Search Engine Marketing FACTS

In the next few months, I'll be writing an article for a search engine marketing publication about "search engine marketing myths." Believe me, there are dozens of them, but I'll be limiting myself to no more than ten or so.

This topic got me to thinking about SEM facts - irrefutable truths that everyone in the industry accepts. Here's my random list - please feel free to comment and add others to the list:

1. Google and Yahoo drive good traffic, anything else is bound to be risky;
2. Click fraud exists, especially on content distribution;
3. It's easy to do SEM, it's hard to do it well;
4. CPC prices will continue to increase;
5. To be successful, you can't do SEO part-time;
6. Yahoo needs to get rid of the Direct Traffic Center;
7. MSN will be a player in SEM;
8. The line between web analytics and SEM is blurring rapidly;
9. It's hard to tell the difference between SEM agencies these days;
10. If Local Search ever takes off, the Yellow Pages will be dead.

So, there's my starter list. I'd love to grow this to 20 or more items. Please send me your suggestions!

Internet Founders - The Robber Barons of the 21st Century?

In the late 19th and early 20th century, industrialists like Carnegie, Ford, Rockefeller, and Vanderbilt created vast empires of factories, shipping companies, and warehouses. These "men of industry" represented all that was good and evil in America during that period.

On the one hand, they brutally abused their power, gobbling up small companies through monopolistic (and unfair) practices, providing unsafe workplaces and non-living wages, and at the same time building massive mansions of extreme decadence. But they also founded some of the greatest institutions of our time, like the University of Chicago, Carnegie Hall, and Vanderbilt University.

There are some striking similarities between the robber barons of the 19th century and the technology nerds of the 21st. Consider:

• Then: horrible working conditions, but huge charitable endowments created by company founders: Now: Bill Gates - the evil genius that also gives billions to students through the "Bill and Melinda Gates Foundation." Sergei Brin - the quirky computer scientist who promised to "do no evil" until the lure of China proved too much.
• Then: 19th century concerns over factory safety, long working hours, and monopolistic practices. Now: concerns over the security of personal information, censorship, and, well, monopolistic practices.
• Then: Americans worried that the traditional agrarian, rural society was rapidly being replaced by the industrial, urban society. Now: we are seeing that the industry society that made the 20th century the "American century" is disappearing in the face of cheap labor and materials across the globe. American society is becoming an "information worker" society, where brains are valued over brauns. And, of course, the Internet is leading the charge is this respect.
• Then: Movies like "Citizen Kane," books like "The Jungle," and musicals like "Annie" depicting the lives of "great men" and the everyday worker alike. Now: Movies like "Startup.com", books like "The Search," and dozens of magazines dedicated to Internet technology.
• Then: Close, perhaps too close, relationships between industrialists and the government. Now: MSN and Yahoo complying with federal requests for user search information.

At the end of the day, I'm not saying that today's leaders are yesterday's robber barons. Nonetheless, to quote Lord Acton, "Power corrupts. Absolute power corrupts absolutely." As search engines and technology companies continue to wield more and more power over everyday life, Lord Acton may be proven right again.

Who knows, perhaps 30 years from now we'll watch a movie with an elderly Sergei Brin painfully reaching his hand toward the screen, and with his dying breath, whispering "Rosebud . . . dot com."

How To Work with Second-Tier Search Engines

I recently discussed whether click fraud was truly a problem for Google. I conclude that it isn't really - at least until the hordes of new & naive advertisers stop buying ads on Google and Google is forced to rely exclusively on sophisticated advertisers for their revenue.

For second-tier search engines, however, the story is different. By "second tier", I basically mean any search engine that isn't Google, Yahoo, AOL, or MSN. So that includes Ask, Kanoodle, Miva, Mamma, 7Search, Quigo, Industry Brains, etc, etc. On many of these sites, click fraud is the business model as far as I can tell.

As sure as death and taxes, every week I get a pitch from a second-tier company encouraging me to advertise on their PPC network. The pitch always has three main elements:

1. We have X billion searches each month;
2. We cost 50% less than Google and Yahoo;
3. Our traffic is of the highest quality.

Now, as a young and impressionable search engine marketer, I used to fall victim to this pitch. I'd dutifully deposit $1500 into an account, carefully select keywords to upload, and start the campaign right away.

In almost every instance, one of two things happened. Either there was gobs of really bad traffic, or virtually no traffic at all. Mostly it's the former. I've seen campaigns that I know convert at 4-5% on Google or Overture get 1500 clicks on a second-tier site with nary a conversion among them. The odds of 1500 people a) searching for one of my carefully-selected keywords; b) deciding to click on my little old ad, and c) collectively deciding not to buy what I am selling, is slim to none, and Slim just walked out the door (with thanks to Horace Grant for the quote).

Of course, the ad rep who sold me this horrible placement undoubtedly knew all along that this was going to happen. But can you really blame him? He's got to put bread on his family's table, and if he doesn't get my $1500, that's $1500 farther away from his quota.

