Search’s Space Race

Congratulations, Google!

By the time you read this, Google will be a public company (not any old public company — it’ll have done it the Google way). Yahoo’s stock will, of course, still be flying high on a steady stream of revenue generated by you, your competition, and all the other search marketers out there.

Google, Overture/Yahoo, and the other search engines have taken a valuable SERP asset and are auctioning it off in real time. Wall Street is convinced you’ll continue to drive up CPCs.

Let’s look at search’s space race a bit differently. When you decide to spend more for a click, bid more for a keyword, or raise an insertion order amount for pay-per-click (PPC) search, you may feel you’re buying the incremental position, clicks, and orders from Google, Overture, FindWhat.com, Kanoodle.com, and the other PPC engines. You write a check to the search engine. But in reality, you buy that click away from your competition. At least, you try to. Google and Overture just cash the checks. That puts marketers in the race — the race for space.

Participants who are best prepared will win the race. Training for the space race doesn’t involve time at the gym or on the track, as it does for the Olympics. Rather, what’s required is a solid PPC strategy that adapts to a changing marketplace, as well as accurate and timely data to allow you to make the right decisions at the right time.

It’s difficult to budget for search in part because you have no idea what competitors will do. For every action you take, the competition may take a different one. As you and your campaign management system make bid changes based on return on investment (ROI) and profitability formulas, the competition makes counterdecisions.

Even if you take no bid or campaign action at all and keep bids or positions the same, you still can’t predict what will happen in the next hour, day, week, or month. The existing competition may become newly aggressive, or new entrants may arrive in the search space (spurred by publicity related to the stock market, as well as case studies highlighting companies active in search marketing).

The challenges of a real-time auction extend beyond budgeting. Equally important is profit maximization testing, or elasticity testing. This concept is central to the interaction between your business and the search marketplace.

Every time you or your competition raise a bid, with the goal of a higher position, you decide to seek a higher volume of traffic and conversions (leads, orders, page views, etc.) at a lower ROI (due to increased costs associated with a higher position). Elasticity testing involves determining the point at which the extra conversions volume isn’t worth it, when the increased volume of orders or conversions doesn’t make up for the reduced ROI per conversion.

Q4 2004 will be particularly challenging for many marketers with seasonal businesses. E-commerce players see significant increases, even large spikes, in search volume as the holidays approach. If your market is seasonal and a surge in search volume is expected in the fourth quarter, make sure you have the best strategies in place for what will surely be a particularly volatile few months in the search business.

Search traffic is an addictive mode of marketing, despite rising CPC prices. Consider a flexible strategy that allows you to immediately change budgets, reallocate budget between engines, and adapt to the marketplace with different ROI objectives for different campaign segments. Not all competition areas will have the same set of competitors or the same reactions to your strategies. You may need to react differently within each category.

To win the race, understand your business, margin, and customer profiles (particularly those customers who generate the most orders and highest profit). There are a fixed number of daily searchers for every term. Know the maximum you’re willing to pay for every click at all times (the profit-maximizing price for that click).

Your competition may be better or worse prepared for the space race. If they’re better prepared than you, winning the race won’t be easy.

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