Why Search Engine Marketers Will Destroy the Environment

Search engine marketers seem to be a pretty progressive lot. Maybe its because the epicenter of SEM is San Francisco - "the left coast" - or maybe it's because SEM has (until recently) been a fringe industry that attracted wide-eyed idealists who loved the idea of "sticking it to the man" by creating successful advertisements without the need for the resources of a big, conservative advertising agency.

No doubt SEM will shift toward the center, particularly as the industry grows up and the dollar amounts involved continue to rise into the multimillions per company. The days of SES parking lots filled with Priuses (is that the plural for Prius?) may be numbered, replaced instead by valet parking for Land Rovers and Ferraris.

For now, though, let's assume that a lot of you reading this are among the pioneers of SEM - tree-hugging, Burning Man attending, Dukasis-voting liberals (could I throw any more stereotypes into one post?) If this describes you, you may be shocked to learn that your SEM efforts may someday cause mass destruction of America's now-pristine wilderness areas. Let me explain.

I contend that America's wilderness is protected today, not because of the work of green lobbyists in Washington or Julia Butterfly, but rather because most America's simply have no direct personal interest in these wild places.

Americans - raised as we are with the concepts of 'the free market' and individualism - are generally self-interested. Thus, there is a phrase used in the world of law and politics called "NIMBY" which stands for "not in my backyard." Someone wants to build a nuclear powerplant? Fine by me, just NIMBY! The state wants to build a new highway? Great, but NIMBY.

Most Americans are concerned with the environment insofar as it concerns them. Bay Area residents are concerned about keeping Tahoe blue but not so concerned about, say, Tiger habitat destruction in India.

Consider, for example, the Arctic National Wilderness and Refuge (ANWR). My sense is that most people I talk to (and again, I live in San Francisco) seem mildly-outraged that Big Oil wants to drill in this pristine place. And in fact, a Gallup Poll survey in March, 2005 found that most Americans were pretty wishy-washy about the issue. "Many people have an opinion on the matter, but enough people hold that opinion so lightly -- they don't care one way or the other -- that they could support either option. Up to 55% could go along with oil drilling in ANWR, and up to 81% could go along with no oil drilling."

Now consider the opinion of Alaskans - the folks who will be directly impacted by oil drilling (either due to more jobs in oil exploration or less wilderness areas). According to Dittman Research, an Alaska-based research company, 72% of Alaskans feel that oil and gas exploration should be allowed in ANWR. The message here, I guess, is: environmentalism is all well and good, just as long as it doesn't impact the economy . . . in my backyard. Let me just be clear, my point here is not to advocate for or against ANWR drilling, but rather to prove the NIMBY point I made many paragraphs ago.

So now, let's somehow transition this back to search engine marketing. Search engine marketing really requires three things: a computer, an Internet connection, and a credit card. That's it. You don't need a fancy office, an Aeron chair, or a foosball table.

For that matter, you don't need to live in a city. You can run a $10 million SEM business from your home - whether you live in Manhattan, New York or Manhattan, KS. In some respects, working in an office can be detrimental to an SEMer, simply because it means getting involved in mindless meetings, TPS memos, and painful commuting. At the end of the day, because SEM is basically direct marketing, the value of each SEM expert is very quantifiable - did SEM bring in the right amount of revenue or profit, or did it not? Face time doesn't matter in this scenario.

So as SEM becomes more and more important to companies big and small, and as high-speed Internet access becomes available in more and more rural areas, it is going to become easier and easier for SEM experts to pack their bags and leave the city. For those who truly long for the great outdoors, it will be possible to work from the most remote outposts in Alaska.

Let's not forget that search engine marketing is but one of several industrials that are ripe for telecommuting. Programmers, customer support, telesales, business development - as the "information worker" segment of the US economy grows, the need for big office buildings housing thousands of employees will become less and less necessary.

And this is great - for me, for you, and for all of our fellow SEMers. It's not so great for the environment. If the definition of wilderness is "An unsettled, uncultivated region left in its natural condition", the more we are able to move beyond cities and suburbs, the more vulnerable our wilderness.

Over time, this means America will spread itself out - some people will opt for the city, some will opt for rural areas. Inherently, this means that more and more people will take a "NIMBY" approach to the wilderness. Thus, instead of logging companies protesting environmental protection of spotted owls, it will be a group of programmers who want to tear down some trees to build their dream homes.

Don't believe me? The Census Bureau recently reported that - for only the second period over the last 80 years - America is seeing population growth in "nonmetropolitan areas." According to a summarization of this study: "Data from the 2000 Census reveal that nonmetropolitan areas of the United States contained 56.1 million residents, a gain of 5.6 million since April of 1990. In all, 1702 of 2303 nonmetropolitan counties grew between 1990 and 2000; 662 more than during the 1980s. Most of the growth came from net migration rather than from the natural increase (births-deaths) that has traditionally fueled nonmetropolitan growth."

Now granted, you could argue that each of these new rural residents might well be a local advocate for the environment. To a degree, this is a valid point; after all, this will be a self-selecting bunch of folks who flee the cities, and they will likely have strong environmental viewpoints.

The problem with this argument, however, is two-fold. First, simply by leaving the city and moving into remote areas, these 'settlers' are destroying wilderness. Someone who once lived in a 1000 square foot apartment in the downtown of a city who is now clearing an acre of land for a log cabin (or worse, a monster home) is displacing formerly empty land with civilization. Collectively, if you have hundreds of thousands of employees moving out of cities, this adds up to a lot of formerly wild areas being colonized.

Second, the NIMBY argument still remains. Those folks who so staunchly stood up for the environment from the comfort of their suburban condo, will turn and fight for their right to 'improve' their land come hell or highwater. And the folks moving out of the cities, it turns out, aren't always the eco-friendly environmentalists. Just ask folks in Montana, Oregon, and Washington what they think of the Californians invading their states.

As always, I am purposely overstating the problem here for dramatic impact (not unlike other posts in which I predicted the demise of Yahoo, Google, and search engines in general). But I do think this could be a real problem for the environmental community going forward.

Technology is the great equalizer - it does enable advocacy groups to get their message in front of thousands of people for pennies (unless, of course, Google bans your ads). Technology will also make it easier for pent-up John Muirs to live out their dream away from urban sprawl, and that could be a big problem for America's remaining open spaces.