I will admit that there are a few diamonds in the rough with the second-tier players. I do work with a few second-tiers that can sometimes generate as much as 10% of my monthly revenue and profit. But it takes a lot of work to separate the wheat from the chaff. That being said, here's my advice on how to work with second-tier search engines:

1. Talk to other advertisers about the search engine: Read WebMasterWorld, talk to friends at other companies. Have they used GreenBananaSearchFind.com? What were the results?
2. Look at their user interface: Any company that's in this for the long-haul will have invested some money into an online interface that enables you to change bids, download reports, etc, a la AdWords or (to a degree) Yahoo's Direct Traffic Center. If it looks like the CEO's teenage son designed the Web site for extra credit in one of his classes, steer clear.
3. Only work with people you like: There are aggressive sales reps and firm but polite sales reps. A smart sales rep considers the lifetime customer value of a relationship. If he sells you on a bad deal today, two years from now you aren't going to talk to him when he has a good deal. Account reps who are upfront with you and who manage your expectations are key.
4. Ask for a free trial: The best way to test out a sales rep's claims is to ask for a couple hundred dollars of free clicks in advance. A lot of reps have the authority to do this, especially if you are already a big spender on the major search engines.
5. Make as small a deposit as possible: If you do have to plunk down some change, make it as small an amount as you can. The goal is to assess the potential profitability of this site as quickly as possible, and with as little financial pain. If an ad rep is pressuring you to put down a larger deposit than what you want to invest, that's usually a sign of a "slash and burn" mentality, and you should run in the other direction as fast as possible.
6. Track every keyword individually: This is fundamental to any search engine marketing. By tracking each keyword, you can identify where potential click fraud is coming from and where there may be a sweet spot on the search engine.
7. Consider the value of your time: At the end of the day, your job is to make as much profit for your company as you can. If you can make an extra $500 of profit a day by tweaking your Google accounts but only $250 a day working with GreenBanana, the choice is clear. Time is money!

Google AdWords Editor Out of (Private) Beta

This is a desktop tool we've been playing with for a while. Now publicly available here: http://services.google.com/adwordseditor/index.html

By the way, for those of you who read my blog regularly, you may recall my four-part post on how MSN and Yahoo can take down Google. You'll note that Part Two of this epic posting was dedicated to user interfaces. Of course, I was suggesting that Overture change their user interface to reach parity with AdWords' already far-superior interface. I guess now that AdWords isn't resting on its laurels, Overture is just that much farther behind.

Since I have been using this beta for a while (and since you still apparently need a password to get in), here's a few comments on the system so far:

Pros:

• The ability to sort keywords across your entire account by different variables (i.e., cost, impressions, alphabetically, CTR, etc). Previously, this could only be done on an AdGroup level;
• "Bulk Sheet" functionality - i.e., the ability to add thousands of listings in an Excel-style format from your desktop. This is far superior to sending an Excel sheet to a Google rep, then waiting for the rep to upload it a few days later . . .
• Moving keywords en masse from one AdGroup or Campaign to another.

Cons:

• Still very buggy. For example, we uploaded some keywords that we knew should run in the $.50 to $1.00 range and somehow all of them were listed as "Inactive" with a minimum bid of $5.00. We then deleted them and sent them to our Account Rep to upload for us instead, and voila, they were all "Active."
• It can't handle really big changes. My advice is to limit your work to less than 2000 keywords at a time. We've had several situations where the tool has simply "timed out" because our job was just too big for it.

One final point. A co-worker of mine has a conspiracy theory of sorts that I think may be quite valid. He believes that the AdWords Editor is Google's "AdWords API for the masses." In other words, Google wants to limit API access to a select group of "mega advertisers", most likely companies that are spending at least $250,000 a month with Google. Thus, to reduce load time on their API servers, they have launched this desktop application which has a lot of the basic features that you can get through the API, but discourages API development for smaller players. In the end, this could save Google a lot of pain since I'm sure there are plenty of companies out there trying to develop API integration, doing a horrible job at it, and turning around and nagging Google's product team about why the API doesn't work.

Overall, though, I give Google a big "thumbs up" for continuing to innovate here! Keep it up!

Click Fraud - A Concern?

I was walking down the street last week and a charming young lady came up to me and asked "is click fraud a major problem for search engine marketers?" OK, it was actually a co-worker that sits next to me who asked the question, but I thought it sounded more intriguing the other way. I digress . . .

Click fraud does get a lot of hype these days, especially in reference to Google's seemingly inflated stock price. To me, click fraud is like any other type of online fraud - it is manageable, but it will always be around.

Right now, savvy advertisers take click fraud into account whenever they place a bid on Google or any other PPC advertising network. This is apparent when you look at the bid prices for the same exact keyword on different networks. Let's say you want to buy the word "refinancing." If you went to Google (search only) or Yahoo (search only), you'd pay around $6.00 for the top bidded position. Move onto Google or Yahoo contextual, and your bid moves to around $3.5. Try a "second-tier" search engine like Miva or Kanoodle and your bid drops to $1. And at the bottom of the barrel, there are some search engines that would cost you no more than $.10 a click.

Why the difference? In essence, the level of click fraud. The price of a CPC bid is largely determined by the ROI achieved by the advertiser. Every fraudulent click reduces ROI and thus reduces bid price. Thus, if something seems to good to be true (like a $.10 click cost on one engine versus a $6.00 click cost on another), it probably is.

If click fraud gets out of control on Google, bids will drop. If click fraud is contained, prices will rise. A real-life example of this scenario revolves around the word "mesothelioma lawyer." A person would type this term into a search engine if they were diagnosed with mesothelioma - lung cancer caused by exposure to asbestos - and they wanted to sue an asbestos company for their illness. Lawyers know someone diagnosed with this horrible disease could easily have a claim worth $1,000,000 or more to their lawfirm.

As a result, bidding on this term became red hot a few years ago. So hot, in fact, that the top bids exceed $100 per click. Then, the media caught on and identified this term as one of the most expensive PPC terms around. Suddenly, lots of people without a mesothelioma diagnosis were typing in this term - either out of curiosity or for malicious purposes. Either way, the click quality dropped fast. Today, the top click on Yahoo for this term is "only" $15.25 - a reduction of over 90%.

