Banner Ads on Google - Is it Really So Strange?

The news that AOL might be allowed to run banner ads on Google turned out to be false, but in the few days before the rumor was quashed more than a few folks in the SEM world were irked. To many, banner ads on Google represented the transition from "Do No Evil" to "Be a Big Corporation", or to paraphrase George Orwell, from "All animals are created equal" to "All animals are created equal, but some animals are created more equal than others." But is this really cause for panic? Let's investigate.

Opponents of Google banner ads basically have two arguments: 1) the aforementioned claim that Google is now putting money ahead of user experience; 2) that banner ads ruin the simplicity and speed which got Google to where it is in the first place.

Argument #1 is pretty silly really, only because money took over at Google as soon as AdWords Select (now just known as AdWords) was launched. Google puts three ads at the top of every page - before the organic results. They host massive parties for their top advertisers. They have thousands more employees dedicated to advertising than to computing. They have even recently began experimenting with larger font sizes for ads while maintaining smaller fonts for organic results.

Putting banners on Google is just an extension of Google's current modus operandi. Indeed, for purists who long for the days when Google focused only on search algorithms, it should be clear that those days have passed. Gmail, Blogger, Orkut, Maps, News, Base, Earth, Talk, Froogle - only tangentially related to search. And I'm pretty sure that none of these got the green light for development unless there was a clear monetization scheme as part of the pitch.

Finally, let's not forget that Google already allows banner ads on the AdSense content distribution network. Thus, this Web site, for example, could have a banner showing up on it right now. Google is already in the banner business. This is nothing new.

OK, OK, even assuming that we agree that Google has long ago sided with the almighty dollar, what about argument #2 - that banner ads will ruin Google's speed and simplicity? This too is questionable. Banner ads that are not heavy on Flash or rich media would likely have a minimal impact on page load time. As for simplicity, Google came to power because they had great search results. That they didn't have banners on their page was probably nice PR for them, and it probably did attract some initial users, but I suspect that most people today recognize that whether there is a banner on a page or a text ad, it's still advertising.

There's a term in the advertising industry called "banner blindness". Banner blindness occurs when a user sees so many banner ads that he no longer even "sees" them on a page. This is why banner click through rates have dropped from over 1% in the late 1990s to less than .01% today. I think that pretty soon we will need a new term: "text ad blindness." I predict that click through rates on text ads - now at around 1.5% to 2.0% on average - will also see a sharp decline.

At the end of the day, Google needs to serve ads that generate the highest click through rate possible. This not only increases their revenue per visitor, but it is also a great benchmark to determine whether their users consider the ads on page to be a positive part of the user experience. If text ad click through rates decrease to the level of banner ads, it is pretty clear that users will have concluded that be it a banner ad or a text ad, it is so annoying it is not worth even acknowledging.

So, what's a Google to do? As Google has done so many times in the past, I suggest they "beta" it, or in non-Google-speak, test it out. What will happen to click through rate if Google serves a combination of banners and text ads? What negative impact - if any - will banners have on Google brand? Most importantly (from Google's perspective), what's the impact on the bottom line?

As a Silicon Valley search engine marketing professional, I often remind myself of just how removed I actually am from the average Google searcher. The average Googler doesn't think about click through rate, conversion rate, ad text length and broad matching algorithms. The average Googler probably knows that a lot of people use Google so it must be the best search engine. People buy $50 bottles of wine because they must be better than the $9 bottle. As someone suggested in a response to one of my recent posts, the wisdom of crowds.

Now to quickly be my own Devil's Advocate, I will say this: the idea that Google would even consider AOL banner ads on their site does strike me as a potentially bad indication that Google is starting to lose its way. Specifically, that Google has become such a big business that they are starting to lose their innovative spirit and starting to act like, well, a big inefficient corporation.

In this post, I tried to outline some reasons why banner ads on Google could be a well-reasoned strategy by Google to attempt to increase revenue per visitor. But this does assume a degree of reason and forethought that is often absent at giant, old companies. And I do think that there is plenty of history that shows that companies that make it to the top often falter once they get there, due to laziness, hubris, or both.