Google Page Creator - Does this Spell the End for Yahoo?

I've been pretty critical of a lot of Google "innovation" recently, simply because their products have either been poorly launched (Google Base, AdWords Print Ads) or because the revenue potential seems tenuous at best (Google Earth, GTalk). Page Creator, however, is different.

For those of you who don't know what Page Creator is, it's a free 'what you see is what you get' (WYSIWIG) Web page creator. It currently enables you to create very basic templated Web sites. Right now, Page Creator looks to be nothing more than a glorified blogger or blog creation tool.

Frankly, when you compare Page Creator to for-pay Web site templates out there (ex. BoxedArt), this is at best a work-in-progress. Assuming, however, that the plan here is to eventually create a Dreamweaver or FrontPage-like product, the benefits to Google - and I'm talking about financial benefits here - would be huge. Here's why.

First, as with Blogger, Google can easily upsell Page Creator users on AdSense. From Google's perspective, the more content on the Web, the better, it just means broader distribution for AdSense!

Second, and perhaps more importantly, free WYSIWIG Web development enables a lot of small businesses to create Web sites, Web sites that will eventually want to market their products via AdWords. Again, this initial release of Page Creator isn't going to help your next door neighbor take on Amazon.com. But what if Google created free software with highly professional templates, free hosting, free data feeds to Froogle, and free eCommerce tools (shopping cart, etc)? Suddenly, it becomes a lot easier and affordable to be an online merchant.

And of course you could also integrate Page Creator with Gmail (to process orders and customer questions), Froogle (direct data feed from your Web page into the Froogle database), GBuy (payment processing for orders), and Google Analytics (track your AdWords buys, your AdSense revenue, and your Page Creator sales all in one place).

Put all of these together and you've got a win-win for both merchants and businesses: the merchants get a lot of services free that they currently must pay for, and Google gets multiple opportunities to monetize both the merchant and visitors to the merchant's site. Now that's really cool.

Switching gears a bit, it's also worthwhile to consider how this could negatively impact Google's already-lagging competitors. In many ways, this reminds me of when Google lauched Gmail. As many loyal Yahoo Mail users will no doubt recall, Gmail was launched at a time when Yahoo was trying to monetize the heck of its users by only allowing six megabytes of storage and increasingly limited features for Yahoo Mail. If you actually wanted to keep emails on Yahoo, you had to pay for a bigger account. Oh, and spam counted against your storage quota on Yahoo, to add insult to injury!

Gmail came out and was free, and not only that, had basically unlimited storage and lots of free features. Yahoo quickly reduced pricing and increased storage, but the damage was done. And sure, Yahoo is still the mail leader today, but Gmail has really taken a cut out of the both the user base and revenue potential of Yahoo Mail.

Now consider a service like Yahoo Stores. As with Yahoo Mail, Yahoo Stores tries to monetize, monetize, monetize - hosting fees, merchant account fees, transaction fees, domain fees, etc, etc. The strategy is exactly the same as the (former) strategy around Yahoo Mail.

If the folks at Yahoo Stores are smart, and I'd like to think that they are, Page Creator should worry them . . . a lot. Page Creator is Gmail part deux. If Google overtakes Yahoo in search, PPC advertising, news, and evenually stores and email, you suddenly begin to wonder what exactly it is that Yahoo does.

I read a good book on this topic called The Innovator's Solution. The point is that big companies tend to let little innovative companies take bits and pieces of their business. Initially, these are the low margin businesses that the big company can't be bothered with. Eventually, however, as the little company grows, it starts to move up the chain, taking over the higher-margin businesses and pushing the (now formerly big) company into a corner with less and less of a business.

The example the book uses is American car companies. Initially, Japanese car makers competed with American companies in the economy compact space (Datsun, Toyota Corolla, Honda Civic). But the American companies didn't mind, because the big money was in luxury cars and trucks. Then the Japanese companies started selling luxury cars, like the Lexus, Acura, and Infiniti. The American companies were OK ceding this market to the Japanese, because they still had trucks and the emerging market of SUVs.

Of course, you know what happened next - the Japanese car makers have entered the truck space and have been hugely successful in SUVs. Suddenly, the Big Three car companies are the ones trying to find a niche to play in. With talks of bankruptcies and massive layoffs, there may not be a niche left that's big enough to keep these industry dinosaurs afloat.

Google's algorithmic search was the Datsun; AdWords was the Lexus; Page Creator may very well be the Nissan Murano (I think that's an SUV). Michael Moore's first documentary - Roger and Me - was about Flint, Michigan, a once prosperous town devastated by massive layoffs at its GM plant. The "Roger" in the movie refers to then-GM CEO, Roger Smith. Perhaps someday there will be a similar movie about Sunnyvale, California called Terry and Me.

If I ever hear of such a movie, I'll let you know. You'll probably be able to purchase it from a Page Creator store.

A Day at Googleplex

I took my team down south to Googleplex today. In part, because I think some of them were curious to see it, but it was also a business meeting and I learned a lot of cool things, some of which I specifically promised I would not blog about!

I've been to Google many times before, and what strikes me everytime is the little things they do to create a - for lack of a better term - "wacky" environment. Of course, everyone knows about the lava lamps, exercise balls and free food. But these things, by themselves, do not create a fun environment. In fact, if that's as far as it went, it would really seem more like a facade.

As an example of a faux-fun environment, consider Yahoo's campus. Yes they have 'crazy' purple and yellow color schemes everywhere, free coffee, a sand volleyball court, and creatively named conference rooms. But these are all things that are just too obvious. It's just lip service.

To really create a cool culture, you have to do what Google does - innovate wackiness. Here are ten examples I saw on my trip today that prove the point:

1. Google's conference rooms all have theme names (not unlike Yahoo). Where Google differs, however, is that theme actually determines conference room location. For example, in the building we were in today, all of the conference rooms were named after major African cities. The conference room layout was actually geographically correct. In other words, conference rooms in the western part of the building were named after West African cities, conferences in the eastern part were named after East African cities, and so on.

2. Instead of holding a "bring your daughter to work" day, this program was ingeniusly entitled "Introduce a girl to engineering" day.

