The Best Marketing Can't Save A Bad Decision

Last night I checked into the Palmer House Hotel in Chicago. At the check-in desk, a glossy piece of collateral was prominently propped on the counter. Here's the basic messaging:

Business Benefit Package
For our valued business customers, we've created a special package of savings. For only $17.95 a day, you get: In-room high-speed Internet access ($12.95 value); Fitness center admission ($10 value); Two bottles of water in your room ($9 value); Free local calls ($1.25 per call value). That's more than 50% off normal rates.

I saw this message and I was insulted. Here I am at an allegedly high-end hotel and they are giving me a "discount" on services that should actually be free in the first place. I was waiting for the special "Sleeping Traveller's Special", which included discounts on pillows, towels, and electricity.

All of this made me think about the vital connection between what we do as marketers and what we actually market. Too often, marketers are blamed (or perhaps scapegoated) when a company does poorly. The blessing and the curse of online marketing is that it is so darn quantifiable. It's easy for non-marketers to pour over marketing statistics and pull out red herrings that prove the point that it was the marketing that caused a business failure (why didn't you drive enough traffic? Why do I see our competitors showing up on this placement and not us? Why aren't you driving higher ROI on your campaigns?)

Marketers, of course, are sometimes to blame. For example, it's hard to look at the Pets.com fiasco (millions of dollars of brand marketing at a time when consumers were still hesitant to even use email online, much less enter in credit card info) and not think that some over-zealous marketer spent the company into bankruptcy.

But - at least in the direct marketing world - when a business fails, I am willing to wager that the root cause of the failure is more often than not that the business just didn't execute as well as it should have.

I'll give you a concrete example. Let's say that you are working for a mortgage lead generation company (as I once did) and you purchase the keyword "san francisco jumbo refinance quotes." You create highly-targeted ad text for this keyword, you restrict your purchase to Google-only (the best quality), you add tons of negative keywords, you add geo-targeting (only show it in the bay area), you send it to the most-targeted landing page you can muster, and you even day-part it so that the ad shows up when you have customer service people that can answer phone calls.

Over the course of a week, you get 200 clicks on your targeted campaign and zero conversions. A senior executive team member comes into your office and reads you the riot act - don't buy keywords unless they convert, he says!

In a situation like the one described above, anyone in the company who blames the marketing team for bad advertising should join the flat-earth society. The real problem is not that the ad was bad, but rather that there is a fundamental flaw in either the company's business model or the company's Web site.

In such a situation, as a marketer you have three choices: 1) panic and try to redouble your efforts to make your ads work; 2) leave the company in frustration; or 3) help the flat-earthers escape the Middle Ages.

In most cases, I'd advocate the third choice. It's important to avoid becoming silo-ed into just "the marketing guy." Successful online companies understand that marketing, merchandising, usability, fulfillment, and technology are all inter-connected and as such require true partnerships across the organization to drive improvement.

In the mortgage case above, the worst thing you can do is throw up your hands and exclaim "the site is too slow" or "our landing page is terrible" or "our privacy policy sucks." You have to be proactive about helping your teammates improve whatever it is that is preventing you from hitting your marketing objectives.

To put it another way, you have to actively participate in and take ownership of the entire conversion funnel - getting people to the site, getting people to transact with the site, fulfilling the transaction, and creating repeat customers.

By the same token, you've got to actively seek out advice from your peers who are the leaders of other parts of the conversion funnel. What products are they promoting this week? Are there days when there are expected site outages or slowness? Is there seasonality that you should be preparing for? At the end of the day, you are the expert in online marketing, but they may be the experts in a particular product or Web site - don't be afraid to use their expertise.

In the case of the Palmer House Hotel, I'm guessing that the 'business traveller's insult special' was almost certainly a directive from senior management. Looking to squeeze a few dollars out of their guests, management decided that charging for otherwise free services could really boost the bottom line. And so the decision was handed-down to marketing: here, go make up some collateral or something so that we can sell more Internet access.

Forget about brand, forget about repeat business, let's make those numbers! Remember what I said above - as a marketer, you either have to panic, leave, or help. In this case, it looks to me like the choice was "panic." Inevitably, when businesspeople stop coming to the Palmer House, some poor marketer will have to redouble his work all over again. I wish the Palmer House marketing staff had opted for the helping-path. It would have saved me $17, and I just might have stayed here the next time I'm in the Windy City.

Affiliate Marketing is Dead . . . Part Two

Just as Spinal Tap was "big in Japan", my recent blog post on the death of affiliate marketing was apparently "big in England," as several respected bloggers across the Atlantic had some choice comments about the post.

The most comprehensive rebuttal to my argument came from Kieron Donoghue of Here.org.uk. Kieron had a lot of problems with my (admittedly) bombastic post. You can read his entire posting here. To save you some time, however, I've summarized his thoughts and the thoughts of some other bloggers below, and responded accordingly.

1. “I can only assume it was wrote as link bait.” - I wish I knew how to write good link bait articles but alas I don’t. I truly just write about whatever is on my mind at the moment. And it so happened that I had just returned from the Search Engine Strategies conference where I had had a very enlightening conversation with the former head of one of the largest affiliate programs in the US (more on that later).

2. “Brand name bidding isn’t really affiliate marketing, it used to be an easy way for affiliates to reap some low hanging fruit but that's all.” Low hanging fruit that would otherwise go directly to the merchant. Thus, the merchant is not making a positive ROI on this affiliate traffic and this creates a negative feeling about affiliates. In my opinion, anything that creates “positive ROI” results in “positive results for the affiliate community.” Anything with “negative ROI” has the opposite effect.

Bottom line: if you want merchants to respect affiliates, you need to limit yourself to only driving merchants incremental and legitimate traffic. When you send a merchant traffic from his trademarked name, this is definitely not incremental and may or may not be legitimate based on the merchant's terms and conditions.