So Google and Yahoo have a clear incentive to stop click fraud, right? The less click fraud, the more advertisers will pay for click, which means more money for the search engines. Well, not exactly. While it is true that smart advertisers reduce bids as click fraud increases (and ROI decreases), there are still plenty of less smart (to put it nicely) advertisers who don't have the capability to truly measure their ROI. For example, if you can't track the performance of every keyword you buy, you can't measure the ROI for that keyword, you can only measure overall ROI for your accounts. This inevitably means that you will pay too little for some keywords and too much for others. And this often results in high bids on keywords with lots of click fraud.

As a result, there are plenty of situations where click fraud exists and yet bids keep going up, up, up. This results in smart advertisers sitting on the sidelines, leaving the other advertisers to fight for top position. Over time, the dumb advertisers will either run out of money and disappear, and the smart advertisers may be able to get the keyword for the correct price. Right now, however, this is often a short-term victory, because the moment one group of dumb advertisers disappear, another group sprouts up to take their place.

In other words, because PPC markets are so immature, the big search engines really don't have to worry too much about click fraud or ROI, because there are plenty of unsavvy marketers ready to buy clicks. So, right now, Google and Yahoo probably make more money with click fraud than without.

This will eventually change, probably in the next year of so. As less and less new and inexperienced advertisers sign up for PPC campaigns, search engine revenue will become concentrated in an elite group of top marketers. These are the marketers with highly advanced tracking systems that can detect multiple clicks from the same IP address, or too many non-converting clicks from a particular content site. These advertisers will pay the efficient rate per click - i.e., the rate that makes them money.

At that point, the search engines interests will be aligned with the marketers' interests. Eliminate click fraud and marketers will pay more; let click fraud fester, and marketers will allocate their budgets elsewhere - either to other search engines or other mediums.

So am I concerned about click fraud - sure, I adjust bids downward every day on keywords where I suspect click fraud. Will this be the demise of Google? Probably not - Google has lots of other problems to deal with - from competitor movements, loss of top employees, customer service and now a Government subpoena - that could be much more detrimental.

My Two Cents on Google Radio

OK, I know I am at least two days late on this news, but here's my take on how Google could incorporate radio advertising into their ever-expanding portfolio of disconnected products.

Google is already experimenting with pay-per-call on AdWords, They also offer "Site Targeting" which is sold on a CPM basis. I figure that one of these two concepts will be instrumental to any Google Radio product.

Pay-per-call seems like the most logical choice for me. Google can, in essence, create thousands of radio spots in a multitude of categories (starting with the spots you would most likely hear currently on AM radio, like diet pills, mortgages, get-rich quick schemes, etc). Each of these ads would have a call to action at the end with a unique phone number, but there wouldn't be any company name mentioned in the ad.

A sample ad might sound like this: "Do you want to fit into your prom dress again? Recent scientific breakthroughs have resulted in a new and all-natural diet formula that can help you lose weight fast! And best of all, you don't have to stop eating your favorite foods. Call 1-800-XXX-XXXX today to learn about our free offer on this revolutionary new product!"

When someone calls the number, the call is routed to the diet pill advertiser who paid the most to receive this lead. Thus, Advertiser A might receive the phone calls in the morning, until he is outbid by Advertiser B in the afternoon.

Of course, having a call center sit idle because you were outbid for an ad spot won't make advertisers very happy, so perhaps the better model would be to allow advertiser to bid in advance (upfront buying) for specific slots, on specific radio stations. In this scenario, the advertiser could actually run its own pre-created ad that they have stored with Google, since Google knows at least a day in advance who won the bidding auction.

But since most Google advertisers don't have existing radio spots at the ready, Google could also offer an additional ad creation service (for a price, of course) for companies that don't want to use the generic ad suggested above.

The CPM model mentioned above could also be used for Google Radio. In essence, radio is already sold on a CPM basis (I think they call it "reach"?). Google could use the Arbitron ratings to allow an advertiser to buy a certain number of listeners on a CPM basis, and of course targeting by geographics and demographics would also be available, for an additional charge.

The $64,000 question is: will this work at all? The answer, as always, is "maybe." The good news for Google is that the radio advertising industry is still very fragmented. Other than ClearChannel, buying radio spots often means calling numerous local stations and negotiating numerous local deals. The transactional costs of talking to 20 salespeople is just too much. And the ClearChannel model works well for big advertisers, but small companies either can't afford ClearChannel's prices or can't get the time of day from a ClearChannel rep. So, in one sense, the idea of democratizing radio advertising is a compelling business idea.

On the flip side, Google is stepping way outside its core competency. Radio is probably the poster child of "old world media." Google will encounter a lot of players who want it to fail and to butt out of their industry. Radio is also a lot harder to track than the Internet, so the precise ROI metrics that savvy advertisers use via tracking URLs on the Web won't work. Sure, pay-per-call has tracking functionality, and you can always include an offer code in your radio ad, but radio is still a long ways away from the measurability of Internet advertising.

I see two historical analogies that could fit here. The first is Virgin, Richard Branson's baby. Despite its origins as a somewhat kooky record label, Branson has successful apply the Virgin model to many dissimilar industries, including airlines, cola, and ISPs. The unifying theme of all of the products Virgin produces is "cool, fun, and affordable." Could Google do the same for radio, print, and TV? Sure, it could happen.

There are plenty of examples, however, of failed attempts to expand beyond what you know best. Levi's Jeans going into mens suits, big airlines copying SouthWest, the World Wrestling Federation producing football, TV companies starting Internet portals, etc, etc. Just because you've done something right in one industry doesn't mean you can simply transfer your success into another.