3. Google conference rooms have microphones built into the tables.

4. Instead of plastic spoons in the cafeteria, the utensils were (allegedly) made out of potatoes.

5. There are random things scattered throughout the buildings, like a lone exercise bike, massage chairs, and doors leading to nowhere.

6. The urinals were shaped in a cool circular fashion. There was also a shelf in the bathroom for people to keep their toothbrushes.

7. Google has constructed temporary rooms out of some sort of cloth that looks like an igloo.

8. The tech support office has a neon sign that says "Open 24/7".

9. Google has purchased dozens of motorized scooters that employees can use to go from building to building (and it looks like you can just leave the scooter in front of a building when you are done with it).

10. Every visitor is given a brown paper bag - 50% of the bags contain gummi worms, 40% contain flour, and 10% contain $200 in cash.

These little things are impressive because most of them were probably the harebrained idea of an employee, who innocuously suggested it and was shocked a few weeks later to see it actually implemented. What's important about this, though, is that it really creates a culture where employees feel a) empowered and b) that good and innovative ideas are encouraged and recognized.

Google has grown a lot since the days of one small office building, a meager cafeteria, and a non-existent revenue model. No doubt the culture has changed a lot (for example, you actually need a key to get into the cafeteria these days . . .). But kudos to Google for doing a great job of "keeping it real" and creating a culture that is driven by employee ideas. It may sound like potato-powered forks isn't a big deal, but I really think that that sort of thing is what may keep Google one step ahead of its competitors for some time to come.

Oh, and one more thing, item #10 on the list is fake. It would be pretty cool though, as long as I didn't get the flour . . .

Why Do We Settle for 2%?

2% - for milk anyway - is pretty good. It's rich, wholesome and makes for a very nice milk mustache. In the world of online marketing, a lot of people also think 2% is really good when it comes to conversion rate. In other words, if two out of 100 people who visit your site end up buying from you, that's considered success for a lot of Internet companies.

But should it be? I think not. Another way at looking at 2% - or even 5% or 10%, is that 98, 95, or 90 percent of the people who come to your site leave without paying you a red penny. That's pretty embarrassing.

In the offline world, not only would this be embarrassing, it would be bankrupting. What would happen to Walmart if only 10% of the people who entered one of their stores actually bought something. Even high-ticket retailers like Best Buy or IKEA probably get 30 or 40% of walk-in customers to walk away buying something (anyone who has data on the actual numbers, please let me know). And what about car dealerships? I actually found a study online suggesting that 41% of people who test drive a car end up buying it from that dealer.

Now consider the world of Internet marketing. A company buys a targeted keyword on Google or Yahoo, for example "Canon inkjet printer." The company creates targeted ad copy to encourage qualified consumers to click through to their site: "Canon InkJet Printers - Six Models - Starting at $59.95 with free shipping!" The user clicks through to a targeted landing page with the six promised models. And the result - a 2% conversion rate? Something isn't right here.

And in fact, something isn't right, starting with the fact that most online marketing campaigns don't even follow the simple process stated above. Here's a short list of the common mistakes I see over and over again:

1. Generic keywords: Generic keywords are generally good for one thing - getting you lots of traffic. But since eyeballs aren't valued at $300 a pop like they were in the bubble, that doesn't do you much good. Buying the word "electronics" is going to result in a lot of unfocused consumers coming to your site. Unless you are eBay, a shopping comparison site, or Amazon, this is very bad for business.

2. Generic or misleading ad copy: Ads that don't properly set user expectations doom your site to failure. For example, an ad that invites users to "compare prices from top merchants" only to send users to a site with one price from one merchant is creating a level of distrust from the get-go that is going to reduce conversion rates. Even worse, lazy SEM campaigns often send users to product pages where the product no longer exists. Generic ads are no better - if you create one ad for 500 products, you are going to end up with "browsers" instead of "shoppers" and crush your conversion rates.

3. Non-targeted landing pages: A surprisingly large number of merchants still haven't figured out the simply art of targeted landing pages; in other words, rather than sending a consumer to your home page, send the consumer to the precise product page. I once heard that HR folks spend an average of 22 seconds on every resume they receive. Thus, if you don't get their attention immediately, you will immediately be sent to the "rejection" pile. The same applies to your site. Send someone to a non-targeted page and expect the user to go right back to Google and click on a competitor's ad.

4. No focus on usability: This is probably the #1 mistake Internet retailers make. Unlike the Ronco rotisserie oven, ecommerce Web pages are not "set it and forget it" experiences; you have to constantly test and refine user experience to find out what works and doesn't work. And this is where most retailers go wrong. They create a Web site and get to the magical 2% conversion rate, then go out for a celebratory beer. Wrong, wrong, wrong.

Consider the impact of just 1% more conversion - from 2% to 3%. If you are paying $1 per click for a keyword and you have a 2% conversion rate on a $50 product, you are making exactly zero dollars ($1 CPC and $1 revenue per click or RPC). At a 3% conversion rate, however, you are now making $.50 on every click. This means one of two things - you either make a nice profit on every click, or you can bid more per click and get even more visitors.

As the paid search market becomes more and more competitive, these little differences in conversion rate will mean life and death for companies in tough industries, like affiliate marketing, electronics retailing, and travel.

My advice is to do the following.

1. Make usability as important to your company as SEM. Human Factors calls this the "institutionalization of usability" - in other words, from the top of the company down, make usability a top priority, in terms of resources, budget, and priority.

2. Measure everything. You already measure click-through-rate, CPC and RPC, but do you measure conversion rate, time spent on site, frequency of visits, number of pages viewed, exit links, conversion funnel, and so on. If you don't (or if you don't even know what some of these mean), you need to start right away. Check out Web analytics companies like WebSideStory, Omniture, and CoreMetrics, or even Urchin from Google. Trust me, every major etailer or lead gen company is either using one of these companies or building their own internal competency around analytics.

3. Test, test, test. The best way to improve conversion rates is to test different ad copy, keywords, and ladning pages. You can do this on a very basic level with classic A/B testing. A lot of savvy marketers these days, however, are embracing the concept of multivariate testing or the Taguchi method.