I always ask people this question: if someone in 1970 had to guess the biggest airline, department store, and communications company in 2005, what would they say? Probably Pan Am, KMart, and AT&T. Pan Am closed up a few years ago, Kmart is struggling with bankruptcy, and AT&T may not be far behind.

Thus, this banner ad issue is not about whether Google has become a money-hungry corporation, but whether they have become just another corporation. The jury is still out.

Merry Christmas Yahoo & MSN - Part Four

Step 4: Pay Users (Frequent Searcher Programs)

The final step to destroying Google is the concept of paying users for their searches. This has recently been suggested by Microsoft, with much ridicule within the industry. Is it really such a silly idea, though? Let's investigate.

The first company to try to do this was AllAdvantage. This was the multi-level-marketing company that your friend sent you an email about around 2000. The header was probably something like "get paid to surf!" You had to download a browser and watch ads as you surfed. For every hour you surfed, you got $.50 (and you got money if your friends surfed as well).

AllAdvantage got over $100 million of VC money from Softbank and managed to blow through it all in a matter of about 18 months. The company was derided as the "dumbest dot com" and the "bloated whale of Silicon Valley" by industry magazines. The company failed, however, not because of a bad idea, but because of bad execution.

What AllAdvantage was supposed to do was this: a user downloads their browser and provides AllAdvantage with detailed personal information (in order to get paid, you'd have to provide a mailing address, date of birth, sex, etc). AllAdvantage would also track what the user is searching for (every page of every site - not just pages on a specific site, as done via cookies). Based on this highly-specific user information, AllAdvantage could serve up the most targeted ads in the industry.

For example, if AllAdvantage knew that you were surfing for "trucks", knew you were a man aged 35-45, in San Francisco, working as a plumber, they could serve an ad for a truck dealership five miles from your house. Heck, they could even serve an ad that showed the specific inventory of the truck dealership near you. If you were searching for Ford Explorers, they'd just serve that inventory. If you were searching for black Ford Explorers, they could do that too.

From an advertiser's perspective, this could be a goldmine. Imagine if you were that truck dealer - you would pay a lot more to serve an ad to a user in your city, in your target demographic, who has been searching a specific truck that you have in your inventory, than you would for someone who simply types in "truck sales" or even "san francisco truck dealer."

So, AllAdvantage figured that if they paid users $.50 an hour to surf, by collecting additional personal information, they could more than make up for this $.50 by making advertisers pay more for each ad. On top of this, the user would also have better user experience, because the ads would be targeted to him. The ads would basically be another form of useful content.

AllAdvantage went wrong because they started paying users before they actually had the technology to serve personalized ads. So, advertisers weren't willing to pay an extra $.50 an hour to reach their users. Thus, losing $.45 an hour on every user didn't quite work.

The second company to try to pay users was iWon.com. The concept behind iWon was that you would get the same quality search results as you would from a Google or Yahoo search, but that you would also get entered into drawings for cash and prizes every time you did a search.

Considering your odds of winning, the amount users got paid for every search probably worked out to about $.001. Users could get even more entries into a drawing by clicking on an advertisement. And if you actually signed up for a product or service from an advertiser, even more entries.

Thus, a model similar to MyPoints, or Frequent Flyer miles, the more you shop, the more rewards you get. Another name for such a model is incentivized traffic. From a business perspective, iWon worked. They captured millions of users, signed up lots of advertisers, and eventually sold their company for a lot of money to Infospace (I think).

So, one thing that we can conclude from AllAdvantage and iWon is this: incentivizing search traffic attracts users. Moreover, users are willing to give away personal information and deal with annoying pop-ups, interstitials, etc, in order to make just a few cents an hour.

Imagine the consequences of this for search. What if MSN announced that every user on MSN would get $.50 an hour for surfing. The user wouldn't get any more money for clicking on an ad (for that would decrease the quality of the clicks) but the assumption would be that, over the course of an hour of surfing, the combined revenue from user clicks on ads and the additional revenue MSN could charge advertisers as a result of additional targeting would more than make up for the $.50.

In fact, I'm not sure how often users click on ads - let's conservatively say once ever 10 minutes, or six times an hour. If the average CPC of a search ad is $.45, in an hour, MSN could make $2.70. If they could charge a 10% premium for additional targeting capabilities, make that $3.07 an hour. Subtract the $.50 and you end up with $2.57 an hour. Not too shabby.