For now, whatever Google touches turns to gold, so I suspect that if they can move quickly into radio and offer a turn-key solution to advertisers great and small, they could make some inroads into this industry. But they will have a lot of entrenched enemies in the business that will do everything they can to make Google fail (starting with ClearChannel). And if Google keeps going into five new industries a week, eventually, like the Roman Empire, they may stretch themselves to thin and the collective power of many enemies may be too much for them to overcome.

The End of Agencies

I really love Mediapost publications like Media and OMMA, not because they provide any relevant information about online marketing, but rather for the unintended humor. In particular, because these two magazines simply love agencies. They spend pages and pages reviewing the amazing creativity and cunning of the big online agencies.

In awarding Starcom the prestigious (sic) "Agency of the Year" - the editor writes: "We consider objective criteria such as new business wins, net media billings gains, major industry awards, and other measurable criteria. But we've always leaned heavily on such intangible factors as strategic thinking, innovation, creativity, and, most of all, industry leadership."

OK, now I get it. Media magazine operates the same way a traditional agency does - hence the love affair. Sure, 'objective criteria' are considered, but the true mark of a star agency is 'creativity' and 'industry leadership.'

Now don't get me wrong - these big agencies are indeed very creative. I happen to really enjoy those full page rich media ads I see on the Yahoo homepage - they're clever, they're funny, they often include sweepstakes with really big prizes! But, have I ever bought something as a result of one of these uber-chic ads? Um, no. And I suspect I'm not alone. Sure, I did become aware that "Hulk" was being released nationwide, but I didn't go to the movie.

Nonetheless, some agency somewhere made a beautiful PowerPoint with words like "lift", "unique visitors" and "branding" that clearly demonstrated that the $500,000 they spent on one day of Yahoo advertising was more than worth it. And, of course, that agency most definitely picked up some nice awards from the likes of Media magazine.

My advice to the account rep who got the gold statute - melt it down, sell it for scrap, and start saving your money - your industry will be dead in ten years. The age of branding is over.

To put it bluntly, branding is dying and being replaced by direct marketing, specifically search engine marketing, email, infomercials, and direct mail. There are so many marketing messages thrown at consumers these days that most consumers have trained themselves to ignore marketing.

This has become clear to some companies. Companies that buy SEM or direct mail optimize results based purely on the economic value of a particular campaign (this falls into what Media classified as "other measurable criteria"). If a keyword ad doesn't work, you either delete it, lower the bid, or change the creative. And by work I mean, make money. Direct mail experts measure everything in terms of ROI - recentcy, frequency, monetary (RFM) has nothing to do with "lift."

As Al Ries and Laura Ries point out in The Rise of PR, The Fall of Advertising, consumers have become so skeptical of branding that many now assume that whatever an advertisement says, the opposite must be true. For example, if you see an ad in the newspaper featuring a letter from a Big Oil company CEO talking about his company's commitment to the environment, what's the first thing you think - that company must have just had a huge oil spill or other environmental disaster and they're trying to spin the bad news.

Similarly, the Ries' point out that some of the biggest brand advertisers in the US - Chevy, Budweiser, etc - have continued to lose market share as their advertising budget increases.

Now consider a company like Nextag. Have you ever seen a Nextag ad with a catchy slogan, swirling lights, and a celebrity spokesperson on TV? Have you even seen a Nextag ad on TV (they do late-night infomercials, but that's it). Of course not. Go to the Nextag Web site - they use three colors and as few graphics as possible - no branding there either. Now go do a search on Google for virtually any product in the world and you'll probably see a Nextag ad inviting you to buy the specific product you are looking for, and buy it now.

According to the San Francisco Business Times, Nextag was the 7th fastest growing company in the Bay Area, with revenue of close to $200 million. And not a penny spent on branding. Several other companies on that list (like #9 - Adteractive) also fall into the category of "we don't brand, we just buy ads that make money."Oh, and neither Nextag nor Adteractive use an ad agency.

Markets are efficient. Companies that make money will succeed, companies that don't will disappear. Traditional agencies make money, but they make this money by providing services to dying companies that do not make money as a result of their services. In other words, agencies' clients will eventually go out of business or get rid of the agency, once they realize that their branding strategies are no longer working.

Agencies, of course, won't give up without a fight. Inevitably, they'll do one of two things - first, attempt to (ironically) rebrand themselves as direct marketers and two, acquire small and successful direct marketing agencies. But this won't work long-term.

First, rebranding is not sufficient - any business model that calls for 15% of a client's spend regardless of results is not a direct marketing business model. Direct marketing agencies need to be lean and mean, and that includes the way you bill clients. And direct marketing agencies don't rely on impressive PowerPoints or pretty awards to measure success - they rely on bottom line economics. Bloated, inefficient agencies simply can't survive as lean direct marketers.

Second, acquiring smaller direct marketing agencies is only a short-term strategy. To remain giant companies, agencies need to have giant profits. To have giant profits, agency have to push branding and other amorphous ideas. Direct marketing is a low margin business - despite their best intentions, no agency will ever truly accept the notion that survival means massive layoffs, massive salary reductions, and streamlined margins. And even if they do come to this conclusion, by making all of these changes they really aren't even an agency anymore anyways - they're just a direct marketing company.

Eric Schmidt -CEO of Google - told a crowd at Berkeley that "corporate marketing departments were the last bastion of corporate unaccountability" (as quoted from John Battelle's book, The Search). Eric probably should have included agencies in his assessment but since Google is currently devoting much of its sales team to courting agencies, I can understand why he didn't.