3. “No self respecting affiliate has ever been involved in spyware. Yes maybe a very small handful of bad apples did once upon a time but again they are firmly in the minority.” So I sent my article to my friend the former head of a major affiliate program (and still a very prominent figure in a different capacity in the online marketing community), and here’s what he wrote: “Good post, although no doubt in my mind that those hijacking sites/programs
are still in affect - too many affiliate managers that are naïve and/or have
incentive to look the other way (the “top” affiliates are helping them make their
number - same conflict the networks have in policing, imo).”

Not that this proves anything, but he and I both agree that there are one or two major affiliates in the US that get users to download their software, then do an instant re-direct whenever the user goes to a merchant with an affiliate program to capture the commission. The user has no idea that he is getting redirected, but the affiliate gets money at the merchant’s expense. Again, we are talking about year-after-year top ‘performers’ in the US.

4.”Google’s quality score updates have pushed out the arbitrage sites and the poor quality landing page sites. Well David, we true affiliates welcome these changes. We don’t want crap landing pages and arby sites in the sponsored results either. Knocking them out of the way leaves more room for us and our high quality sites that have no problem with Google’s landing page algorithm.” Google does not differentiate between “crap affiliates” and “true affiliates.”

Trust me, over time Google will do everything it can to push out ALL affiliates. I sat down with Google last year and tried to persuade them that there were different types of affiliates (though I did not use the words “good” and “crap” ), and the message I basically got was “all affiliates” are not wanted on AdWords. So whether this impacts your site now or a year from now, I’m sorry to say that it will likely eventually happen. More on this concept here.

5. “David argues that as affiliate marketing becomes more popular it is less “novel” to merchants. Eh? So because it is more popular it isn’t as good? I just don’t follow this argument whatsoever.” The basic argument here is that the ‘coolness’ factor of affiliate marketing no longer exists, and it’s much easier to work with one or two major partners on a PPA basis than 5000 small affiliates. I suppose I would modify this to say that if you are a high-quality, high-volume affiliate, there’s a good chance a merchant would keep you on, but if you are generating $500 of revenue a month for a merchant, I believe most merchants will eventually decide that the risk of a ‘crap affiliate’ outweighs any benefit derived from dealing with many small affiliates.

6. “What about all of the very high quality affiliate sites out there that don’t fit into any of the above categories?” Of course there are good affiliates, my point was and is that the bad affiliates are ruining your reputation. Being a law school grad, I can assure you that there are many "good lawyers", though it's the bad lawyers that ruin it for everyone else.

7. “David’s views accurately reflect what man “outsiders” think of our industry.” For the record, I worked at Adteractive for two years heading up their paid search team. Adteractive does not have a presence in the UK, but when I was there we did over $100 million a year - all from affiliate marketing.

And in my current position, I am responsible for the affiliate program for a major US merchant. When I tightened the T&Cs on our program (no trademarked keyword buying, very few coupons, etc) the revenue from affiliate marketing went way down, but the revenue for the company was not impacted. It’s hard not to draw the conclusion from that data that our affiliates were not driving ‘positive ROI’ to our company.

Conclusion

In law school, I learned about a concept called "the tragedy of the commons." As Wikipedia describes it:

The Tragedy of the Commons is a type of social trap, often economic, that involves a conflict over resources between individual interests and the common good. It is a structural relationship between free access to, and unrestricted demand for, a finite resource. Such situations have occurred in the context of fishing (eg, the overfishing and destruction of the Grand Banks, and the destruction of salmon runs on rivers on which dams have been installed for power production), and in terms of water supply (eg, limited water available in arid regions as in the area of the Aral Sea, the Los Angeles water system supply, especially at Mono Lake and Owens Lake).

There are many individual affiliates who will use any means necessary to grab as much money as possible from merchants. If this means operating in a grey area - or even a black area - of the law, there are plenty of affiliates willing to do this. Unfortunately, stretching or breaking the law is often very profitable for these affiliates.

When merchants discover that they've been duped by some bad apples, they often fail to differentiate between the good affiliates and the bad affiliates. Thus, even if you are doing everything you can do stay 'on the level', your compadres who do not adhere to your ethical standards can single-handedly destroy your business overnight.

Hence the tragedy of the commons. If everyone agreed to act in the name of the common good, everyone would benefit. When a few individuals act in their self-interest, they benefit at the expense of the community.

To save affiliate marketing, I believe it is up to the 'good affiliates' to act together to establish standards, police their industry, and re-establish trust with merchants. It can be done, but it takes organization, patience, and an absolute refusal to engage in any activity that has negative ROI consequences for merchants.

As a merchant, I'd love to make affiliate marketing the bulk of my marketing campaign. When it works, it's magic - 0% risk, 100% guaranteed ROI. But I can't police 100, 200, or 5000 affiliates. As a result, today I spend my money I thinks like Google AdWords, where I have a high degree of confidence that I'm getting what I pay for.

Believe me, someday I'd love to be proven wrong.

Spam Poetry Volume V: Al Gore Helped Us Invent the Internet

Onlinemeds Store.

Founded in 1989,

Onlinemeds is not only the nation's largest retailpharmacy chain,

it is considered the leader in innovative drugstore retailing.

Onlinemeds pioneered many modern store and pharmacy features,

some of which havebecome standards in the industry.

We provide the most convenient access to healthcare services and consumer goods inAmerica.

Editor's Note: The world's 100th domain name was registered in late 1987, and Yahoo wasn't registered until 1994. And of course ecommerce didn't really become viable until the late 90s. Must have been a hard first 10 years to the business . . .

How the Affiliate Marketing Industry Killed Itself

Affiliate marketers - most ecommerce businesses either love 'em or hate 'em. Admirers love the concept of having thousands of outsourced marketers working on your behalf and only get paid when they actually drive business to your company. Haters see affiliates as black-hat leaches who will use any underhanded technique to piggy-back on your good name and get revenue credit for traffic you could have driven without them in the first place.