4. Keep up to date. There are a lot of amazing resources online to learn about usability. My favorites are Jakob Nielsen's useit.com, Jared Spool's uie.com and Bryan Eisenberg's Futurenowinc.com.

I could talk about this until I'm blue in the face. In the end, some people will jump on the usability bandwagon, and despite worse products or getting into the online retailing space later than their competitors, these companies may eventually win the day.

The Death of Search Engines

These days, it's difficult to imagine the Internet without search engines. As Google and Yahoo like to proudly proclaim, a PPC advertisement on one of their networks reaches "98% of active Internet users" with well over half of that metric coming straight from a search engine. So . . . with such astounding success, there's no better time than to predict the inevitable demise of the search engine.

Search engine death is inevitable simply because search engines in and of themselves really aren't necessary. A search engine is an agent. Search engines are glue that bring Internet users and content sites together.

The best offline examples of such agency relationships are travel agents and real estate agents. These agents are necessary because of asymmetric access to information. In plain English terms, you need agents because an agent has information that you don't.

In the olden days (like 1990), when you wanted to book a flight, you had two choices. First, you could call every airline's toll-free number, wait on hold for 20 minutes at a time, hope that the telesales rep that answered the phone did a thorough job for you, then compare prices, call back the winning airline, and hope your seat and price were still available, all the while waiting on hold for another 20 minutes. Not too efficient.

Enter the travel agent. For a nominal fee (often paid by the airline) you could call up a friendly voice, describe what you wanted, and wait for the agent to get back to you with the best price and schedule. For obvious reasons, many people were willing to pay for such a service.

The Internet, of course, has all but eliminated travel agents. Sophisticated comparison algorithms like Kayak.com or Orbitz.com enable consumers to get better information, more quickly, and at a lower cost. The Internet, in short, has disintermediated the agent. There are plenty of other examples too - dating sites have disintermediated the local bar, Craigslist has disintermediated classified ads, and Skype is disintermediating phone companies.

Search engines in particular have had a disintermediating impact on offline information agents. For example, the yellow pages (for local services) and the library (for research) have lost their once lofty positions as the repositories of particular types of information, ever since search algorithms gained popular acceptance and technical refinement.

But search engines are really pretty inefficient when you think about it. Search engines rely on the user to describe what he wants. And most users aren't very articulate when it comes to expressing their needs. Thus, the search engine ends up showing a lot of different results and hoping that one of the search engine result pages (SERPs) listings is the right one.

Moreover, because the search engine usually shows at least 10 listings per page, the information it can provide about each individual listing is limited, making it hard for the user to actually figure out what each listing is really about. Combine this with additional page space being usurped by keyword advertising, and the value of the natural search results to the end user becomes less and less.

The end result is often one of two things: the user clicks on multiple ads/organic results in the hope of finding the right site for him, or the user types in a different search to better refine his query. This process is not unlike the 1990s traveler calling multiple airlines multiple times until they have triangulated on the issue to get to the best result.

Thus, if a search engine is analogous to the 'old world' travel booking process of calling multiple airlines, it just makes sense that - like travel agents - this is an agency relationship that will eventually be replaced by a more efficient solution.

But with what you ask? An ultra-smart computer that knows what you are thinking the moment you put your hands on the keyboard? A system that sends you to the right result (the result that you really wanted) instead of sending you to page with 10 to 15 snippets of site information and forcing you to decide which one is right for you?

Well, actually, yes. Consider this scenario. You download a program to your desktop. The program begins by asking you a lot of questions about yourself - from basic demographic questions (age, sex, geographic location), to highly detailed psychographic questions (your personality, your pastimes, your fears, your future goals, your risk quotient).

Moreover, this program follows everything you do on the Internet (and you allow it to do so). It tracks the time you spend on each page, which sites you return to frequently, which sites you leave immediately. You can even add reviews of sites you like and don't like. And finally, if you want, the program compares your behavior to that of millions of other Internet surfers across the universe. It finds surfers similar to you in terms of interests, life stage, or basic demographics.

After a few weeks (or maybe months), the program starts to combine all of this disparate information into a pretty darn accurate profile of your wants and needs. It combines your responses to surveys, your Internet searching habits, your ratings of Web sites, and the activity of similarly-situated Internet users into one big algorithm. And here's the great part. Instead of using this algorithm to show you "search results", it simply takes you to the "right" page.

So now, when you type in "los angeles travel", it takes you directly to the Web site with the best travel deals for you to Los Angeles. Heck, depending on the information you have provided or the system has gleaned from you, it might even know the dates of your travel, your departure location, your preferred method of traveling, frequent flyer numbers, travel companions, credit card information, and whether you need a car, hotel, a kennel for your dog, and some new luggage. All you need to do is review the price of your trip, click submit and voila you're off to LA!

Is this Ray Bradbury science fiction? I don't think so. In fact, most of the tools needed to create such a system already exist. Collaborative filtering can be used to understand to predict user behavior based on the actions of similar consumers (already used by Amazon's "members like you also liked . . ." and Yahoo's LaunchCast). Cookies help sites understand past user behavior (and imagine the depth of information that could be gleaned from a persistent cookie that follow a user from one site to another. This is part of the theory behind Root Markets). And consumers clearly know how to fill out surveys online, which in turn can be used to serve user-targeted advertising (just ask Tickle.com).

Perhaps the biggest question is whether consumers would be willing to part with so much information in exchange for a more personalized Internet experience. Again, I think that - in the right context - this wouldn't be a problem. Way back in 1999, John Hagel III and Marc Singer published the book Net Worth that suggested this very scenario. The concept is really simple: consumers would actually pay for a program that aggregated all of their personal wants and needs and used this information to direct them to the right sites, rather than a list of potentially right Web sites.

And again, if you don't believe me, look around the Internet, it's already happening. Users pay $50 a year for Yahoo's LaunchCast radio, in large part because it customizes an Internet radio station based on a users personal preferences (there are plenty of free Internet radio stations). eHarmony asks users to go through literally hundreds of psychographic and demographic questions (this is at least a 45 minute commitment) before the user gets matched with a single potential mate. And compensation analysis companies like Payscale.com also require users to enter tons of personal data (and I mean personal, like compensation information), and then pay a fee to get information about salaries in their field.

