My latest article has just been posted on The Industry Standard – Five ways media companies can take advantage of the shift to performance-based media.

With the markets down 30% year-to-date and nations around the world joining the U.S. in an economic downward spiral, it might feel like anything related to the economy or spending money is bad news. But there are bright sides to any situation if you look at it from a different perspective, and this situation is no exception.

When the economy dips, and companies take a hit, one of their first budgets to be cut is often the marketing budget. Marketing can feel like unnecessary spending for businesses, and it’s easy to cut one month and then quickly pick up the next month again when the company is doing better.

During the dotcom bust of the early 2000’s, I was working for Publish magazine, a trade magazine/Website focused on “Internet communication.” That magazine, like many others (including The industry Standard) folded due to the bad economy and the cut that IT companies were making to their marketing budgets.

But those were the days before performance-based media. Google, the leader (and pioneer) of PPC and performance-based advertising, launched its AdSense program in October 2000, but it didn’t gain traction until 2002. At that time, marketing budgets were easy to cut because marketing execs couldn’t prove ROI on the money they were spending. But today, when $1 out is easily measured to x dollars back, I believe that companies that provide performance-based advertising options will be insulated (a bit) from the downturn.

This isn’t to say that companies will be entirely shielded. But when some amount of revenue is easily tied back to a smaller amount of spending, companies will not be inclined to cut that spending.

Dollar bill by reubenaingber

Just saw a story this morning about Carat’s advertising outlook for 2009. Even though they are revising their forecast down to reflect the weak economy, they are raising their forecast for online advertising from 23.3% to 23.7% in 2008. For 2009, they are predicting that online advertising will grow 18.6%, vs. earlier estimates of 17.8% growth.

The most interesting bit in the article, however, is this:

[Jerry Buhlmann, CEO of Aegis Media] said the growth in online’s ad spending share has less to do with the growth of consumer use of online media, and more to do with a secular shift within the advertising industry that is driving marketers and agencies toward media that deliver measurable returns on advertising investments.

“With search now central to the planning and execution of any campaign, online media brings a greater level of accountability not just to itself but to TV, print and other forms of advertising,” he said. “This is why we are predicting further strong growth for internet, even when advertisers are cautious in many of the other sectors.” (bold and italics mine)

This shift to performance-based media, sometimes called ROI advertising, is going to continue until most (if not all) advertising is based on performance metrics. Not only is search advertising going to continue its phenomenal growth in leading this sector, but lead generation is going to continue to grow quickly. Joining them will be other media that traditionally have not been measured but will move in that direction, including video and even print.

Marketers have always headed in the direction of measurable media programs. Just think of the 1-800 numbers that can be traced back to specific ads. With money tight, even more dollars will be adjusted to go to these programs that can prove they are worth the money they cost to run.

Photo by aussiegall

I just saw the headlines from a report this week that Google is earning $1.10 of every new search dollar spent. This didn’t make sense (obviously) because Google is magic, but I couldn’t imagine how they were creating money out of nothing. Turns out that the explanation is simpler:

“For every new dollar spent on search in Q2 2008 versus Q2 2007, $1.10 went to Google. Yahoo lost $0.09, and Microsoft lost $0.01. In other words, advertisers are putting all of their new search dollars into Google, and pulling money out of Yahoo Search and Microsoft Live Search.”

Looks like Efficient Frontier Insights, the company that published Search Engine Performance Report: Q2 2008, is looking for publicity with that headline, because it isn’t really accurate. Google may be taking money away from Yahoo and MSN, but they aren’t taking $1.10 of every NEW dollar. Google may be taking old dollars away from its competitors, but it isn’t creating money out of nothing.

Nevertheless, the news remains strong for search advertising. Some other highlights from the report – CPC rates increased for all three search giants compared to Q2 of last year, as did ROI.

Earlier this week, Comscore released some data on Google paid click numbers that caused Google stock to take a nosedive, based on reports from a variety of news sources that this was a sure indicator that Google was vulnerable to a recession.

Today, in a blog post, Comscore gave its take on the data – “Why Google’s surprising paid click data are less surprising.” The main point? That the data that Comscore released may have been incorrectly analyzed by almost everyone who read it:

“The information triggered a flurry of reactions in the media and the financial community that centered on two concerns: 1) a potentially weak first quarter outlook for Google, and 2) an indication that a soft U.S. economy is beginning to drag down the online advertising market.

“While we do not claim that these concerns are unwarranted, we believe a careful analysis of our search data does not lend them direct support. More specifically, the evidence suggests that the softness in Google’s paid click metrics is primarily a result of Google’s own quality initiatives that result in a reduction in the number of paid listings and, therefore, the opportunity for paid clicks to occur.”

I continue to be of the opinion that the drop in click-through rates isn’t a negative thing and is primarily the result of Google’s ongoing efforts to combat click-fraud and accidental clicks to its ads. 

I also think that Google is likely going to have slower growth if the entire economy goes into a recession. Afterall, what media company isn’t vulnerable in a recession?