Regardless of the camp you are currently in, my sense is that affiliate marketing as an industry is in decline. As I see it, there are three main factors that are driving this demise, and each of these factors are directly the result of affiliates being too aggressive, underhanded, or a combination of both. Sadly, the weakest link in the chain brings down everyone else.

1. Marketers Wised Up to Affiliate Tricks. A few years ago, it was relatively easy for an affiliate to game a merchant's affiliate program with little chance of detection. Here's three clear examples.

First, affiliates bought the merchant's trademarked name on search engines. For example, there was a time when affiliates of the University of Phoenix could make a killing buying keywords like "university of phoenix" "u of p" and "phoenix degree." Obviously, anyone typing in "university of phoenix" is highly inclined to fill out request for information form to learn more about the school (which would result in a payment for the affiliate that presented the form). Merchants soon recognized that the better solution was to ban affiliates from buying their trademarked keywords and to just buy them for themselves, avoiding an unnecessary middle-man fee.

Second, affiliates of ecommerce companies took this concept one step further by either buying paid search or optimizing organic search around "company name + coupons." Thus, a user would come to a company Web site directly, select a product, and get to the checkout page and see a box that said "enter your coupon code here."

Savvy consumers would then go back to Google and type in "company name + coupon" and be bombarded by affiliates offering the company's most recent coupons. As soon as a user clicked on any of these sites, the affiliate would get commission for a purchase that they did nothing to drive. Translation: the merchant would have to pay the affiliate a commission, give the consumer a discount, and lose a lot of margin dollars they otherwise should have retained for themselves.

These days, merchants are catching on to this technique. The solution is either to severely restrict or ban coupons altogether, or to create terms and conditions that prevent affiliates for buying these coupon-related keywords.

Finally, there was a time when unsavory affiliates basically created spyware programs that would intercept a consumer prior to a purchase and insert the affiliate's tracking code at the last moment. Thus, regardless of whether the consumer went directly to a merchant's site or not, the affiliate still got a commission. While there are rumors that such link hijacking programs still exist, most major merchants now have systems in place to identify and ban any affiliates engaging in such practices.

In general, online merchants are just a lot more attuned to not just whether affiliates are driving revenue, but whether they are driving incremental and legitimate revenue that the merchant would not otherwise have gotten. Thus, the fact that your affiliate program is driving $300,000 of revenue a month is no longer necessarily a great thing. In fact, if that $300,000 could have been driven straight to your site anyways, and if you are paying a 10% rev share to affiliates, suddenly that $300,000 of revenue is actually a $30,000 profit loss.

Overall, I would say that the general attitude of merchants towards affiliates is one of caution and mistrust. Fewer and fewer merchants are willing to allocate a significant chunk of their marketing budget to affiliate marketing, precisely because the risk of bad players infiltrating your affiliate program is too high.

2. Search Engines Shunned Affiliates. I could make a pretty strong argument that Google AdWords was largely built on affiliate revenue. In the early days of AdWords (let's say 2002 to 2005), affiliate marketers were a massive driver of AdWords profit. I know from experience that by 2005 there were dozens of affiliates spending close to $1 million a month on AdWords.

In the early days, Google was more than happy to take any money that came through the door. As Google's business matured, however, Google realized that affiliate money came with a price. For starters, they felt that it decreased user relevancy. For example, if you typed in "University of Phoenix" and you clicked on an ad that took you to a landing page that required you to fill in personal information, and then you just got a "thank you" message afterwards, you might feel that you had a bad experience.

Having one affiliate in the Google search results would probably not be that terrible. But affiliates are aggressive at squeezing out every penny they can, and many affiliates began to create duplicate Web sites to show up multiple times on the same search query. Thus, if you did a search for "university of phoenix", you were likely to see 9 out of 10 paid ads coming from affiliates, but in reality there were probably only two or three companies actually driving these 9 ads.

So now the user experience wasn't just bad for one or two paid ads, but it was bad for almost every ad. It made Google a lot of money, but there was internal concern that these 'scum marketers' (an actual phrase that I am told was used at high levels inside Google) could jeopardize the Google brand of search relevancy.

By 2005, AdWords had moved beyond fringe arbitrage marketers and was approaching the mainstream. So much so that Google realized that there were plenty of 'direct' marketers who were willing to pay for spots held by aggressive affiliates. These direct marketers were no doubt not as savvy as the affiliates (who had been doing this for years, and who were benefiting from Google's "keyword history boost"). The result was 'good' marketers being blocked by 'bad' advertisers.

Google's solution was the infamous "quality score" algorithm, which was basically a way for Google to ban affiliates and "made for adsense" advertisers from the search results. Almost overnight, affiliates with 10 to 15 duplicate sites dominating top keywords were either reduced to one ad or eliminated altogether. Affiliates spending a million a month were reduced to maybe $100,000.

And this was the first of several quality score updates. Over time, affiliates saw their 'keyword arbitrage' opportunities continue to shrink on Google. And, of course, whatever Google does is followed by their competitors. Yahoo and MSN have also introduced quality score factors (though they are still a little more willing to let affiliates in, as they have not hit the critical mass of advertisers that Google has).

Had the affiliate community adopted a self-policing system of ethics (no duplicate ads, no misleading landing pages, protection of consumer information), it's possible that those inside Google battling on behalf of affiliates might have won out over those who sought to do anything possible - even at the expense of revenue - to distance Google from the affiliates. Again, the weakest link brought everyone else down.

3. Pay-Per-Performance Went Mainstream. I'll admit that my final argument doesn't really support the overall theory that affiliate malfeasance was largely the cause of the decline of affiliate marketing. That being said, I do think that the overall success of the affiliate model - pay for performance, not for impressions or clicks - led other distribution channels to conclude that they too should offer such a model.

These days, it is not at all uncommon to get pitched by agencies, display advertisement companies and now even search engines on a pay-per-performance model. And even if you still have to pay by the click or by the impression, the sales people selling you your spot now understand that their ability to get you to re-up for more spend is directly correlated to the ROI you achieve on your ad buy.