Someday, Internet users will have a choice - between a typical search engine experience (free but inefficient) or an informediary service (may cost money, but highly personalized results). Of course, "free" search engines aren't really free when you consider the amount of extra time you spend digging through the results, and the ads that are ever-encroaching on the actual results (even on Google!). This is sort of similar to regular TV versus Tivo. Yes, you can still get TV for free, but more and more people will pay money for a system that eliminates commercials and 'learns' their viewing preferences.

I love the story about the Blockbuster executives bragging on a conference call about how they had a impenetrable barriers to entry in the video rental industry. 'We have a store within five miles of 80% of Americans' was the mantra. The economies of scale required to equal such a massive number of stores would be huge - the game was over, Blockbuster had won! As we now know, Blockbuster apparently forgot about the concept of "disruptive technology." NetFlix and on-demand video through cable have made the local store, if anything, a competitive disadvantage. And the not-too-distant future of video downloads via the Internet will only lessen any real estate benefit.

In that vein, it's clear that Google has "won" the search engine battle (just ask Yahoo CFO Susan Decker). That, however, may be a pyrrhic victory. OK, so I'm being more than a little melodramatic. There's no question that search engines are going to be a big part of the Internet - and American - culture for some time to come, and Google is going to make a lot of money being the #1 search engine. But 20 years from now, or maybe even five years from now, I predict the disruptive technology that is infomediaries will arrive.

Maybe someday I'll be telling my grandchildren about my younger years - back when I had to use travel agents, brokers, and search engines. Boy will they laugh.

Looks Like I'm Not the Only One Confused by Google Print Auctions

From the Inside AdWords blog: "Since the auction is a new process for many, we are providing some extra time for you to get your bids in." As I noted in a prior post, no amount of extra time is going to make this an easier to figure out. Chalk this one up along side Google Base as a Google failure - at least for now.

Personal Information and Paid Search

Amidst all the concern about Google Desktop and Gmail compromising user privacy, it seems that folks have forgotten that Google's competitors - in particular Yahoo, MSN, and Amazon - have far greater depth of user data, both in breadth and time period.

If you are a registered Yahoo user, you'll start to notice that advertisements are eerily similar to Web sites you are visiting off Yahoo. For example, I recently bought VoIP service from SunRocket. As I struggled through trying to get the product to work, I visited the SunRocket Web site numerous times for installation instructions. These days, when I login to Yahoo Mail, guess what? Lots and lots of SunRocket banner ads.

And Amazon's users are no doubt familiar with the "customers like you also bought" recommendations that permeate the site. MSN has fused behavioral targeting into the new MSN Ad Center by enabling advertisers to chose demographics to target to.

Generally speaking, there are three ways that these companies are getting this information: 1) When you register for Yahoo and MSN, you are asked for demographic information. 2) Cookies on your computer; 3) Collaborative filtering (matching your user behavior to that of other users and concluding that if both you and another user liked Book A, each of you will also like other books that the other has purchased).

Privacy concerns aside, this is a potential goldmine for search engine marketers. Right now, we are all "keyword focused." We limit ourselves to keywords that are directly (or at least highly tangentially) related to the product we are selling. For example, if you are selling bottled water, you would no doubt purchase keywords like "bottled water" and "water home delivery", you might purchase "soda alternative" and "healthy living", and you would doubtfully purchase "iowa basketball" or "new light fixtures."

But what if you knew that an MSN registered user had been surfing bottled water sites all day long? Even if that user typed in "Dr. Seuss" as his search query, you would probably nonetheless pay a premium to get your bottled water ad showing up on this user's search results.

Again, if you put aside privacy fears for a moment, this is actually a win-win-win scenario for the advertiser, the search engine, and the consumer. From the consumer perspective, the ads that are shown are of the highest relevance. Creating an algorithm to serve ads based on actual user behavior, the behavior of similar consumers, and the actual search query entered into the search engine is far more powerful than simply relying on the keyword itself.

For the publisher, this sort of targeting is a way to increase CPC prices across the board. The CPC keyword market is highly inefficient, precisely because advertisers are left to guess which keywords are relevant to their target consumer. And whenever guessing is involved, it inevitably results in many advertisers missing the right keywords (hence the obsession with "the long tail of search"). By combining keyword buying with demographic and psychographic targeting, the search engines essentially can create an uber-advanced search matching system that guides advertisers to the right consumers, irregardless of that advertiser's keyword generation competency.

Finally, for the advertiser, targeting eliminates the aforementioned guesswork of matching keywords to the right users. At the end of the day, savvy advertisers are concerned not with CPC cost but rather EPC (earnings per click). I would much rather pay $10 a click for a consumer who I know will buy $25 of product from me than $.25 a click for a consumer who will only by $.20 worth of goods.

At this point, you may be thinking "isn't this already being done?" Well, yes, it's true that there are behavioral targeting companies out there - Revenue Science, Tacoda, and Kanoodle seem to be the ones I hear about most frequently. It's also true that MSN Ad Center offers limited behavioral targeting, though this is a far cry from the collaborative filtering of Amazon or the targeting of Yahoo CPM banners. So it's true that behavioral targeting exists, it just doesn't really exist for the majority of search spending - namely on Yahoo and Google.

And this is an area where Yahoo, MSN, and Amazon have a huge advantage over Google. Google simply doesn't have this level of user data. They lack the registration data because they don't ask for demographic/psychographic information when you sign up for their services; they lack the collaborative filtering because they don't sell millions of products like Amazon; and they lack the cooking because privacy advocates would go crazy if they attempted to cookie all users.

In John Battelle's book, The Search, he describes search as "the database of intentions." In other words, Google and Yahoo have tons of user-created data (i.e., search queries) that indicate user intent. I would argue that search is but one 'database of intention.' Shopping sites like Amazon and Shopping.com have databases, portals like Yahoo have another, and search engines like Google have yet another.

As Yahoo, Google, MSN and Amazon struggle for paid search dominance (or, I guess according to Yahoo's CFO, second place to Google), it amazes me that this hasn't become core to any of Google's competitors' offerings. In Al Ries and Jack Trout's great book, The 22 Immutable Laws of Marketing, they write that if you can't be number one in a category, create a category that you can be number one in.