In the end, though, Eric is right. Corporate marketing departments will die - either because smart management understands that they don't provide value, or because management isn't smart enough to stop the bleeding and the company goes under. Once the corporate marketing departments fall, the mega-agencies won't be far behind. Oh, and (sadly) those humorous "agency of the year" stories in Media will also disappear, along with the trophies, award ceremonies and probably Media magazine. I guess I'll have to find my daily chuckle somewhere else . . .

Five Great Books for Search Engine Marketers

A few books that have influenced me over the last few years:

1. The 22 Immutable Laws of Marketing: The classic marketing text by Al Ries and Jack Trout. Perhaps originally intended for offline business, it contains lessons oft overlooked by 'new economy businesses.' My favorite lesson: if you can't be #1 in a category, create a new category you can be #1 in.

2. Purple Cow: Seth Godin's short essay on product differentiation. If you've ever looked at a page of Google AdWords results and noticed that every ad is virtually identical (especially with dynamic keyword insertion in the title), this is a great book to use to brainstorm ideas to help your ads stand out.

3. The Rise of Advertising, the Fall of PR: Another Al Ries book (though this time written with his daughter Laura). If ever there was a book that explained why traditional advertising is dying, this is it. The subtitle of this book could be "Why Search Engine Marketing is the Future of Advertising."

4. Strategic Database Marketing: This one is heavy on the statistics, but if you can wade through the pages of math you will learn all the fundamentals of customer segmentation (recentcy, frequency, monetary - or RFM - being the biggest lesson).

5. Homepage Usability: Jakob Nielsen I guess is the 'father of Internet usability.' This book looks at 50 popular homepage and breaks down all the errors present. It's amazing that more companies don't spend more time on usability, as shown by this great book!

Why Google is a Bear, and Why it's a Bull

Henry Blodget recently posted an article stating the reasons Google's stock is overpriced. There are, of course, plenty of people who feel that Google's stock has only just begun its meteoric rise. Here's my top reasons why Google is or isn't overpriced.

Why Google is a Bull:

1. Smart people. Google uses its name to hire the best and brightest. In fact, even menial jobs are filled by honors students from Harvard and Stanford (I should know - I just lost a job applicant from Harvard to Google and trust me, the position they hired her for was very junior). Hiring smart people is one smart way to build good products.

2. Experienced people. Of course, hiring smart people isn't enough - by itself. In the late 90s, a lot of dot coms hired freshly-minted MBAs and star students from the top schools. The problem, however, was that they were hiring these folks into vice president positions, in fields where they had no experience. I should know this too, as I was hired as a director of marketing for a start-up with exactly zero years of marketing or Internet experience and no subject-matter expertise to boot. All I had was a law degree from a good schools and I got the job. Google's VPs all have years of experience, have had to go through the famously (or infamously) grueling Google interview process, and are measured with metrics that matter - like revenue growth - instead of 'eyeballs.'

3. Brand superiority. Google's brand - at least right now - can do no wrong. As I have discussed previously, every new product Google launches is immediately placed on a pedestal by all in the Internet industry. More importantly, Google has become synonymous with "search" for much of the world's surfing population, not unlike "Kleenex" and "Xerox" have become associated with tissue and photocopying. The reputation of excellence Google has developed will keep people flocking to its products for years to come, irregardless of whether competitors develop superior solutions.

4. Superior technology. Although the difference between Yahoo, MSN, and Google searches gets smaller every day, its clear that Google is still superior and will likely always hold a lead over their closest competitors. Moreover, in the realm of revenue-producing products (like AdWords and AdSense) Google holds a clear technological lead over its nearest competitor - Yahoo Search Marketing (formerly known as Overture). YSM, as it is called, has a user interface that can best be described as anachronistic and has the speed of a tortoise running in wet cement. Google's AdWords tool, on the other hand, is blissfully easy to maneuver for both novices and pros, is lightening quick, and has lots of tools and features that help advertisers figure out how to spend money on it. This difference will continue to increase the divide between Google and Yahoo's search revenue.

5. Innovative culture. Google has embraced the "new economy" ethos more than almost any other company. But beyond the free food, massages, and beer parties, the most important thing Google has done is to reward and encourage innovation. Of course, every company claims to want innovation, but most big companies ending up fostering just the opposite by rewarding yes-men and employees who never take risks with promotions. Google, from the beginning, has let their engineers spend 20% of their time on non-core work projects and has actually funded and resourced some of these ideas (like Orkut and Google News). The result is a company that maximizes employee brainpower and comes out with some pretty darn cool things.

6. Confused competitors. Google's stock should also be valued highly because Google's main competitors have yet to demonstrate that they have a strategy to beat Google. Microsoft, for example, has been proclaiming amazing innovations in search and search marketing for at least three years now. The results, however, have been mixed at best. A recent ramp-up in paid search (MSN AdCenter) has been a positive sign, but Microsoft's failure to successfully win AOL away from Google was concerning. Similarly, Yahoo has made some strides in paid search, with the introduction of the Yahoo Performance Network (YPN) being perhaps the most auspicious event, but has also continued to remain unfocused as a company, dedicating significant resources to a myriad of projects including courting movie studies ($100 million campus being built in Santa Monica) at the apparent expense of increased resources to fix what's wrong with YSM.