As the old iWon TV ads used to say: "which would you prefer - $10,000 or nothing?" I bet - and perhaps MSN bets - that a lot of people would switch from Google to MSN for a measly $.50 an hour. And again, as with my suggestion that Yahoo gives away YPN for free to hurt AdSense, Google would be left with two choices: copy MSN, or see their traffic slowly drift away.

One final point on this idea: there is no question in my mind that a lot of consumers will be skeptical to say the least of agreeing to let MSN monitor their searching behavior. That may very well be true, but there will plenty who won't care, and this idea could easily be adopted by Yahoo, Ask, or any other major search engine. As an aside, go to A9 -Amazon's search engine - and you'll notice that frequent searchers get a 1.7% discount on Amazon purchases!

So concludes this epic tale. To summarize: my four steps to defeating Google are as follows:

1. Yahoo should offer YPN (the AdSense competitor) with 100% revenue to the publisher. They should also provide detailed data on the advertiser's revenue share;

2. Yahoo and MSN should improve their advertiser user interfaces. At a minimum to be as easy to use as Google's UI.

3. Social networking search applications like del.icio.us and Flickr may democratize search, making massive algorithms and server farms irrelevant.

4. Offer users payment in exchange for surfing a search engine has worked in the past, and could be a great way for MSN or Yahoo to drive users away from Google.

Merry Christmas Yahoo & MSN - Part Three

On with the show - part three of four

Step 3: Decentralize Search Engines

This one (and the next one) are a little crazy, I admit, but hear me out. Yahoo's recent acquisition of del.icio.us and Flickr have the potential to be very interesting in the long run. These are companies that allow individuals to in essence create their own personalized search engines of Web sites and photos. I can tag a bunch of Web sites and then conduct a search of my own tags to find out what I felt was relevant (example: I tag a picture "Alaska fishing", then I search Flickr for "Alaska Fishing" and voila the picture shows up).

Even more interestingly, if I start to generate a reputation as being a relevant tagger, other people may someday want to use my tagging system as their guide to the Internet. Pretty soon, perhaps there are thousands of people like me who spend hours each day tagging Web sites.

Sort of like Page Rank - where the more sites that link to your Web page the higher your relevancy in the Google Algorithm - except that in this case, there is less computerized algorithm and more of a collaborative filter based on human recommendations. Sort of like a democratized version of DMOZ.org. This "social networking search algorithm" could be a big blow to Google's complex computerized algorithms. Google has invested millions in thousands of servers and top computer scientists. What happens if it turns out that people, working together, can actually create better search results than a computer?

This reminds me a little bit of Blockbuster Video. Blockbuster, in the early 90s, bragged to their investors that something like 90% of all Americans were no more than five miles from a Blockbuster location. In other words, Blockbuster argued that their competitive advantage was the sheer volume of brick-and-morter stores they operated. At the time, this was a pretty good argument.

Then came the Internet and NetFlix. Then "On Demand" cable. Suddenly, people didn't want to drive to the store to get a video. It was so much easier to get one mailed to you, or better yet, to order one on your TV (and someday, of course, through your computer). Blockbuster's real estate advantage was destroyed in a matter of years.

The same could be true for Google's server-farm/smart engineer advantage. What happens if it turns out that fast computers and lots of nerds isn't really the differentiator that Google thought?

Search engines 'programmed' by the masses - it could be a Google killer.

Tomorrow: The fourth and final chapter!

Merry Christmas Yahoo & MSN - Part Two

And now . . . the continuing saga - how Yahoo and MSN can level the playing field against Google.

Step 2: Fix Your User Interfaces

Google's traffic distribution is not the only competitive advantage Yahoo and MSN can attack. Google is currently light years ahead of both companies in terms of ease of use for advertisers. Google's AdWords user interface is actually fun to use and keeps getting better and better (in fact, be on the lookout for a desktop beta they will be releasing soon).

The YSM interface, on the other hand, is one of the most painful tools ever created. Even the reps at Yahoo admit that it is virtually unusable. And, from what I have seen of the new MSN system, it is currently somewhere between Yahoo and Google, but probably closer to Yahoo than Google. I know many advertisers who spend more money on Google simply because they don't want to put the extra effort into either using the YSM online interface or developing API integration with YSM.