As a result, the appeal of having thousands of affiliates working on a pay-per-performance basis for your business is no longer as novel and exciting as it once was. Indeed, busy advertisers would much prefer to do one CPA deal with an Advertising.com than 1000 CPA deals with thousands of unknown affiliates.

Conclusion

As loyal readers of this blog know, I am often prone to hyperbole when making predictions (see my awesome post about the death of search engines from 2006). Before you write me too many angry comments, let me just state for the record that I know that there are plenty of totally legit and valuable affiliates out there. I also know that there are businesses that have combined technology with intensive management of their affiliates to produce a lot of incremental revenue from this channel.

But folks, the wild west days of 2005 are gone. Marketers are smarter, search engines are smarter, arbitrage opportunities are drying up, and pay-per-performance is no longer the sole domain of the affiliate. Affiliates filled several voids in the past, but - like the wild west - the amount of empty space just keeps getting smaller and smaller online.

The Future of TV is Online

I have maintained for some time that TV advertising is a pointless waste of money, and I stick by that assessment. The only exception to this rule are the late-night infomercials, which are totally ROI-driven and make loads of money.

And as advertisers get more and more accustomed to the measurability and accountability of online advertising, it's going to be more and more difficult to convince companies to shell out tens of millions of dollars to have their commercial shown in prime time. Add to that the increasing adoption of TiVo and the concept of TV as the mass medium to reach America is rapidly becoming anachronistic.

To their credit, however, the TV industry isn't (totally) sticking their collective heads in the sand. They've tried to combat TiVo with a combination of massive product placement - upwards of an 84% increase, subliminal messages in ads designed to get people to actually use TiVo to slow down the commercial, and contests and special footage to attract surfers to visit the TV Web sites.

Compare the TV industry to, say, the music industry, and I'd say that they are pretty forward-looking for an 'old economy' industry. That being said, all the product placements and special Web-only content is not going to save TV. The fact remains that TV shows are just too expensive to produce as compared to the actual value of the commercials that support them.

TV is just not as efficient an advertising medium as online, and you can no longer use the argument that there aren't enough eyeballs online to justify a major shift in ad spend. Smart companies and agencies will shift more and more of their money online, just as smart companies and agencies shifted money from radio to TV in the 1950s and 1960s.

So what's TV to do? Well, I do believe there is one great hope that remains - IPTV - Internet Protocol Television. There are many different visions for what IPTV will be, but the basic concept as I see it is a fusion of the Internet and television. In other words, with IPTV, you'll be able to use your TV to watch TV, surf the Web, or combine both activities.

To be clear, this isn't WebTV of the 1990s, which was basically just the ability to use your TV to surf the Web. IPTV will actually enable you to interact with TV programs. For example, you'll be able to watch a show and chat with other viewers at the same time, or play along with a game show at home, or control the camera angles you see during a sporting event.

In short, it will make TV interesting again and - dare I say - more interesting than just the Internet! The combination of Hollywood professionalism with interactive features is just the type of thing that could bring this generation and the next generation back to TV and away from the plain-old Internet.

But the real potential of IPTV is the commerce opportunities. Imagine a world where viewers watching Oprah can instantly order her latest 'book club' selection just by clicking their TV remote (and perhaps even get a special discount that only lasts the course of the show). Or, while watching the latest episode of Entourage, you can click on any of the characters' clothing and have your own copy delivered to your door by the weekend?

And the beauty of this 'watch, click, buy' system is that you don't actually need commercials. If you can generate enough buzz around the products on your show, the show pays for itself many times over. It's basically the Home Shopping Network, but with interesting content as opposed to saleswomen with really long nails.

Best of all, TV could transform itself from a 'branding' medium to a 'direct response' medium. Imagine if NBC created an auction model for product placement on an episode of "The Apprentice" (note, not sure if this is on NBC or not, but work with me here). The company that bid the most would get to have their product front and center on one episode of the show.

As part of the episode, there would also be a special at-home offer where viewers could just click their remote and order the product instantly (or a coupon, or whatever). NBC could then clearly deliver statistics to their advertisers about the actual ROI of their campaign. Over time, NBC would have pretty clear metrics on the percentage of people that ordered a product on a given show, and both the networks and the advertisers would truly understand the worth of a product placement. Just like online!

If you accept the idea that interactive TV could be more popular than the Internet by itself, the importance of product placement on a top-rated IPTV-enabled show would be massive. Indeed, it would the perfect storm of 'mass media' and measurability.

None of this will happen anytime soon. But then, the Internet didn't emerge overnight - it took at least 6-7 years of bumbling before anyone really made it profitable. The potential, however, is there. TV has taken it's fair share of lumps over the last couple years. IPTV could be the blockbuster the industry has so desperately needed.

Spam Poetry Volume IV: An Impatient Woman Named Ruben

Subject: Personal Message No. 904144151
From: "Ruben Washburn"
Date: Tue, August 14, 2007 1:10 pm

Greetings!

My name is Oksana.

To me of 20 years.
I would like to get acquainted with you if you not against.
I Look forward to hear you soon with impatience.

Good Poker Players are Good Online Advertisers

Not to brag, but I'm a pretty darn good poker player. If I enter a tournament, I usually end up "in the money" (usually the top 10% gets a payout). If a sit down at a regular table in Vegas, I usually walk away with a few hundred dollars after just a few hours.

Why am I so good? Basically, it comes down to three core principles that I bring to my poker playing:

1. Poker is not about "luck" but it is about statistics.
2. Never get emotional.
3. Study your competitors.

The truth is, none of these principles are that secret or complicated, but the other truth is that most people that play poker either don't accept these principles or aren't disciplined enough to follow them.

And it turns out, if you follow these same three principles in online advertising, you can also guarantee success. Let me explain them each one by one.

1. Online advertising is not about luck, it's about statistics.

Anyone who thinks poker is a game of chance is the type of idiot I want sitting at my table. Of course it's true that you can have a great night of poker simply by getting a royal flush every time you get dealt a hand, and you can also have a terrible night if another player always gets lucky at the last possible minute and beats you.