7. Market euphoria. So long as investors believe Google can do no wrong, Google stock will continue to climb irregardless of virtually any other factors (with the exception of quarterly earning reports, of course). The blind enthusiasm for Google is reminiscent of the bubble fever of the late 90s, when stocks like TheGlobe.com, NetScape, and Internet Capital Group were valued as much on potential as they were on products or earnings. Google is far different from these companies in the sense that they actually already have massive earnings that are growing each quarter. Combine good results with stock hysteria and you have a stock that is poised to grow even more.

8. The growth of the search market. Search engine marketing has really only just begun. You can expect exponential growth over the next few years in terms of the number of advertisers involved, the money they spend, and the revenue Google captures from this growth.

OK, so as you can see, there are a lot of reasons why Google deserves to be a high-flying stock and could continue to see its stock price grow massively. Now let's look at some of the reasons why the stock is over-priced and could soon fall in value.

Why Google is a Bear:

1. Google doesn't expand beyond existing revenue streams. Right now, Google makes a lot of money from two products - AdWords (ads on Google and other search engines) and AdSense (ads on content pages of other sites). These two products are well-managed, growing, and very profitable. But, these products alone will not take Google to $2000 a share. Google needs to diversify its revenue streams. More specifically, they need to prove that all of the exciting new products they have launched over the last few years (Base, Earth, Gmail, Maps, Local, Orkut, etc) will actually end up substantially contributing to their bottom line. If these products end up being 'cool' but not 'profitable', this is a concern. Reliance on just a few products is bad for any company, especially one like Google that is investing so heavily in what are currently non-revenue producing initiatives.

2. Competitors get a clue. It's possible that Microsoft and Yahoo will some day wake up and decide that they are going to do everything in their power to break Google. As I have noted in prior columns, Yahoo could do this by virtually giving away YPN - their AdSense competitors - for free to publishers, thus putting severe margin pressure on AdWords and stealing marketshare. MSN, in turn, could aggressively court Google's AdWords partners (as they should have done with AOL) reducing Google's distribution network. And both companies could invest heavily in search technology and eventually whittle away at Google's competitive advantage.

3. Google becomes too corporate: Innovation drives Google and for Google to stay on top, they will need to continue to foster such innovation. It becomes very hard, however, to keep an innovative culture as a company grows. Even at 100 employees it is inevitable that some level of politics, laziness, and bureaucracy begins to creep into a corporate culture. Google now has something like four or five thousand employees. Google may be able to retain an innovative culture better than other 1000+ employee companies, but will that be enough, especially as new entrepreneurs continue to develop the next Google in another Stanford computer science lab?

4. Google loses top employees: Turnover is inevitable at any company but is surely an even greater concern at Google, where the stock price has made more than a thousand employees millionaires. And every point higher the stock climbs, these employees become richer and perhaps less interested in working period. There's also a certain level of excitement that comes with building a business that fades away when it comes time to maintain a business. Many of the smartest early employees may decide that it is more interesting to go another start-up than it is to manage an established company.

5. Search engines become less valuable: Sure, everyone uses search engines today, but what about five years from now? The Internet is changing rapidly and there's no guarantee that search engines will be the dominant form of finding information online in a few years. In fact, before Google came on the scene, a lot of people were proclaiming the end of search engines and lauding portals, verticals, and community sites. New technologies like del.icio.us and Flickr, social networking, and even blogs could effectively decentralize information gathering on the Internet, bypassing search engines altogether.

6. The euphoria ends: What comes up, must come down. Many stocks have risen as quickly as Google, and many stocks have received equally glowing recommendations from analysts. Some of these stocks have continued to climb. Others have struggled and eventually falled. And the higher one climbs, the harder the fall. If Google does someday have a quarter that fails to meet analysts' expectations, you can be sure that the stock will drop. And fast.

7. Text ad blindness: Google makes virtually all of its revenue on text ads. People click on text ads a lot, far more than they do banner ads, in large part because people find them more relevant and less 'ad-like.' But, if consumers gradually begin to tire of text ads on every page they surf online, they may begin to ignore them altogether. In the late 1990s, banner ad click-through-rates decreased precipitously, creating a phenomenon known as "banner ad blindness." If a new phenomenon of "text ad blindness" occurs, this will have a significant and negative impact on Google's revenues.

8. Google alienates too many people: Part of Google's new economy attitude is, well, an attitude. A lot of people in Silicon Valley have had bad experiences with Google. Most often, I hear people talk about the hubris and arrogance that exudes from the Googleplex. There's also a sense among advertisers that Google doesn't fully appreciate how much of their success is due to their loyal advertiser base. While some companies make sure advertisers are always taken care of (with parties, gifts, high levels of customer service, etc) Google seems to think that giving a $5 million annual advertiser a $45 Google-emblazoned blanket for Christmas is a sufficient thank you. Unfortunately, there are a lot of people who won't shed too many tears (and may be actively rooting for Google's dismise) if Google struggles.

So, there you have it. There's a lot of reasons to like Google's stock and just as many to hate it. I guess like any good investor I can say that I successfully hedged my bets on this one. And, whatever happens, I can also claim "I told you so!"

Yahoo Search Marketing, A Dumb Name Among Dumb Names

By 2001 I had really started to like the name "GoTo.com." It was short and catchy, it had a nice color scheme (yellow and green) and they had sent me a plastic goose, a gold-colored egg in a fake nest, a doormat, and an apple pie (delivered by a guy dressed as a baker, no less) all reinforcing their GoTo branding.

Then, for reasons still somewhat unclear to me, they decided to throw all of that branding away and switch to Overture. At first, the name Overture really annoyed me. And the soft blue color just seemed too boring. But eventually, I admit, I even started to like the name Overture.