Simply copying Google or investing a few million dollars in creating a faster and easier UI will increase budgets on Yahoo dramatically, at the expense of Google in some instances. The same will be true for MSN.

The result: decreased revenue for Google and increased revenue for Yahoo and MSN.

Tomorrow: Part three (of four).

Merry Christmas Yahoo & MSN. Here's Your Gift!

In my ongoing attempt to spread joy and goodwill throughout the search engine marketing community, today I offer Yahoo and MSN a priceless gift - free advice on how to destroy Google!

Let me first start with a caveat - I don't hate Google and I don't have any special love for Yahoo or Microsoft. I know a lot of folks at all three companies and I like almost all of them (there's always going to be a few bad apples everywhere of course).

Every search engine marketer worth his salt, however, has to admit to a love/hate relationship with Google though. On the one hand, Google basically pays my salary. Without AdWords and without Googlemania, we search engine marketers wouldn't be able to generate millions of dollars of revenue a year, and we wouldn't be in as high a demand as we are today.

On the other hand, Google sometimes acts like a monopolistic ogre reminiscent of the Standard Oil Company. I've started jokingly suggesting that every new SEM contract I sign contain an "Act of Google" clause, basically stating that the contract is null and void if Google makes some drastic change to their rules that makes it impossible to fulfill the contract as originally written.

So, the problem I have with Google is not the people, nor the product (hey, let's face it, AdWords is so much easier to use that Overture (now Yahoo Search Marketing) or MSN), nor the business they drive my way. The problem is that any monopoly is always going to end up bad for business. I don't want to be beholden to one big company for my livelihood. If Google one day arbitrarily decides that they don't like my company or they are going to double their CPC prices, I want to be able to shake my head in disbelief and be able to replace Google with the same volume and quality from another source.

At this point, the most likely candidates for the role of Google-replacement are Yahoo and MSN. For that reason, I am giving these two companies my gift: a four step program (saving you eight steps over a classic 12 step program!) to making search engine marketing a three horse race. Due to the length of this post (and to add suspense), I have decided to break it into four parts. So, part one starts now!

Step 1: Beat AdSense

Google makes a huge amount of money from AdSense, the distributed ad network that shows up on this blog and thousands of Web sites across the Internet. AdSense has many flaws that Yahoo and MSN can attack. First, the revenue sharing structure is cloudy to say the least. Web publishers don't know exactly how much they are getting compared to Google's share. Second, Web publishers generally don't complain much about this lack of transparency because there are really no good alternatives to AdSense in the first place.

Yahoo has recently launched the Yahoo Performance Network (YPN) as an alternative to AdSense. MSN should launch a similar service. Both companies should then do two things: 1) tell each Web publisher exactly how much their revenue share is; 2) make sure that the revenue share each publisher gets will always be more than what AdSense would have paid.

In fact, if I was Yahoo or MSN, I would look at these contextual networks (as they are called) as loss-leaders. Like WalMart selling plasma TVs for $500, the point of these networks - at least right now - is not to make a lot of money, but rather to take away a lot of money and business from Google.

Imagine the impact to Google bottom line and distribution network if Yahoo announced that they were giving all new publishers 100% of revenue from contextual advertising on YPN for the first 12 months, and that going forward each publisher would receive a report that details exactly how much revenue share they are receiving. Two things would likely happen. First, thousands of publishers would instantly switch from AdSense to YPN. Second, Google would be forced to up the ante as well and increase their payouts to publishers and provide more transparency.

If MSN also provided such a service (and an incentive to join), chaos would ensue at the AdSense building at Googleplex (Building 41?). And perhaps the biggest jolt would come to the Google stock when Google announced quarterly earnings a few months later.

Tomorrow: Part Two on Destroying Google

Seasonal Affiliate Marketing - Christmas Isn't All That

Affiliate marketers - at least those who work with a broad array of clients - are blessed with the ability to capitalize on different markets at different times.

Christmas season is a great example of this point. From Thanksgiving to Christmas, many retail businesses are made or broken. One misstep during this time and a business can be destroyed.