Google is the biggest search engine, that's beyond dispute. And I doubt any of Google's competitors will unleash a better search algorithm than Page Rank anytime soon. Amazon, MSN, and Yahoo, however, all have the 'database of intentions' to be the number one behavioral targeting marketing company. And because these are proprietary databases, no Google search algorithm can penetrate this data. In other words, it's a defensible advantage, powerful, and unique.

Hmm. Maybe it's time Google wannabes stop trying to build the best algorithm and start leveraging what they've already got!

When is Irrational Bidding Rational?

Every search engine marketing has seen it happen. You're bidding a reasonable CPC on a keyword, making a nice margin when POW!, some bidder comes out of nowhere, bids five times as much as you, and pushes you down the rankings.

Experienced SEM managers usually assume one thing: this is the work of a novice who simply doesn't track the metrics behind his purchases. In a matter of weeks (or maybe days), the novice will run out of money (and maybe go out of business), and all will return to normal.

But what happens when the novice doesn't go away? Or even worse, what happens if the 'irrational bidder' isn't a novice at all, but rather an entrenched and legitimate competitor? At this point, you have to ask yourself whether this really is irrational behavior, or whether you are simply not as competitive as your competition.

As I see it, there are five reasons why someone might be able to significantly outbid you on a keyword:

1. Differences in Lead Value: If you're getting paid $50 a lead and your competitor is getting paid $100, it should come as no surprise that you're getting outbid. Keep in mind that there are several reasons why a competitor might get paid more than you. Your competitor might deliver more volume than you, have a direct relationship with a merchant, or simply has negotiated a better deal. If your competitor has a better deal, it's time to have a heart-to-heart with your sales team.

2. Better conversion rate: It's astounding how many sophisticated search engine marketers completely ignore usability and conversion rate. By testing your landing pages, ensuring maximum site uptime and minimum page latency, and following basic usability best practices, it's very possible to achieve a 2X or 3X conversion rate advantage over someone who doesn't. Take a look at your competitor's landing page and ask yourself whether your usability isn't up to snuff.

3. Different financial objectives: If you are trying to hit 25% margins and your competitor only wants a 2% margin, it's quite possible that your bid prices could be totally different. And keep in mind that the higher you bid, the greater the volume of clicks your ad will receive. Thus a lower margin and a higher position could actually result in greater profit dollars.

4. Better monetization: Like differences in lead value, your competitor might do a better job of squeezing a few extra pennies out of visitors to his site. For example, a competitor with an upsell offer or a registration path could have far superior metrics to a competitor who just has a landing page and nothing else.

5. Loss-leader strategy: Walmart sells some products at a loss to get customers in the door, knowing that those customers are likely to purchase a lot more higher margin products. It has also been suggested that big box retailers like Walmart sell below-cost initially to push out smaller local retailers. Your competitor could be using one or both of these strategies. They may assume that if they push you out of prime position on a keyword for a few weeks, you might give up on that keyword all together. A few weeks later, they may reduce their bid while you aren't paying attention.

In the end, if a huge bid is clearly the work of a neophyte search engine marketer, it may be OK to sit back and wait for the bidder to spend himself out of a job in a few weeks. But if you see a major competitor suddenly upping the bids, it's time to do a little self-examination. As much as we all want to conclude that our competitors are stupid, doing so without further examination may be tantamount to calling the kettle black!

Is This an Internet Bubble or Not?

It's easy to reminisce about 1999 and laugh at all of the silly dot coms getting millions of dollars in funding. Hindsight, after all, is 20/20. Of course "eyeballs" aren't enough. Of course paying consumers to surf can't work. The list of silly business plans is very long.

Today - six years into the new millennium - many think we haved learned our lessons. The shining stars of the Internet world are companies that have actually produced revenue and profit. Companies like Google, eBay, and LowerMyBills have huge valuations (or have been acquired for hundreds of millions of dollars) simply because these companies make money, and lots of it.

Thus when people asked "has the bubble returned" it's easy to point to these Internet highflyers and conclude that this is not a bubble but rather the emergence of a more mature, legitimate Internet economy.

I think, however, that using Google as the posterchild of Internet legitimacy only tells you half the story. The truth is that there are a lot of real businesses getting attention today, but there are also plenty of questionable business models getting major VC funding and acquisition dollars.

In 1999, the hot verticals were portals, shopping, and web services. Today, the "in crowd" includes search technology, social networking, and affiliate marketing. As in 1999, some start-ups will do very well. These are the companies that combine smart people with experienced technologists, and who try to build for the long-term, instead of the quick IPO.

But the feeding frenzy has begun, and that means that some VCs aren't learning from the mistakes of seven years ago. Companies are being funded simply because they have something to do with search engines (the next Google!) or because they are a Web 2.0 business (the next del.icio.us!).

A good benchmark to determine bubble mentality is the Ad-Tech exhibitor list. Like Comdex years ago, Ad-Tech has become the show of online marketing. And when you look through the list of over 100 companies, you can't help but wonder what some of these companies do, and whether they'll exist 18 months from now. For example, check out the number of companies with the word "Ad" in the name exhibiting at Ad-Tech San Francisco:

• Ad Pepper
• AdBrite
• AdDrive
• AdDynamix
• AdFusion
• AdJuggler
• AdKnowledge
• AdMedian
• Adsertive
• Adteractive
• AdValiant
• Advit

Some of these companies are definitely legit and are going to be around for a while (Adteractive and AdBrite in particular). But there can only be some many successful "Ad" companies, just like the "e" companies of 1999 (eTour? eFax? eBusiness anyone?).

Maybe this is what VCs are supposed to do - invest in a lot of silly companies in the hopes that one out of ten will get acquired for hundreds of millions of dollars. And I have to admit, all this money flowing around the valley is nice. I get a lot more free lunches, free t-shirts, and calls from recruiters promising millions of dollars of pre-IPO stock.

In the long run, however, frenzy always leads to panic. I think it was Jack Trout and Al Ries who said that you never want your product to be a "fad"; rather you want your product to be a "trend." Dot bombs that blow up a few years from now will only tarnish the overall Internet industry, causing all valuations to drop.

