI rules as the smaller player.

So, not only does the online travel marketer have to deal with increased competition, they also have to deal with more and more campaigns that are being run unprofitably.

Many savvy businesses have managed to offset this inflationary pressure by ignoring the more expensive generic phrases and buying more 'long tail phrases' instead. These are longer and more specific phrases that generate lower search volumes, but they often produce higher conversion rates and are generally cheaper to buy than the more popular phrases. Many businesses are also implementing more sophisticated ROI measurement systems so that they manage their campaigns more profitably. Others have scaled back their PPC spend and started looking at alternative channels.

The big question going forward is how will continued click cost inflation impact on the future of search engine PPC as an effective advertising model? There is no doubt that Pay Per Click advertising has outperformed many other channels in recent years and there is enough margin left for ROI figures to decline further, and yet still be good enough for it to remain a profitable advertising tool.

Of course, there will be a 'tipping point' at which continued click cost inflation will render PPC as unviable for all but the most niche markets. Some commentators are already forecasting the imminent demise of PPC advertising due to untenable click costs and the increasing development of new advertising opportunities offered by the many social media websites. The highly popular Facebook has recently announced the launch of their own innovative new marketing platform called Facebook Ads (see below), and this will undoubtedly take advertising dollars from the traditional PPC platforms such as Google Adwords.

Despite the doom and gloom I still don't believe that the demise of PPC as an effective advertising medium is a foregone conclusion. It will certainly continue to get more challenging to make a PPC campaign profitable, and there will almost certainly be some kind of shake out eventually, but I believe that the outcome of all this could still be positive for many advertisers.

To explain the reason for my optimism we need to look at the key causal factors behind the current situation. There are many contributing factors to the continual increase in the number of businesses using PPC advertising. To a certain extent it has been a victim of its own success as many businesses have been drawn to the excellent returns that are possible.

Also, the increased popularity of affiliate marketing has spawned thousands of new advertisers all effectively selling the same product. This is particularly true of the hotel sector. But perhaps the biggest contributing factor of all is the simplicity of the management interface created by Google and, to a lesser extent, Yahoo and MSN.

It's relatively simple for anyone to set up and run a Pay Per Click campaign with very little knowledge or expertise, and this has encouraged many small businesses to enter the market without having to pay for outside assistance. For the same reasons, many larger businesses manage their own campaigns in house by delegating the responsibility to a person in the marketing department who may have no prior experience of PPC management.

However, the simple and intuitive management interface is deceptive and hides a sophisticated and complex marketing tool that requires a relatively high level of knowledge and expertise in order to get the most out of it. I am often shocked by the limited PPC service product knowledge of many business owners and marketing people that I come across, despite the fact that they control significant PPC spends.

This ease of entry to PPC advertising has not only fueled the increase in advertisers but I believe that it has also contributed to an increase in the number of campaigns that are poorly managed and, in many cases, unprofitable. As click costs continue to rise and returns decline many of these advertisers will simply fall by the wayside or drop out in order to look for more profitable marketing channels. Others will hand the management of their campaigns to experienced online marketers who will refocus their campaigns and make them more economically viable. Other advertisers will move part of their PPC budgets to new emerging online opportunities from social media sites such as Facebook.

Forecasting a PPC 'meltdown' might be a little too dramatic and 'rationalisation' is probably a better description. Either way, the end result of this process will be fewer advertisers and a higher percentage of profitably managed campaigns.

Creating and managing an effective search engine PPC campaign will still be challenging, but the smaller advertiser will have a better chance of realising a viable return.

Should you bid on your own company name?

Bidding on your own company or brand name in a pay per click campaign is an issue that gets raised from time to time with my clients. It’s an important issue because a good percentage of traffic to many websites is generated by company name or brand based phrases, and often this traffic converts very well. However, many businesses are reluctant to pay for visitors that are already looking for their website. One client described it as feeling like they are paying twice for the same visitor.

More often than not visitors using the company name in a search are responding to an offline promotion, a word of mouth recommendation or are trying to find a site that they did not bookmark the first time around. Whatever the source, these are highly qualified visitors that have a higher chance of converting to a sale than visitors using other search phrases and every effort should be made to ensure that they can easily find your website.

Should your business bid on its own company or brand names? If your business experiences any of the following scenarios then bidding on your company or brand name may be a worthwhile strategy;

1. Your company name or brand is a generic and popular phrase.
If your business has a generic name or brand that is similar to a popular search phrase then it may be very difficult to secure the top spot for a company name search in the natural listings. If this is the case it may be that visitors looking for your site end up clicking through to a competitor’s site instead. In this scenario I would recommend bidding for a top 3 placement in the paid search listings so your site appears above the main natural search results. This would significantly increase the chance of visitors finding your site rather than your competitors.