In the affiliate world, however, Christmas is but one of several seasons that present huge opportunity. Thus, if you really screw up on your marketing during the holidays, you aren't completely doomed. This is not to say that Christmas isn't very important for affiliate marketing - no doubt it is! - but in no way are affiliates dependant on this one time of year. Some examples:

January: Strong for dieting, education and dating services (New Year's resolutions!). Also debt consolidation (post-Xmas)
February: Dating, flowers, jewelry
March: Taxes
June: Mortgages, travel, home improvement
August: Education, mortgages
November-December: Toys, books, gifts

In many ways, the non-Christmas seasons are actually better - simply because there is less competition to buy keywords, media placements, etc.

Most major online media players will confirm this. Ask MSN for their editorial calendar and you'll see that the focus isn't exclusively on the holidays. Google has many "pods" of sales reps, only one of which is dedicated to consumer goods (others include financial, education, travel, B2B, technology, and pharmaceuticals, to name a few).

The Internet economy benefits from the Christmas season. Fortunately, we are not beholden to it. Happy Holidays!

Cave Man SEM - What We Can Learn From Neanderthals and Henry Ford

Imagine the world 10 million years ago. Two caves could be separated by only a few miles and yet lead totally different lives. One cave, for example, might have figured out how to use the wheel, fire, maybe even metallurgy. The other might still be gathering berries and eeking out a meager existence.

This analogy, in essence, is a good depiction of search engine marketing today. There are companies that have (or are) developing amazing technology - from bid algorithms, to landing page optimization, to multivariate ad copy testing - and there are also companies that research new keywords, create ad copy, manage bids, and develop landing pages entirely by hand!

Right now, both strategies can work. In other words, even if you are light years behind your competitors in terms of search technology, you can still survive and perhaps flourish. I personally know of companies that make millions in paid search each year and have no technology other than very rudimentary tracking systems.

Can you imagine two car manufactures - one with the latest computerized assembly line, the other still making each car by hand (and I mean consumer cars, not Lamborghinis)? Such a scenario may have been possible in 1910, but ever since Henry Ford unveiled his Model T assembly line, the "arms race" of technology and efficiency in the auto industry was in full swing.

And it should be noted that Henry Ford - who's technology at one point gave his company a huge advantage over his competitors - has gradually been passed by companies with better innovation, cheaper production costs, and more efficient management.

So, getting back to paid search . . . today there are maybe a few SEM players who are constructing their Model T assembly line. These companies will no doubt gain a huge advantage over the "do it by hand" teams. Two years from now, though, the Model T assembly line will be obsolete, replaced by even better systems.

In sum, constant innovation and investment in technology development is the only sustainable strategy for any paid search company.

First one out of the stone age wins!

Internet Marketing Predictions for 2006

OK, OK, I know everyone is doing these predictions. But its the holiday and there's no new news anyway, so this is a great way to fill space. Plus, in a year, you can look back on this post as proof of my genius. Without further ado, and in no particular order:

1. 2006 will be the year of "cost per action" or "CPA" marketing. Think about it - Internet marketing has gone from sponsorship (1995) to CPM (1998) to CPC (2002). Publishers are taking more and more risk in exchange for more and more return for every action. The next logical step is CPA. 2006 is the year that people will go ga-ga over "performance marketing."

2. There will be massive consolidation in the SEM industry. The PPC markets on Google and Yahoo are still highly inefficient, meaning that the price that is being paid for a click is often too high (too many bidders) but probably even more often too low (too few bidders). As the big PPC players created sophisticated search technology, and as blue chip advertisers begin to shift more money away from branding campaigns towards direct marketing campaigns (like search), the price of most clicks will increase. Companies without technology and optimized bidding strategies will see severe margin compression. Small SEMs that rely on manual processes and their innate intelligence will no longer be able to get the job done for big spenders. The result will be a lot of acquisitions and a lot of bankruptcies too!

3. YPN will have strong growth. YPN is the "Yahoo Performance Network" - Yahoo's equivalent to Google AdSense. Simply by being an alternative to the black box that is Google AdSense (what's my rev share? I have no idea) will propel many sites toward Yahoo (again, Yahoo as an underdog, amazing!). This should also result in Google aggressively increasing revenue sharing and being forced to disclose more information about how AdSense works (which they have already started doing, albeit slowly).