And then the folks at Yahoo decided it was time for a change and Yahoo Search Marketing was born. I understand the rationale here - take advantage of the Yahoo brand to aid legitimacy. But this is a name that is fraught with problems. For one, it is too similar to the Yahoo corporate brand name, People by nature like to abbreviate names and thus Yahoo Search Marketing is rapidly becoming known as either "Yahoo" or "YSM." Yahoo is easily confused with, well, Yahoo. YSM either sounds like some sort of Voip protocol or the abbreviation for "Yves St Laurent" - YSL. Any way you slice it, "Yahoo Search Marketing" just doesn't roll off the tongue like 'AdWords' or 'AdSense' or even dare I say 'Kanoodle.'

The true evidence of the failure of the YSM branding is the fact that so many people in the search engine marketing industry - including people at YSM - still refer to the company as Overture.

Here are some other examples of bad branding names I've experienced in the last two years. See if you can guess the original name versus the proposed new name:

1(a): Fresh Latitudes World Cafe
1(b): World Wraps

2(a): FindLaw.com
2(b): Thomson-FindLaw

3(a): Deloitte Consulting
3(b): Braxton

4(a): Shopzilla
4(b): Bizrate

The correct answers for original names are 1b, 2a, 3a, 4b.

At my first dot com, I was given the prestigious assignment of coming up with a new brand identity and name for the company, previously called "Rentals.com" (an apartment rental site).

After a few months of research, reading up on branding, focus groups, surveys, etc, I arrived at a few recommendations. I can't exactly remember them at the moment, but I think they were names like "OneRent", "ApartmentChoice" and "AptFinder". Frankly, none of them were as good as Rentals.com, but I did my best to complete the task.

In the end, the executive team huddled in a room for a few hours and wrestled mightily over the decision. When the emerged from the room, they had found the new name. From Rentals.com to . . . Rentals Inc. Pretty pathetic.

Thus, my wisdom of the day is two-fold: 1) Yahoo, please change YSM back to Overture; 2) Pick a name and stick with it - the alternatives are rarely better than the original and your time is too important for such silly tasks.

Get Ready for Valentine's Day . . .

It is often easy to get "lost in the moment" when buying PPC advertising. There is so much opportunity right in front of you - either by increasing bids, optimizing ad text, adding new keywords, or tweaking landing pages - that future planning never seems to be justified.

In fact, however, there are tremendous advantages in SEM to considering seasonality at least 8-10 weeks in advance of a known seasonal boost. And, since Valentine's Day is right around the corner, let's use this holiday as an example of seasonal planning.

Valentine's Day will provide a volume bump for anyone marketing flowers, chocolate, and jewelry. It's also great for dating sites and weight loss (we marketers love to play on human emotion, and negative emotions are just as powerful as the positive ones).

So, like Christmas, you can probably assume that shopping for Valentine's Day begins about 3-4 weeks prior to the actual holiday (and in fact, recent studies have suggested that the peak period for Internet shopping is actually closer to a holiday than the peak period for in-store or mail order businesses. This may suggest that many consumers rely on the Internet when they feel it is too late or too time consuming to use other sources). It would be logical, then, to develop your keyword lists and ad text about 5-6 weeks in advance and launch holiday-specific campaigns about 4 weeks prior to the holiday, right?

Well, actually, no. Let's start with Yahoo Search Marketing (YSM). YSM's editorial system is famous for arbitrarily rejecting keywords, regardless of their relevance. Moreover, even though about 80% of keywords are now approved on YSM in about a day, the remaining 20% - which can often include high value keywords - sometimes take days or even weeks to make it through the approval process.

You need to give yourself at least two weeks to either resubmit rejected keywords or wait for pending keywords to go live. The good news with YSM is that once you are live, you can simply pause your keywords and wait until the right moment to launch them.

Google, on the other hand, is much more liberal with its keyword approval process, and it is likely that your keywords will show up within minutes of submission. The problem here is that Google has a 'seasoning' period for all new keywords. During this time - usually about two weeks - Google does not serve your keywords to their entire network. In other words, sites like Ask and AOL are not included in the distribution.

Additionally, Google rewards keywords with "keyword history" by enabling them to show up higher in the results with lower CPCs. During the first two weeks for a new keyword, you can expect to have a pretty miserable ranking simply because your keyword history has not been established.

The best solution for Google, then, is to submit your keywords at least two weeks in advance of the beginning of a holiday season. By the time the actual season begins, you will have established keyword history (at least, to a degree) and you will have full distribution on the entire Google syndication network.

Simply adding 2-3 extra weeks in to your schedule to allow for the idiosyncrasies of the search engines can be the difference between a successful and dreadful holiday season.

Google and Porn . . . Continued

Google recently announced Google Video, a foray into video-on-demand (see article here). I'm sure a lot of people will hoot and holler about how this will spell the end for Blockbuster and Netflix. Moreover, they will suggest that Google's stock should be valued even higher than it currently is (we all know how I feel about that).

As I predicted in my 2006 predictions post, however, I think the real value of Google Video - and the real loser here - is the online pornography industry. To be clear, I am not an expert when it comes to online porn (either as a participant or user). But I do know this: porn and gambling are huge online industries. And despite Google's promise to "Do No Evil", I have no doubt that all of the search engines would love to get a chunk of one or both of these industries.

In fact, Google and Yahoo once allowed gambling advertisements, at least until the government threatened to sue them for aiding and abetting illegal activity. Now you will see ads with claims like "play poker for free" that send you to sites that, oh by the way, you can also play for money on. For the most part, however, the cash cow that is online gambling has grown with little monetization from the search engines. And until the government finally allows online gambling (which they will someday, the tax revenues are too tempting), the search engines will likely stay on the sidelines.