In the long run, however, consistently profitable poker players make money by maximizing profit when they have great cards and minimizing losses when they have bad cards. And they do this through statistics. Thus, if I am playing Texas Hold 'Em and I start with a pair of aces in my hand, I know that - statistically - I have a high chance of winning, so I bet like crazy (or I use some sort of bluffing strategy to get other people to bet like crazy for me). On the other hand, if I start with a 2-7 unsuited (the worst possible hand), I fold immediately. I never want to be in a hand where I am starting at a disadvantage and can only hope to win if I get 'lucky.'

In other words, great players make a lot of money when they are 'lucky' and conserve a lot of money when they aren't. Bad players, on the other hand, make a little less money when they are lucky (because they aren't doing the math, they probably don't realize just how good their hand is) and they lose a lot more money on their bad hands (one of the worst mistakes I see is a player staying in with terrible cards in the hopes of getting a 'miracle card' at the last minute. It works 10% of the time and the player is exhilarated at the come-from-behind victory, but at the end of the night the 90% of the time that it doesn't work ends up depleting the player's wallet).

The same is true for online advertising. When you analyze your data and you find a keyword/publisher/ad text/bid or combination of these data points that is profitable for you, you've got to maximize your profit, either through keyword expansion, increased bids, improved ad text, etc. And if you find that there are some ads that just don't seem to work for you, cut your losses and fold! Don't be like the guy that 'wins' $10 on one ad but losses $90 on nine others!

One important tangent to point out here: to be successful at either online advertising or poker, you've got to have complete transparency into your data and your goals. Imagine what would happen if you sat down to a poker table and everyone could see their cards but you? Or imagine that you could see your cards, but you didn't know the rankings of different poker hands (for example, is a full house better than a pair?).

Sadly, many online advertisers are faced with this predicament. The solution is to develop internal reporting and internal goals for your advertising. At a minimum, you need to get the same transparency that your competitors get; ideally, you want to do even better (imagine what would happen in a poker game if only you could see the next card to be dealt, or - even better- if you could see all your competitors' hands!)

You also need to define success. Good poker players set hourly objectives for themselves, like "I'm going to play for no more than four hours and try to make $150 an hour." When they hit their objectives, they leave. Bad players sit down without a strategy. They usually end up on a roller-coaster ride and usually end up leaving the table long after they hit a peak.

So work with your company to set monthly goals for advertising. Do you want to drive a certain number of visitors at a specific cost? Or a minimum level of profit dollars? A certain margin percentage? If you don't set goals, how do you know if you are winning?

2. Never get emotional

The world's best poker players never get too excited when they win a big hand, and never get too angry when they lose a big hand. To prove this point, a televised poker show recently started hooking up players to heart-rate monitors. Sure enough, the best players are about as calm when they are sipping water as they are when $100,000 is on the line.

There's two benefits to not getting emotional in poker. First, when you get emotional, your physiology changes, which can lead to "tells" that other players can use to determine if you have a good or bad hand (an example from one Web site: "Trembling Hands. The trembling of hands is a sign of anxiety. Beware of players that are trembling, it is a sign of a monster hand in many cases."

Second, and I believe more importantly, is that when you get emotional in poker, you tend to make bad decisions. For example, when a player loses a few close hands and starts to see their chips decline, they often go "on tilt". This almost always ends badly for the player (but potentially nicely for you!) as they start betting aggressively on every hand, out of a combination of angry and desperation. As it is nicely described on Wikipedia:

lt is a poker term for a state of mental confusion or frustration in which a player knowingly adopts a sub-optimal, over-aggressive strategy. Placing an opponent on tilt or dealing with being on tilt oneself is one of the most important aspects of poker. It is a relatively frequent occurrence, due to frustration, animosity against other players, or simple bad luck. Experienced players recommend learning to recognize that one is experiencing tilt and to avoid allowing it to influence one’s play.

In online advertising, you are constantly making 'bets' about which ads will work for you. Most of your bets are actually going to fail, but in the aggregate you will win. For example, if you buy 100 clicks on a specific keyword, the odds are that 90-95 of these won't drive any sales to your Web site, but the five to 10 that do will drive enough profit to make up for your 'bad bets.'

There will also be times, however, when your bets don't pan out. In such cases, you can't get angry or emotional, you have to chalk it up to learning and move on.

Here are a few more situations where you need to make sure that emotion doesn't get in the way of cold, hard facts:

1. The friendly sales rep. It's always hard to say no to someone, especially if that someone is particularly nice or attractive. One person I know told me that he never goes out to lunch with sales reps or accepts any gifts, because he doesn't want to feel obligated at all. I don't take it to that extreme, but I do agree with the underlying point.
2. Bad customer service. Sometimes there's an ad outlet with great ROI but terrible employees. For example, 90% of the time you make a lot of money but every once in a while a wave of click fraud sweeps in and costs you big time. When you call the company, they feign ignorance or flat-out refuse to talk about a refund. As much as it sucks, swallow your pride and continue to advertise with the company if it makes you money.
3. Clever advertising. Don't get caught up in your wonderful creativity. For example, I once created an ad text for a dieting site that said "Why wait to lose weight?" I thought the double-entendre was super-clever. Sadly, consumers did not. Admit defeat and move on!

3. Study your competitors

Poker is the most profitable game in a casino simply because you aren't really playing against the casino - instead you are playing against humans. And - as humans - we know that humans make mistakes and bad decisions.

You can learn a lot about a competitor at a poker table in the first 30 minutes that you sit down. Do they understand the rules? Is this their first time playing at a casino? Do they have certain 'tells' when they bet? Are they drunk? Do they bluff way too much?

In online poker, you can even take notes about players and track them over many months. This is incredibly valuable information. When I played online, I'd write notes like "if the guy has an ace showing, he always raises, so don't assume that he has good cards" or, "will only stay in for two betting rounds if he is guaranteed to win. Fold immediately!" This kind of information enables me to maximize profit and minimize gain on a player-by-player basis.