4. Local search will *not* explode. Local search and mobile search are two areas that people have been touting for years and have yet to do anything, as far as I am concerned. Both of these are still at least a year away before there is any traction (aside from venture funding traction, of which there is plenty).

5. Google Video Search will become a cash cow thanks to amateur porn. Think about this - what if you were a young woman and you wanted to make a video of yourself with your web cam. Now what if you could have this video indexed by Google and get paid a revenue share everytime someone watched your video and then clicked on an ad beside the video (or better yet, what if you could just charge on a CPM basis). This could be the "democratization" of porn - and big money for Google.

6. Nextag will get acquired or go public. Every other comparison shopping site has been purchased already (Shopping.com, ShopZilla.com, MySimon, etc) so they have got to be next.

7. LookSmart will get acquired or de-listed. I just don't see how this company stays afloat . . .

8. Google Base will never come out of beta - not in 2006, not ever!

9. A search engine will buy an ad during the Super Bowl (2007). This will be the ultimate in hypocrisy, considering how much the search engines have criticized brand marketing for years.

10. There will be a flurry of "how to" books on search engine marketing. These will be available in the same section of Borders that contains the "how to start an eBay business" books.

That's my list. Check back in 365 days - I figure if I get at least 4 out of 10 right, I'm doing pretty well!

Google is Yahoo, Yahoo is Google, AOL and MSN Don't Know Who They Are

The news this week that Google and AOL have 'renewed their vows' was a shocker to many, particularly because just last week the NY Times was reporting that MSN had basically locked up an AOL deal.

As a search engine marketer, my reaction is mixed. In general, I want as much diversity of search publishers as possible. So, I was rooting for MSN to get the AOL deal, thereby stripping Google of some of its omnipotence and hubris (amazing that I would ever root for Microsoft as the underdog!).

For the last two years, Microsoft has been beating its chest proclaiming major investments in search - from Longhorn to the MSN Search beta launch (and the hiring of hundreds of employees for the task). With their $44 billion war chest (or whatever it is currently at) it seemed liked a relationship with AOL would be a slam dunk - it would be their 'coming out party', an indication that they were really going after Google and Yahoo.

The consequences for Google would be significant. AOL represents a big portion of Google's revenue and losing this partner could very quickly lead to the end of Wall Street's love affair with GOOG. It would also add more fodder to both Yahoo and MSN as they attempt to grow their distribution networks at Google's expense. In short, an MSN-AOL relationship would have had a lot of negative implications for Google, and even if MSN lost money on the actual deal, the return from increased advertisers and increased distribution would more than justify the contract.

To me, this was just a slam dunk for Microsoft, if for no other reason to take the bloom of Google.

So, is there any silver lining here? Well, as many folks have pointed out, a deal with AOL in the past has been the Internet equivalent to "jumping the shark." Just ask Time-Warner about how their merger went. And some of the deal points that have been released suggested that Google is continuing to veer away from the very things that got them to where they are today, namely relevance, simplicity, and objectivity.

I'm not sure what made me cringe more - President Bush justifying secret spying on Americans or Google allowing graphical banner ads and search engine optimization 'advice' to AOL. Both of these acts (sorry for the politics injection) violate Google's fundamental principle - "Do no evil."

If you look into the future and see a Google with banner ads and AOL results at the top of search pages where they shouldn't, Google begins to look more and more like Yahoo. Yahoo, early on, was concerned about relevancy and simplicity. By the turn of the century, however, Yahoo had shifted all its resources from algorithmic search to revenue-generating channels and products, like games, travel, mail, etc. A few guys in Palo Alto decided that Yahoo had spent so much time on stuff other than search, that the search results weren't even relevant anymore. So they decided to start their own company - that company, of course, was Google.

Meanwhile, Yahoo just announced a change to their search advertising guidelines - reducing the text in ads from 160 characters to 70. In sum, Yahoo is now copying the simplicity that made Google's advertising so successful.

So, as 2005 ends, Google is trying to be like Yahoo, Yahoo is imitating Google, and MSN apparently doesn't know what it wants to be. 2006 is going to be a fun year!