A friend and I once joked about starting a dot com called "ShoeRepair.com". The concept was simple - people would mail us their shoes (after ordering online, of course), we would fix them and mail them back to them. We had our 30 second elevator pitch ready to go. Everyone in the world wears shoes - that's 6 billion potential customers. If we only got 1% of this market . . ." And of course we would hire a lot of sharp young Stanford MBAs to add legitimacy to our business, as well as a few consultants to create PowerPoints. We'd raise $20 million, go public for $150 million, and cash out in 18 months to live in Hawaii.

Internet success stories like Google and eBay show that the Internet has matured into a real force in the US economy. But replace "shoe repair" with "Web 2.0," and it's clear that there are more than a few bubbles still waiting to pop.

Could Google Print Advertising be Any More Confusing?

OK, this is going to be a lightning-quick post. Yesterday Google publicly announced their Google Print beta (thanks to Andrey from Search Marketing Standard for the heads up).

I looked at this beta and I have to say, shame on you Google! This is about the most confusing thing Google has ever released.

The basic concept is that you can bid for space in major print magazines - essentially you can buy remnant inventory. Now that's interesting, though only to a limited subset of Google advertising base. After all, the smartest advertisers Google has are the ones who use lengthy tracking URLs, cookies, and pixels to track every single person that clicks on an ad. And while it would be very impressive if Google could find a way to cookie people reading a magazine (I can see it now, someone sees my ad, then goes into the bathroom, and a toothpaste ad 'pops-up' out of the sink), I think we are still a few years off on that one.

So, in essence, the only people who are really going to be interested in print ads are traditional media buyers who a) already have a lot of experience buying offline; b) are interested in branding, or c) have a call-center that generates a lot of leads for them. This probably excludes 80% of Google's advertisers.

And to make matters worse, the system Google launched doesn't seem to be designed for this audience. A professional media buyer always has a lot of questions about the ads they buy in magazines. What page will it be on? How many pages total in the magazine? Will it be color? If it's a half page ad, will it be above or below? Which other advertisers will appear on the same page? What's the rack rate for a similar ad?

None of these questions are answered in the current Google system. Instead, you simply choose the size of your ad, the publication, the month, and how much you want to pay. Google will then get back to you if you win.

Ironically, Google's rise to prominence in advertising was based on transparency of information. With AdWords, you know exactly who clicked on your ad, how much you paid, your click-through-rate, your position, etc, etc. Google Print Advertising is the polar opposite. You are supposed to bid in a totally blind auction and just assume that Google is going to do right by you.

I know, I know, this is a beta. Google will eventually figure this out. But right now, this is about as successful a beta as Google Base. And that ain't saying much!

Adios AdSense?

The news that Amazon is currently in beta with an AdSense competitor has raised a lot of eyebrows today. The obvious question on everyone's mind is 'will this impact Google?'

My thought is that there is a short story here and a long story. The short story is that Amazon "AmSense," or whatever they want to call it, won't impact Google too much at all. After all, A9 - Amazon's search engine - hasn't developed too much traction and recently lost their top man, Udi Manber to Google. So what makes anyone think that Amazon is going to suddenly take away huge market share from Google in contextual advertising?

True, Amazon does have a loyal cadre of associates (or affiliates) and they plan to market this service as an additional revenue-generating opportunity. But these folks - more than anyone else - are concerned about one thing - revenue. Whether that revenue comes from AdSense or Amazon is pretty much irrelevant to them. Whoever gives them the most revenue wins.

The longer story here is that Amazon is one of many big players who are chomping at the bit to get some of that AdSense revenue. Consider this list of competitors:

• Yahoo Performance Network (YPN)
• Amazon "AmSense"
• Ebay Keywords

Pretty much the only big etailer missing from this list is MSN, and I suspect its only a matter of time before they follow suit.

The result of this heated competition will be more choice for publishers and less margins for distribution networks. Again, most publishers are agnostic to their distribution network - they will follow the money.

Of course, right now, Google has a huge advantage over their competitors, simply because the AdSense network has much higher CPCs than anything else out there. This is largely because there are so many more advertisers opting-in to Google's network and thus bidding against each other, resulting in higher bids.

But this is a barrier to entry that is easily surmountable by Google's big-pocketed competitors. First, as I noted in a prior column, CPC prices will gradually become efficient, with the network with the highest quality clicks getting the highest prices. Google's distribution network has what I would call "moderate quality." In other words, some sites in the network are good and produce great revenue, and others are downright awful. By going for quality instead of quantity, a savvy competitor can gradually wean wallet-share away from Google by simply creating higher CPC prices (or in the parlance of the industry, higher "eCPM" - earnings per thousand impressions).

Second, competitors can offer publishers a much higher revenue share. Google allegedly offers its publishers around 78% of revenue at the moment. If Yahoo came along and offered someone 90% of revenue, this could eliminate the eCPM gap between the two networks and make it more advantageous for that publisher to try the Yahoo Performance Network. From Yahoo's perspective, this is a great deal - it's additional revenue and profit they didn't have before. From Google's perspective, it's a Catch 22 - either up the rev share and sacrifice margin, or get nothing.

Finally, let's not forget that competition is coming not only from the major etailers, but from multiple sources. There are, for example, small companies that are focused on nothing but content distribution (Quigo, Industry Brains, ContextWeb). Perhaps even more disturbing for Google, there are affiliate marketing companies that could one day offer CPA (cost per acquisition) based distribution networks for the masses. Ultimately, this sort of scenario presents a higher risk to the publisher, but also the chance for a much higher return. Some publishers will no doubt opt to take this route.

And let's not forget that a lot of Google's revenue comes from companies that have simply been lazy about maximizing their revenue. Increasingly, I predict that companies in the Google distribution network will realize that having a small salesforce - or even an online self-serve solution - will make more sense for them, simply because they can eliminate the middleman and drive more profits.

Combine Amazon, eBay, MSN, Yahoo, affiliate networks, and savvy publishers and you've got to wonder whether Google's golden goose might start to look a little tarnished. Will AdSense go away? Of course not, but don't be surprised to see a much more level playing field in the near future.

The Best SEM Expert in the World

I was at a dinner party explaining (unsuccessfully) for the umpteenth time what exactly it was that I did at work when I got an interesting question: "Who is the best search engine marketer you know?"

