Most dot-com-world workers would agree that it’s fairly easy to bring a random visitor to any given web site via advertising. But advertisers have become more and more concerned with immediate post-click conversions, especially since the big market slide this past spring. Compared to the fourth quarter of 1999, there are significantly fewer ad dollars being allocated toward experimental online advertising (last year’s “dumb money”) and more demand for placements that prove to maximize return on investment. No advertiser has unlimited budgets anymore.
From the standpoint of most advertisers, a visitor is valuable to a site only if he or she is qualified, meaning that the user’s interests are relevant to the content, product, or service offered by a web site. Naturally, targeted ad placements are usually the key to attracting a highly relevant audience to a site.
In terms of targeting, there are no placements as effective as those on search engines, whether it’s a strong ranking within the search results or a keyword-relevant banner that appears along with the results. When a user is performing a search, he or she is looking for something specific. By displaying a search result or an ad at the time when the user is looking for something relevant, you substantially improve your odds of bringing a highly qualified user to your site, one that is likely to convert (into a new regular visitor or even follow through with an online purchase). It is for this reason that advertisers pay such high premiums for keyword-related ads and work countless hours trying to optimize their search-result rankings with the major search engines.
Last week’s agreement between GoTo.com, AOL, and Netscape provides a good opportunity to discuss the value of search traffic. According to a Reuters report last week, GoTo.com reached a $50 million multiyear agreement to provide the top two to three search results for AOL and Netscape’s search engines. It is estimated that these deals will nearly triple the number of users that click through on GoTo.com-generated search results.
GoTo.com’s pay-for-performance service currently has approximately 29,000 paid advertisers on board. Basically, if it can sell an extra $1,700 per advertiser over the period of the agreement, it will break even on the deal. It’s likely that it will surpass this objective, especially as GoTo’s advertiser base continues to grow.
For those unfamiliar with the pay-for-performance search model, it looks and feels like a regular search engine with the exception that the search-result rankings are based on an auction system, where the highest bidders get better placement in the results and usually more visitors to their site. Advertisers spend on a cost-per-click model, where they pay only when a user clicks on their search result and visits their site. GoTo.com is the granddaddy of this model; some others include FindWhat.com, Bay9.com (formerly RocketLinks.com), SimpleSearch.com, and Kanoodle.com – all of which are substantially smaller than GoTo.
Placements on these search sites are a highly targeted and usually cost-effective means of advertising because the user is in “search mode,” where he or she is looking for a web site that is relevant to what the paid advertisers are offering. This is a perfect opportunity for an advertiser to make an offer to a highly relevant audience at a time when they are “hot” for your product and are likely in “buy mode.” It is no surprise, then, that these placements tend to yield strong returns to advertisers since conversions from search traffic is usually much higher than regular banner advertising.
From the user’s perspective, the main problem with these pay-for-results search sites is that the results are not generated by relevance criteria, so users don’t necessarily get the best results first (not to say that other true search engines necessarily do either!). The results are skewed toward whoever bids highest.
During peak ad periods, take a few minutes to check out the bidding wars on keywords such as “mortgage,” “loan,” or “online casino.” Companies are willing to pay such high premiums to bring in a qualified visitor because the return on each conversion is so huge.
From the advertiser’s perspective, these sites bring great traffic to their web sites, but the volumes can be limited. The new deals signed with AOL and Netscape will allow advertisers to spend more on search engine placements through GoTo.com. In turn, this will allow for more search-generated traffic to advertisers’ web sites as the volumes of paid traffic delivered indirectly through GoTo.com’s affiliate base and partners will nearly triple!
So, is the deal good or bad news for the industry? To advertisers, it is certainly beneficial in the sense that they can now spend more through GoTo’s paid links, thus generating more search traffic to their sites. However, users using AOL and Netscape’s search functions will now receive more biased results when performing searches. It’s a trade-off that has certainly created a buzz in the industry. Advertisers will be able to spend two to three times the ad dollars on search-generated traffic, which will yield higher returns than most dollars spent on regular advertising.
It seems to be a deal that will benefit most parties involved. AOL and Netscape will receive a large cash sum upfront; GoTo will be able to run off advertisers’ budgets nearly three times faster (tripling the revenue); and advertisers can now buy more search-generated traffic. The only party that may not benefit from the deal is the end user, who might have to search a little harder for information now that the top results are skewed on his or her favorite search engine.