In online advertising, the same rules apply. What are your competitors writing in their ads? What do their landing pages look like? What promotions are they offering? All of this is readily available to you and should be used to your advantage.

One other great parallel to poker is to determine where the best advertisers/players are or are not present. In Las Vegas, for example, there are some casino poker rooms that are mostly filled with tourists from out of town, and others that are filled with the pros. Who would you rather play poker against - a World Series of Poker champion, or Jim-Bob from Des Moines who's in town for the patio furniture distributors' conference?

In online advertising, there are some distribution channels that are almost entirely dominated by the pros but others that are either too small or yet-to-be-discovered by the experts. Ideally, you want to be able to compete in both arenas, but I assure you if you can find good distribution channels before the other pros, you can make a killing (basically a form of arbitrage).

Conclusion

These days I don't play that much poker. Online poker has all-but-disappeared thanks to the US government, and I don't really have the patience anymore for Vegas poker rooms (basically they are just too slow as compared to online).

The good news, however, is that online advertising is actually a lot more profitable than poker, and you don't have to spend five hours in a smoke-filled gambling hall to earn your wages!

Final Note: My two favorite books on poker: Winning Poker for the Serious Player and The Theory of Poker.

Should I Accept a Job at Google?

Just to set the record set - I do not have an offer from Google, nor have I applied for a job there since 2003 (and, for the record, I was rejected!).

But every day throughout the world, hundreds of people are given job offers from Google. To the man on the street in "Average Town, USA", the title of this post must seem like a rhetorical question. With free food and other amazing perks, perhaps the best brand name you could ask for on your resume, and stock options that (at least historically) have brought incredible wealth to thousands, it would seem like a no-brainer to work for Google.

Of course, the man on the street isn't getting an offer from Google anytime soon. The people getting offers tend to be in one of two camps: recent college grads from top-tier universities (read: Cal, Stanford, or an Ivy League), and seasoned Internet professionals with years of proven dot com moxie.

For both of these groups, the decision to work at Google is not always clear cut, simply because there will always be lots of other amazing opportunities to consider. I'll look at each group separately.

The Recent College Grad

Someone once joked that when you graduate from Stanford, a black van pulls up outside the ceremony and whisks you off to a job at Google. I suspect that this isn't too far from the truth. I'm sure that Google must have at least a couple of thousand Stanford students working at the Mountain View Googleplex, and many of these folks are but a few years out of college.

The pro's of being a recent grad working at Google include:

• All the awesome perks.
• Google on your resume.
• A culture where you can definitely move from department to department and learn about many different areas of online marketing.
• A young, fun work environment with lots of smart people.
  

The con's as I see it:

• It's increasingly difficult to get much beyond glorified administrative work (unless you are an engineer). Just ask the many Stanford grads who spend their days doing keyword research for advertisers.
  
• The opportunity cost of not going to a smaller company where you could actually learn more.

I recently posted on a job listing for my company on Craigslist in which I wrote:

If you’re a recent graduate of a top-tier university (say, Berkeley, Stanford ... but not Yale, and for the Lord's sake not Penn), you’re probably very tempted to go and get a job at Google. After all, the food is great, they have a sand volleyball court, and you can put Google on your resume.

And if free food and resumes boosters is what you want out of your next job, please – DO NOT APPLY FOR THIS JOB.

Granted, our free food is pretty limited (granola bars, apples, delicious Pete’s Coffee), but ask yourself this: which looks better on your resume “Assisted assistant to the Campaign Optimizer at Google by uploading more than 200 Excel sheets daily” or “Grew Web site revenue by 200% year-over-year. Drove incremental profit dollars by 25%. Conducted five usability studies that increased conversion rate by 75%.” You be the judge.

For the record, the parts about Yale and Penn were inserted by a few Harvard grads at my company, but the rest of it was all me.

And though it's written in a tongue and cheek style, I do believe that - for the right person - a job at a start-up is far and away more valuable than any job that a recent grad would be offered at Google. If you want to really understand online marketing or ecommerce, I guarantee that you can learn a lot more actually doing it at a small company than you could in assisting others at Google.

The key, of course, is to make sure that the small company job is really going to give you hands-on ownership. And not all small company jobs by definition fit this bill.

Thus, to conclude, a job at Google is great for recent grads, but some start-up jobs will give you more experience, which in the long term could be much more beneficial.

The Seasoned Professional

These days in Silicon Valley, someone with 5-10 years of experience - be it on the Web, or from a consulting company, or even from an offline company - can easily get 5 to 10 job offers in a matter of weeks. And unlike a young grad's choices, where the salary and benefits will probably be in a pretty narrow range - the choices for a seasoned manager can be quite wide-ranging.

An offer from Google will have very clear advantages and disadvantages. These include:

Pros:

• Google perks.
• The Google resume boost.
• Access to execs at any other company in the valley.
• The opportunity to carve out a niche inside Google (and then become a leader in this space outside of Google).
• Stock options/grants that could actually be worth something (I'm not exactly sure how this works, but as I understand it Google is giving some sort of subsidized stock option to employees so that they at least have a fighting chance to have their equity be worth something).

Cons:

• Lower pay than what you could get elsewhere.
• That sinking feeling that you're jumping on the bandwagon too late.
• That pissed off feeling when your Admin takes a long lunch break to get the oil changed in her Ferrari.
• A lesser title and less responsibility than what you could get at another company (think "manager" instead of "VP").
• The opportunity cost of getting lots of options at a smaller company that might get acquired by Google someday anyway.
  

Conclusion

At the end of the day, I think it is safe to say that anyone who has a job offer from Google has done something right in their life and will probably be pretty successful one way or the other. I'd also say that it is only rarely an outright bad move to accept a job at Google.

More to the point, it may often be a better move to take a competing offer from another company, either due to the additional responsibility, title, salary, or a combination of all of these. The overall point is that, yes, working at Google is great, but, no, it's not always a slam dunk.