Now I am a pretty opinionated guy, so I can usually come up with an answer for this sort of thing. For example, if you ask me who the best non-fiction writer is, I'd say Jon Krakaeur. The best candy bar? Reese' Peanut Butter Cups. The living person I admire the most (outside of my family)? Jimmy Carter.

But trying to figure out the best search engine marketer is a tough one, mainly because SEM is a highly fragmented industry with little or no transparency. Right now, there are thousands of SEM companies and consultants and each has an entirely different approach to SEM.

Take the example of keyword selection. Some SEM experts research competitor Web sites and meta tags to get keyword information, others use WordTracker, many use the Google and Yahoo search suggestion tools, some have their own keyword database, Excel concatenation is popular, and there are still plenty of folks who do everything through brainstorming.

Which of these approaches is better? I have no idea. My preference is to always find the most automated approach possible, which enables scale and thoroughness, but ultimately, the proof is in the pudding. After all, the "best search engine marketer" should be judged not by the sophistication of his/her methods, but rather by the effectiveness. I have no doubt that there are SEM experts who have completely manual operations that blow the socks off uber-savvy technologists.

Search engine marketing is basically one giant black box at the moment. No one knows what their competitors really do to be successful. To conclude that 'person X' is better than 'person Y' is sort of like going into a department store and concluding that one cologne smells better than the other based on the bottle styling and box packaging, but without actually smelling the scent.

Someday, of course - once SEM grows up - it will be much easier to crown someone "SEM Expert of the Year." SEM will become routinized, with almost every using the same practices and the same technology. Then, once there is a level playing field with a higher degree of transparency, the cream will rise to the top. Either through superior hiring, efficient management, or ongoing innovation, there will be search marketers who everyone will be able to look at and conclude "he's one of the top ten in this industry in the world.'

A great analogy to such a transparent world is the NFL (it is Super Bowl Sunday as I write this, so I need to at least mention the game to avoid looking like too much of a nerd . . .). When you think of the "best coaches" in the NFL, you don't think about their personalities, their appearance, or the number of years they've spent coaching. Instead, you think about their record. Both coaches in today's Super Bowl have previously brought a team to this game and have had numerous winning seasons. To be a top NFL coach, you just have to win. It doesn't matter how complicated your plays are, how sophisticated your draft analysis, or how great you are at motivating the team in the locker room, you are judged by the number of wins you achieve.

In today's dot com world, we do not have this sort of transparency. In poorly managed companies, employees are judged by their ability to politically align themselves with top management, by their ability to be a 'yes man', and by their ability to accept blame and delegate responsibility. And even in the best companies in the Valley, many managers determine the relative value of their employees through largely subjective means.

At least in most established dot coms, however, you can judge your team's overall performance against a public competitor's performance. For SEM, however, even this is not possible, simply because public companies that have an SEM component don't tend to separate out this performance as a line item in their SEC filings, and private companies don't release any information whatsoever (aside from press releases, which are about as reliable as a late night infomercial). So, you can judge an SEM expert within your company based on the relative performance (the delta) of his work over a similar time period. But it is basically impossible to weigh a SEM expert inside your company against someone at another one.

Thanks dinner party companion for asking this tough question. I hope in a few years I'll be able to give you a better answer! And I guess since there's no way of really knowing anyway, let's just assume that the winner is . . . me!

Will Search Engine Marketers Dream of Electric Sheep?

Every industry eventually goes through the difficult transition from manual labor to automated technology. The good news is that this technology generally results in better product consistently, increased efficiency, and cheaper prices. The bad news is that technology inevitably spurs an arms race that leads to layoffs, margin compression, and product commoditization. Many small companies are replaced with a few large ones. Lots of dissimilar products are replaced by a couple of similar products.

Such will be the path for search engine marketing and survival will depend upon a company's ability to develop the best technology as quickly as possible. Hundreds of small "mom and pop" SEM shops will either go out of business or get sucked up by the bigger, automated players. This will happen very soon - probably in the next 18 months.

This is certainly cause for concern if you are just starting your career as a budding search engine marketing professional. Will you be needed in two years when massive computers, algorithms, and databases are crunching millions of datapoints to derive the optimal bid for every keyword?

The answer is yes . . . and no. There's no question that automation will reduce the need for some human staff. Companies will be able to do the same amount of work with 10 people that they previously did with 20. But the key is that there will still be a huge need for talented SEM experts.

When I was in college, there was a lab in the computer science building with a big sign on the door that read "Artificial Intelligence." The lab right next door created a hand-written sign on their door that said "Natural Intelligence." Though our ability to create "smart" computers continues to improve, we are still a long ways away from computers that can actually think by themselves.

Anyway you slice it, savvy bid management algorithms are all based on combinations of rules developed by humans. If keyword X has revenue Y during time Z and cost is less than Q, increase bid to M. The computer is an order-follower and nothing more.

Granted, this works very well, particularly when you are dealing with tens of thousands of keywords on dozens of search engines. But computers make mistakes, and - more specifically - programmers who develop search technology make mistakes. As a result, there will always be a need for humans to 'fact check' what a computer is doing.

But humans will be needed for more than just routine error-prevention. Humans can infer opportunity where a computer can't. Here's an example: the Super Bowl is coming up this Sunday. What should you consider marketing for this event? Let's see - the Super Bowl is watched by a lot of people - they watch it at home - they have friends over - they prepare food for their friends - the South Beach diet is popular right now - vegetables are low in carbs - it's currently mushroom season - so you should buy "fresh mushroom" keywords.

I admit, the example above is (more than) a bit silly, but it does indicate a process of deduction that is actually highly complex due to the variability of inputs going into the conclusion. Think about it, in that short paragraph above, my mind processed information about technology (watching TV), cultural habits (with friends), current fads (South Beach Diet), nutritional facts (vegetables are low in carbs), and vegetable seasonality (mushroom season).

Yes, it is true that you could try to build a computer that takes these specific elements into account, but this sort of non-linear thinking - the ability to go down thousands of conditional logic paths - will not be replicated by technology anytime soon.

Thus, for keyword generation, for ad text creation, and for keyword bidding, the human element - the ability to weigh thousands of different, always changing factors instantly - continues to be very important.

Will computers continue to play a greater role in SEM? Absolutely! Will SEM experts be obsolete in the next five years? Not a chance.