The SEM Shakeout: Are You Ready?

How important is it to you that search engine marketing (SEM) is essentially a zero-sum game?

Chances are, it’s critically important to your search campaign’s long-term viability. An SEM shakeout has begun, due to the search zero-sum-game landscape. A zero-sum game is defined by a fixed amount of “winnable goods” or resources. What one player wins is therefore lost by all other players.

In paid search, searchers seek information, a product or service, or perhaps the solution to a problem. The marketer who meets that searcher’s need wins. The other marketers don’t get much, if any, benefit from that searcher. That makes the remaining search marketers losers.

Scarce but valuable search inventory drove organic search engine optimization’s (SEO’s) popularity. It’s driven prices for paid-placement search listings to ever higher levels. Even XML paid inclusion is affected with rate card increases and a willingness of some marketers to pay value-added XML agencies (VAXAs) to tune XML feeds for higher conversion (traffic quality) and position.

At AD:TECH in New York this week, it became clear some marketers are developing a love-hate relationship with paid search. True, conversion rate percentages are dramatically higher than those in many other channels. But high search marketing conversion rates bring increasingly more marketers into the paid search market. More competition for a scarce resource equals higher prices. Supply-and-demand laws kick in. Some search marketers I spoke with pine for the “old days,” when prices for their most important keywords were half what they are now.

Search marketers already in the search marketplaces are addicted to search revenues and profits. They’re reluctant or unwilling to surrender valuable inventory to the competition. It’s a hyperactive, dynamic auction marketplace, particularly in paid placement. Only a certain number of searches per keyword occur every day. Although contextual inventory adds to the mix, many marketers want only search inventory (at search prices) because it performs better for them.

It’s not always easy to tell the difference between winners and losers in paid placement. When looking up a bid for an expensive term, you don’t know if the person paying what looks to be a very high CPC for a keyword is a genius or a raving lunatic who’s blowing a budget with no return on investment (ROI) in sight. Only marketers who know their own ROI and profit margins (as they should) know if the price is right. Long term, the best marketers will win the battle for search marketing dominance. Those “genius” marketers are the ones who honed their campaigns; who understand the full conversion process from click to whatever post-click behaviors can be tied most closely to profit.

Savvy marketers consider not just immediate but also long-term profits, based on margin and lifetime value. A marketer who can afford to pay the most for clicks based on his own business, margin, conversion, and objectives drives the entire marketplace. The efficiency leader sets the bar. The competition must either come close to that level of efficiency or waste resources, potentially losing money on every click. No one can afford to lose money on every click indefinitely; one either improves or is edged out by more efficient competitors.

Are you on top of your SEM game? Assess whether you’re one of the top five competitors in your industry segment in the following areas:

• Online marketing efficiency, improving methods and tactics
• Knowledge of best campaign-planning practices
• Mastery of the various marketplaces — rules and nuances of each
• Execution of conversion marketing principles on your site
• Application of appropriate analytics for search campaign measurement
• Use of in-house or outsourced technology to facilitate paid search management for complex campaigns

To understand the importance of these areas to success in search marketing, let’s follow the marketer’s profit from search to sale:

1. Searcher has a need and enters a search.
2. Searcher sees several paid listings, perhaps several organic listings.
3. Searcher selects a listing based on some combination of position, domain, title, description, and offer.
4. Searcher clicks on a link.
5. Searcher lands on a site.
6. The page is either a good fit or a poor one.
7. The offer on the page is either compelling and appropriate to the search or not.
8. Searcher takes a desired step (adds to cart, clicks on contact form, views store location, registers, etc.).
9. Searcher checks out or possibly becomes a lagged (delayed) conversion in e-commerce or business-to-business (B2B).
10. Searcher becomes a customer.
11. Searcher remains a customer over time, contributing to the bottom line.

Every search listing delivers to your site searchers who have some likelihood of taking this path. Knowing how searchers interact with your site will help you to improve conversion.

If any step in this process is inefficient, ROI suffers. Conversely, an improvement in any step of the conversion process or campaign management falls to the bottom line as profit or becomes advertising leverage.

You may not feel the pressure of the competitive environment yet, but more marketers discover search every day. Your competition wants not only top search positions but also the highest profit on that traffic. Chances are high they’re learning and improving every day. The escalation has begun. You probably see the signs in your campaigns or when checking the latest CPCs in the auctions.

A search marketing shakeout is in progress. Keyword price in the auctions move upwards in almost every industry. Search inventory is a scarce commodity. With over 100,000 other marketers in the game, it’s going to get worse. The competition wants to eat your lunch. Be careful, or you’ll find your plate empty!

In paid and organic (unpaid) search, everyone fights the competition for the same traffic. Each facet of search marketing is rewarding the smart marketer, the savvy marketer, the nimble marketer. In organic SEO or paid search, originating through auction search such as Google and Overture, there is a limited supply of the highly targeted clicks, a valuable commodity. The best marketer is going to pulverize the marketer who trails in best-practice execution. In search marketing, when your competition wins, you lose. That search customer your competition acquired is gone, possibly for good, as your competition builds a relationship with that customer, extracting a lifetime value revenue stream.

The search shakeout is beginning. You have an opportunity to educate yourself and implement best practices to be in the game long term. Your firm needs to decide how important SEM is to the company’s future. If you don’t have the budget or resources to do search right, things may get quite challenging. Your competition is eliminating waste and capitalizing on opportunities in paid search while it improves its site conversion and business profit. The good news is you have an opportunity to be a leader within your category by doing search right.