Why Isn't Classmates.com Facebook?

Facebook is all the rage these days in Silicon Valley. Every day I hear about a new 'killer app' - or in Facebook terminology, 'killer widget' - that's getting downloaded by the millions by Facebook users. In fact, I think that the best way to get any startup funding these days is to describe your company as a 'Facebook widget monetized by Google AdSense.' Even if this is a totally nonsensical concept, these are the buzzwords that make VCs start to reach for their checkbooks.

And as much as I like to be a contrarian when it comes to the latest Internet crazes, I have to admit that Facebook is pretty cool. It's part social network, part voyeuristic, part cool tech apps. I could see myself spending way too much time on the site in the future.

Interestingly, as with all good ideas, Facebook isn't really that novel. In fact, I'd argue that the basic concept of Facebook is no different than Classmates.com. Indeed, Classmates was founded in 1995, back when the founder of Facebook's voice was starting to crack.

So why, then, isn't Classmates.com Facebook and Facebook nothing? What did Classmates.com do wrong and what did Facebook do right? And what's to prevent a new challenger to Facebook from doing to Facebook what Facebook did to Classmates?

As with everything online, I have a theory . . .

Classmates.com: A Business Strategy without a Content Strategy

Classmates.com spent and made a lot of money. Unless you have only been surfing Craigslist and NPR.org for the last ten years, it's hard to miss the ubiquitous Classmates banner ads across the Internet.

Back around 2000, I succumbed to the Siren's song of the Classmates ads and signed up for a free account. No sooner had a signed up than I received a rather vague email telling me that "a classmate was trying to contact me." I went into my account, only to discover that to actual see which classmate wanted to contact me, and what they had to say, I had to sign up for a paid account.

To me, this all smelled pretty funny. It reminded me of the Poetry.com 'poetry contest' I entered. I wrote the absolutely worst poem I could imagine (it was an ode to my friend Joel's love of big belts - and even more amazingly, they still have it on their site - read it now by typing in last name "Rodnitzky") and submitted it. Amazingly, my poem was selected to be published in a fine edition of poetry and I was strongly encouraged to purchase a copy of the book, as well as a trophy, and to attend an International Poet's Conference. All in, my award was going to cost me $1000 or more.

And that was basically the strategy behind Classmates.com. Get people in the door by blitzing the 'net with advertising, send them a vague come-hither message promising a reunion with an old pal or fling, and then monetize them.

Did it work? Well, basically yes. When Classmates was acquired by United Online in 2004, the site had 1.4 million paid subscribers, 10.3 million monthly active accounts, and more than 38 million registered members. In the first three quarters of 2004, the company generated revenues of $54 million - 75% from subscription fees. Oh, and they were acquired for $100 million.

On the flip side, however, Classmates must have spent hundreds of millions of dollars and bought hundreds of billions of advertising impressions to generate those 1.4 million subscribers. And even the revenues of $54M only brought in about $4M of operating income.

What this basically means is that Classmates had (and probably has) incredible subscriber churn. They spend a lot of money to acquire a customer, the customer sticks around for a few months, and leaves.

My guess is that customers leave Classmates for the same reason that I never subscribed in the first place - they feel that the site is basically doesn't have content to keep them paying month after month.

Classmates.com drew people to the site by promising them the addresses of lost acquaintances. But once you got those addresses, what's the point of sticking around? Why pay $30/month for the off chance that someone new from your high school comes aboard?

Imagine, on the other hand, what would have happened if Classmates had taken more of a Facebook approach. In other words, instead of just creating a database of people sorted by city and high school/college, what if Classmates had invested as much money in content creation as they did in their marketing?

So instead of serving 5 billion impressions of ads every month, they only served 1 billion, and spent the rest creating Facebook-like Apps and feature enhancements? Had they really built out a cool site 10 years ago - a site that actually gave people a reason to stick around for many months - they might have reduced their churn considerably.

And once churn is reduced, the subscribed base would have gone up, consumer interaction would have gone up, and profit would have gone up.

Instead, they went for the $100 million strategy - advertise, monetize, churn, wash, repeat. It worked pretty well. Until Facebook.

Facebook: Content Strategy, Business Strategy Unknown

Now that Facebook is free, I've got to assume that the subscriber base for Classmates.com is dropping like a rock. Facebook has basically taken the raison d'etre of subscribing to Classmates and given it away for free.

Moreover, Facebook is cool and sticky. It's not just about getting information about lost friends, it's a social community. Combine free and more fun and Classmates.com should just pack it up.

And - at least right now - you could argue that Facebook's "free and sticky" strategy is also good business sense. After all, Yahoo has reportedly made several billion dollar plus offers for the company. So Classmates spent hundreds of millions to end up getting acquired for $100 million and Facebook has spent far less and is worth over a billion. Advantage Facebook, right?

Well, maybe. I would say that the jury is still out on whether Facebook will be an economic success. Yes, it's true that someone will pay a lot of money for them at the moment. My question is whether Facebook will really be able to generate revenue as a company.

Facebook basically has the exact opposite problem Classmates had. Classmates was run by business folks who just wanted to find a way to charge people money. People got mad when they paid money and didn't get much value out of their payment. So they left.

Facebook is run by content people who initially just wanted to find a way to provide great content to people. If Facebook tries to directly monetize their users (either through direct subscription costs, premium services, or heavier advertising presence), their users will get made because they'll feel that the 'spirit' of Facebook is being violated.

It's possible that such a user backlash could lead to a wide-scale revolt and exodus from Facebook. We are talking about some very touchy, indignant users here. Just ask Facebook about what happened when they released their "new feed" product. As TechCrunch reported at the time:

Frank Gruber notes that a Facebook group has been formed called “Students Against Facebook News Feed”. A commenter in our previous post said the group was closing in on 100,000 members as of 9:33 PM PST, less than a day after the new features were launched. There are rumors of hundreds of other Facebook groups calling for a removal of the new features. A site calling to boycott Facebook on September 12 has also been put up, as well as a petition to have the features removed. Other sites are popping up as well. There seems to be no counterbalancing group or groups in favor of the changes.