So that leaves porn. As anyone who ever checks their spam folder knows, there are thousands of different porn Web sites across the Internet. I suspect that most of these are "Mom and Pop" type companies - probably a guy in his basement that hires local 'aspiring actresses' for a few dollars a day, and then uses some cheap server to host a crappy Web site.

This is a highly inefficient market, for two reasons. First, because the sellers are fragmented across the Internet into thousands of Web sites, it is difficult for the buyer to really see the entire market. A buyer would have to look at dozens of different Web sites - which would take hours or days - to determine which site has the best "product" for him (or her).

Second, the market is inefficient for the "actors". A local actress in Pittsburgh, PA has only a few choices when it comes to selling her wares (the local porn Web sites). As a result, she gets paid a lot less than she would if she could choose from all of the different porn Web sites across the world, or better yet, not have to work with a middle-man at all.

This is the same type of inefficient market that existed prior to eBay. A buyer of farm memorabilia in New York City would have to pay way too much money to purchase his replica John Deere tractor from the local antique store, simply because the supply in NYC was so limited (his demand outstripped the limited supply). Similarly, a seller of farm memorabilia in Iowa couldn't make very much money, because the supply was so abundant (with little demand).

Once eBay came along, the supply and demand shifted from being local and inefficient to national (eventually worldwide) and efficient. On eBay, the true price of the John Deere tractor is achieved because all of the buyers and sellers have been aggregated in the same place. In economic terms, this is known as perfect competition.

Google Video will enable such perfect competition for online porn. Now, an actress in Pittsburgh will no longer have to deal with "JimmysHotGirls.com" down the street - she will be able to upload her own video, right onto Google Video. Google will, in turn, enable anyone in the world to download her video - taking a rev-share for Google and giving the rest directly to the actress.

Similarly, a purveyor of online porn won't have to browse hundreds of small sites to find what he/she is looking for. He will be able to go straight to Google Video, where he will be able to use Google's algorithmic technology to hone in on the videos that best suit his tastes.

Google Video, like eBay, will create a perfect and efficient market for online porn. Because this benefits both the buyer and the actual seller (the actress, as opposed to the middleman), this concept could rapidly become the de facto way to watch online porn. And because Google will take a few pennies from each transaction, this could be a huge part of Google's business in the future.

Let's face it, pornography is a huge industry. Google would happily continue to take money from online gambling if it could do so legally. There's no reason to think that Google will turn away pornography when the money starts trickling, then flowing, in.

Google and Enron. Similarities?

I'm in the midst of reading The Smartest Guys in the Room, the story of the rise and fall of Enron and it got me thinking about Google and it's rapid stock ascent.

There was a time when Enron could do no wrong. From Wall Street analysts to the President of the United States, Enron was the model of corporate innovation and success. In January 2000, the company's stock hit $88, up from $3 in 1985 - an increase of almost 30X in 15 years (200% a year).

Every Enron innovation was heralded as a move of sheer brilliance. Enron plans to create a market for broadband bandwidth? Brilliant! Enron wants to provide electricity directly to consumers? Bye, bye utilities! Whatever the folks at Enron thought of, it would surely be a rousing success.

Of course, Enron wasn't a success. In a few months in 2001, the truth about what was happening inside Enron became clear and the stock went to zero.

Obviously, there are some major differences between Google and Enron. For one, as far as we know, Google's revenue is real, they aren't cooking the books, and Google has a real, proven financial model.

Second, Google exists in the post-Enron world, where investment bankers and accountants are at least a little less willing to let corporate America get away with lying to Wall Street. So, from a financial standpoint - between real and fake revenue - the two companies couldn't be more dis-similar.

What I find similar between the two companies is the euphoria that surrounded them at their height. Google, like Enron, can launch any new product and see their stock shoot through the roof. Google Base - it will kill classifieds!; Google Print - the end of publishing!; Google Video - destroying NetFlix and Blockbuster! Every time Google sneezes, Wall Street analysts raise their stock estimates. From $150, to $250, to $400 - some analysts now suggest that Google could rise as high as $2000 a share.

All of this could be possible. What troubles me, however, is that so far, the only thing that Google has really done well - from a financial perspective - is AdWords and AdSense - the two products that they've had since 2002. All of the other ballyhooed products unleashed over the last four years have been very neat, very useful, and very cool, but not too impactful to Google's bottom line.

What is the collective revenue on Google Maps, Google Base, Froogle, GMail, Google Appliance, Orkut, Picasa, Urchin, Google Talk, and Google News? As far as I can tell, not a lot. Sure, Gmail users do see Google ads on their email, but how many actually click on them? And a lot of other Google products have never even attempted any sort of monetization.

Thus, like Enron's stock jumps when they announced broadband and consumer energy plans, Google's stock run-up has largely been due to the potential of future revenue, without any evidence that this revenue will ever take materialize.

One salient point that is made in the Enron book is that Wall Street analysts see no wrong when they are high on a stock, but see no right when they are bearish. As long as Google's core products - AdWords and AdSense - continue to grow in revenue and profit - analysts will continue to laud Google and the stock will continue to rise.

My prediction, however, is this: one quarter of stagnant or even slowed growth will cause these analysts to turn and run as fast as they can in the other direction. And at that point, no amount of clever new products without revenue will be able to stop Google's shares from going down, and fast. And that day will come, as surely as death and taxes.

So, is Google Enron? Of course not. Can Google stockholders learn from Enron. Absolutely.