This could be an expensive strategy depending on the popularity of the search term. However, not only will you be securing a top position for your company or brand, you will also be securing a top position for a highly targeted search phrase. So this strategy should result in a healthy ROI.

2. Your company name is not a registered trademark and your competitors are bidding on it.
A common paid search strategy is to bid on competitor names and brands in the hope of picking up some of the visitor traffic that was destined for their sites. This is clearly an attempt to cash in on a competitor’s brand equity or offline promotional spend, but it is a perfectly legal strategy if the company name or brand is not a registered trademark.

Even if you have the No 1 position in the natural listings in Google for your company name or brand it is still possible for a competitor to secure a spot in the paid listings that would site just above your site listing. The danger here is that many people don’t distinguish between paid and non-paid listings and may click on the first link they see, especially if the company or brand name is used in the competitor’s ad listing text.

In this scenario, securing the top spot in the paid listings above your competitors should be straightforward and relatively inexpensive. This is because the main search engines reward better performing ads with higher positioning and your ad listing will almost certainly have a higher click through rate than your competitors listings.

3. Recently launched websites.
A new website may not get listed in the natural results for its company or brand name for several weeks after launch, this is especially true in Google. If this is the case, and you are spending money on offline promotions with the objective of driving visitors to your new website, it would be a good idea to include your company and brand name in a PPC campaign until the search engines index your new domain.

In many ways bidding on your own company and brand names could be considered a defensive PPC tactic. However, it’s important to remember that these are your visitors and your bookings and this may be the only way to ensure that they don’t both end up with your competitors.

Online reviews twice as trusted as search ads

A recent global Nielsen Internet survey shows that nearly twice as many consumers trust online reviews than they do search engine ads. The precise figures were 61% compared to 34%. Only banner ads at 26% and mobile text ads at 18% were trusted less than paid search ads. The question posed was "To what extent do you trust the following forms of advertising?" and the results are as follows;

Recommendations from consumers - 78%
Newspapers - 63%
Consumer opinions posted online - 61%
Brand websites - 60%
Television - 56%
Magazines - 56%
Radio - 54%
Brand sponsorships - 49%
Email I signed up for - 49%
Ads before movies - 38%
Search engine ads - 34%
Online banner ads - 26%
Text ads on mobile phones - 18%

The Nielsen survey - which covered 26,486 internet users in 47 markets from Europe, Asia Pacific, the Americas and the Middle East - is further evidence of the growth in importance of consumer generate reviews and content, as well as the emergence of online review based sites such as TripAdvisor, Holiday Critic, and RealHolidayReports.com. It also issues a clear warning to those businesses that ignore user generated content and rely solely on paid search marketing strategies such as pay per click and banner ads to influence online consumers.

However, before proceeding to terminate your paid search campaigns and divert all of your precious online marketing budget into social media websites, it is worth taking a moment to look more closely at what the survey results are actually saying.

First of all, these results are really only reinforcing what we already know - which is that "word of mouth" and "personal recommendations" are one of the most influential marketing tools available to any business. There is nothing earth shattering in this revelation.

We also know that the internet consistently receives bad publicity through spam, fraud, phishing and other unsavoury activities, so it shouldn't be that surprising if some of this filters through to influence the way consumers view online advertising. This credibility issue is unique to the internet and traditional media such as newspapers, TV and radio do not face the same level of negativity.

Another important point is that the survey is not suggesting that paid search ads, banner ads or mobile text ads are not effective. The issue here is about perception and not effectiveness - even though the two are inextricably linked. Many people may say that they do not trust search ads, but there is no doubting that well organised pay per click campaigns can be highly profitable and many businesses rely heavily on them.

One final point, the Nielsen survey did not include natural search engine listings in the mix. This is a shame as it would have been very interesting to see how these stacked up credibility wise against both online reviews and paid search ads. There is plenty of research to show that consumers view the natural listings as somehow being "endorsed" by the search engines and so attach a greater trust to these than they do paid listings. It is possible that the paid search ads from businesses that have good exposure in the natural search listings have a greater trust amongst consumers than those that don't.

So, what can we learn from the results of this survey.

In recent years many travel and leisure based businesses have had to re-think the way they approach their online marketing with the emergence of consumer generated content. This is particularly true of the hotels sector where user generated reviews have been a widely used component of the online buying process for several years, and cannot be ignored. As the survey clearly shows, the time has come for online PR and online reputation management to be key components of every hotel's online marketing mix.

What about other travel and leisure based businesses that are less affected by online reviews and rely heavily on paid search strategies? Well, despite the 'trust" issue highlighted by the survey, Pay Per Click, banner ads and mobile text ads are still highly effective advertising mediums. If a paid search campaign has a positive ROI then why would you not continue with that campaign?

It is not an 'either or scenario', and there is an increasingly compelling argument for all travel based businesses to look at diverting at least some marketing funds to social media websites to ensure that they are maximising their opportunities to generate sales through creating positive digital word of mouth.