Keep in mind, this wasn't an attempt to monetize users - it was a feature that would reveal limited user information to that user's friends.

So imagine the outcry when Facebook announces that users can purchase additional bandwidth for a certain cost, or that a large part of the real estate on every Facebook's user's page will be sponsored. It could get ugly.

Classmates, Facebook, Something in Between?

My point is basically this: Classmates and Facebook went about creating business with polar opposite approaches - one business-focused at the expense of content, and the other content-focused at the expense of business. In both cases, the companies failed (or have failed to date) to recognize that business without content will fail, and content without business will also fail.

To truly survive as a long-term online business you need to do both. Is Facebook a financial success? Ask me in two years.

Search Engine Strategies: To Pay or Not to Pay

I got an IM from a former colleague today asking me about whether it was worthwhile to pay for the sessions at Search Engine Strategies (SES for short).

Rather than write an entire thoughtful post on the pro's and con's of paying for SES, I thought I'd just copy the IM conversation verbatim. This makes life easier for me, and it also gives you a rare behind-the-scenes view of my IM conversations (which, after reading this one, will not encourage you to hack into my IM).

Note that the names have been changed to protect the innocent.

[18:39] rugbygal: I was just wondering what your opinion is of SEM conference classes
[18:39] rugbygal: do you think they are worth the premium cost?
[18:40] blogation: I would say for SEM no. If you want to learn about a new area that you aren't familiar with, like SEO, then it could be worthwhile, but I think you will end up realizing you could teach the SEM teachers more than they will teach you.
[18:41] rugbygal: that's good to know.
[18:42] rugbygal: I was thinking about SES San Jose coming up
[18:43] blogation: Here's all you need to know: this guy is considered one of the top AdWords experts: [link to Perry Marshall's Web site].
[18:43] blogation: You could AdWords him under the table.
[18:43] rugbygal: funny. you are the 3rd person to point me to him
[18:43] blogation: I saw those SES conferences - I thought about the SEO, but I think I would rather go to a Bruce Clay seminar before an SES conference.
[18:43] rugbygal: I downloaded one of his articles, but haven't had a chance to read it yet
[18:43] blogation: I think Perry Marshall is about as knowledgeable about search as a stoner at 3am.

So there you have it. As a rule of thumb, conferences and so-called search engine experts are unlikely to teach you anything about search - unless of course you are a total neophyte in which case by all means go.

I do think that the SES exhibit hall, on the other hand, which is free to visit can be worthwhile. You can meet old buddies, get lots of free t-shirts and you occasionally even learn about a search provider that you never knew existed.

Spam Poetry Volume III: The Powerful Sultan

Editor's Note. This one is a little lewd so if you are offended by references to male genitalia, stop reading NOW . . .






According to the statistics gays have bigger penises.
But with Penis Enlarge Patch you can have a big one too
Even if you are straight.

Your penis will be like a powerful Sultan.

Is Yahoo Out-Nerding Google?

Being a Google engineer in Silicon Valley is like being the star quarterback in high school. Girls swoon when they see your comfy "Google Engineering" fleece, guys want to be your friend - the future is yours.

Being a Yahoo engineer, on the other hand, may more closely resemble being a flag girl in the high school band: no one notices you, and if they do, they wonder why on earth you'd possibly want to spend your spare time practicing how to accurately throw a flag in the air.

Or at least, that's the way it was. Lately, however, Yahoo has been quietly generating some pretty impressive nerd-cred. I define "nerd-cred" as anything that makes tech-nerds sit up and notice. I also define nerd-cred as a product or tool that sounds cool to me but is totally over my non-technical head.

I can site four examples in the last six months in which Yahoo's nerd-cred has risen dramatically.

First, in February, Yahoo launched Pipes, which is described on the Yahoo Pipes page as "an interactive data aggregator and manipulator that lets you mashup your favorite online data sources." That means nothing to me, but I do know that when the tool was launched there was so much interest from tech-nerds that they crashed the Yahoo Pipes site. That's great viral nerd-cred.

Second, a few months ago Terry Semel resigned as CEO and was replaced by the original search nerd and Yahoo founder, Jerry Yang. Though I am skeptical of this move by Yahoo from a business perspective, from a tech perspective, it definitely lends some nerd-cred to Yahoo. As I noted at the time, "If nothing else, I'm sure his presence at the top will encourage many smart geeks in the Valley who might have otherwise gone to Google to give Yahoo a second look."

Third, a few weeks ago I went to a conference on online customer acquisition. The presenter on SEO specifically singled out Yahoo's Site Explorer as the absolute best tool to use to track which sites are linking to your site. A good SEO is a nerd, so this adds further nerd-cred.

Finally, I recently discovered another Yahoo nerd release called "YSlow." Again, as I'm not a tech-nerd myself, I can't completely explain all the features of this tool to you, but I can tell you that it is a Firefox plug-in that enables you to monitor your Web page download speed, identify problems, and even roll-over page elements and see the source code associated with the element. For a programmer, I suspect all of this stuff is pretty useful.

Combine cool UNIX-based mashups, a tech-legend as CEO, tools to attract SEO nerds, and Firefox plug-ins for Webmasters and suddenly Yahoo is not so lame after all.

And note that this is not just a popularity contest for the sake of popularity. Nerd-cred enables you to retain and recruit top engineers. Top engineers enable you to build better applications and Web sites. Better Web sites enable you to attract more consumers. More consumers enables you to make more money.

When I was in high school, I was a star soccer player my sophomore and junior years. As a senior though, some of the younger players beat me out for the starting position and I spent most of the season on the bench. For the time being, Google's still the clear nerd-cred leader, but give Yahoo credit - they're putting in a lot of off-season effort, and it's starting to pay off.