I want to revisit the pay-for-performance (PFP) pricing model for online advertising. Yes, I’m probably starting to sound redundant in my continuing advocacy of this pricing model for online advertising, but please don’t mistake it for endorsement of ONLY this kind of buy. It’s just a topic that needs to be fully vetted so that site publishers won’t forget that it is something the consumer (read: advertiser) is looking for.
I’ve talked about the desire for pay-for-performance pricing models and have given examples of the kinds of buys one can put together out there. You can find cost-per-click (CPC) networks, sites with remnant inventory willing to cut you a “Mendel” deal, and even cost-per-action (CPA) networks that have begun to fill the gap between the advertisers’ desire to use their advertising as a sales channel and the publishing community’s unwillingness to give it to them.
But this week I’d like to examine another kind of buy you can do now, that actually has been around for a while, and which, until recently, was the only one of its kind: cost-per-click search results.
I remember in the early days of this medium when new clients asked how much it would cost to get listed at the top of a search engine’s results page. I would always tell them that advertisers didn’t buy their position on a search results page, that this was determined by either the way their site was classified by the humans listing their URLs (if talking about a directory like Yahoo) or by how their site was picked up by a search engine’s bot or spider (like HotBot). It was considered sacrilege to the early netizen that an information resource such as a search engine would let the relevance of its results be dictated by the almighty dollar.
Enter GoTo.com. Born like Athena from the head of Zeus, GoTo.com emerged from Bill Gross’s idealab!, which four years ago gave birth to city search services, like Citysearch and search engines.
GoTo.com saw early on that search engines were going to be a part of any company’s business model if that company was going to have a presence on the Internet. Other search services saw that, too, but where portals were born to create “stickiness” by adding or licensing ancillary content to keep users there and make them a saleable audience to advertisers, GoTo.com saw an opportunity in actually generating revenue from the search itself.
It works like this. An advertiser selects keywords that are deemed relevant and/or important to his or her business. These keywords are then submitted to GoTo.com, and the advertiser agrees to pay a certain amount for every click that is generated from the search results that come up from a user’s query. But the advertiser doesn’t own a keyword outright. If another advertiser wants the same keyword, that word is put up for bid. The amount of the bid can go as high as a given advertiser is willing to pay per click.
You the planner/buyer/advertiser must decide just how much you are willing to pay for each click. If you know how much you can pay per click for things to pay out on the back end, you can set a ceiling on how high the price can go for you or your client until you surrender pole position to a competitor who is willing to outbid you. The cost per click usually starts out at around one to two cents and goes up from there. The higher you are willing to pay for each click, the higher up the list of results your link will go. If you pay the most, you get the top slot.
About.com has recently gotten into this game with its “sprinks” (pay-for-placement engines) that can be bid on in their directories, and AltaVista tried selling off the top two links in all of its search results a while back, but no one is where GoTo.com is, yet.
As GoTo.com CEO Ted Meisel points out, as a business or service, you only want users who want you, so why wouldn’t businesses want to pay for users to click? As it stands, search tools create 150 million leads per day, according to Meisel, as most searches are for products and service.
So how does he feel about pay for performance in general?
“Well, it works great for us… Pay for performance HAS to be a part of the web’s future; it certainly is for us.”
But there is also a role for branding in the future of online advertising (though you wouldn’t know I thought so if you’ve only recently started reading my articles!), and Meisel concurs. Commercial sites with a commercial context have been underutilized and underexploited on the Internet and should be performance based. But a general news site, well, “What’s the commercial content that goes with a story about Hillary Clinton?” Not much, “but there is a different value you would expect out of that as an advertiser.”
When I asked Mr. Meisel about how the future looks for PFP with publishers at large, he said he thought that news sites and the like would resist, and even should, because there are different values for advertiser space. Users haven’t always explicitly declared their need, thus their value is indeterminate. On a search service like GoTo.com, users have “explicitly declared need,” whereas content sites have users who have either an inexplicit need or no particular need at all.
I have three or four clients on GoTo.com now, and it is a worthwhile buy. Go ahead, give it a shot. Get your feet wet or your client’s feet wet on pay-for-performance pricing models with something targeted and risk-managed like GoTo.com.
As Meisel said in conclusion of our discussion, “Everything is really becoming pay for performance, and the question becomes ‘What is the value?'”