Google’s stock price is dropping, and people are freaking out. Yesterday’s stock price drop was in response to a recent report from Comscore indicating that January 2008 showed only flat growth year-over-year versus a 25% increase in Q4. This apparently is the result of lower click-through rates on paid search ads, and people are worried that this means that Google is exposed to a slowdown if there is a recession in the U.S.

The near-panic is somewhat understandable considering that the overall U.S. economy isn’t doing all that great, the tech folks are scared of another bubble, Microsoft is talking about taking over Google, Apple’s stock is dipping, and everyone is looking for someone – anyone – to believe in. Google has been the obvious choice for a long time, and no one wants the tech darling to falter.

But the thing that I take issue with is the notion that this decrease in clicks is a result of consumers clicking less because of a coming recession. These numbers from Hitwise show that there has been no decrease in overall search traffic to shopping sites – meaning that consumers are still clicking.

And if consumers are still clicking on search links, why would they suddenly not be clicking on paid search ads? Could this be because consumers suddenly have become more discerning about what is a “paid” result vs. what is a “organic” result? No way.

My question for Google would be about how much of this decline comes from the dip in clicks on AdSense partner sites. My bet is that the clickthrough rates have dipped significantly on partner pages. Why? Primarily because of the click fraud prevention that Google has been implementing, as well as the “accidental clicking” measures that Google took back in November.

Remember, this was the second change that Google made to its ads; the company first changed the paid results on its main search pages in April, a move that many advertisers said led to a decline in the number of clicks, but not in the amount of revenue that they were earning.

And this might just be the bottom line. If there is no growth in the number of clicks, but revenue is growing, Google may have figured out a way to increase ROI for advertisers. Like this Businessweek article says, we’ll have to wait for earnings in April to find out for sure.

Search engine optimization or SEO is the practice of trying to get your Web site to appear higher in a search engine’s organic search results for the keywords for which you want to be listed. The idea is that if someone is searching for a term that is related to your business, you want to be listed at the top of the search results page because that person will be more likely to click on your listing and come to your Web site. Organic search results are the “natural” search results, or the listings that are free. More about organic vs. paid listings below.

There are many factors that contribute to where sites are listed in organic search results – the combination of these factors is called the “algorithm.” Only some of these factors can be impacted with SEO tactics:

• Domain name – If your keywords are listed in your URL, you’ll have a better chance of being ranked higher in the search results for those terms.
• Duration - The longer your site has existed, the higher you’ll be ranked.
• Content – If you have high-quality content on your Web site, and the content matches the keywords for which you’re trying to rank, you’ll have better luck getting listed. It’s also beneficial if your site has frequently updated content.
• Metadata – This is data that allows you to describe your Web site with a title, description and keywords. Metadata sits behind the scenes on your Web page and plays a factor in organic search results.
• Incoming links – If your site has a number of other sites pointing to it, the search algorithms will determine that it’s of higher value and will list it higher in the search results. You will get an even bigger benefit from incoming links if the text that links to you contains the keywords for which you’re trying to rank.

SEO may sound like a relatively simple concept, but there are SEO experts who execute these tactics full-time and trust me – it’s more complex and difficult than it sounds. This post is just meant to be a starting definition of the term, and not a how-to or training guide in any way. For that info, follow the resources links below.

One quick comment about organic vs. paid search listings: All the various search engines display both free and paid listings on their search results pages. For example, if you type the term “SEO” into Google, the results that you get back will be a combination of organic (or natural) search results and paid search results. The screenshot below has the paid search results areas circled in red.

Let me say again that SEO can be fairly complicated and I am just scratching the surface with this definition. I definitely recommend checking out some of these additional SEO resources:

• Wikipedia’s SEO definition
• SEO Chat – articles and insight into SEO
• Search Engine Strategies – Conference series that covers SEO in great depth
• Search Engine Watch

Google revolutionized Internet advertising in 2000 when it launched AdWords and the pay-per-click (PPC) model. This program was ground-breaking not just because the small text ads that ran alongside Google search results were served up based on relevance, but also because, for the first time, marketers paid only for an action (a click on their ad) – they didn’t have to pay for the thousands of impressions that were not clicked. With AdWords, performance-based media was born.  

Once advertisers demonstrated that they were willing to pay for any click, it was a short leap to believe that they would be willing to pay even more to know exactly who it was that was clicking. Today, lead generation and pay-per-conversion models (Google calls this cost-per-action) have joined PPC as viable business models, providing even more information to marketers who are trying to reach their customers.

Lead generation and cost-per-action pricing models are already popular in the B2B world. In the IT market, for example, Web Buyer’s Guide, KnowledgeStorm and Bitpipe are providing lead generation services to the biggest technology companies, which pay anywhere from $20 to $120 per lead to reach the specific individuals that they think are most likely to buy their products.

The Internet advertising market is going to continuing to move from static advertising to performance-based media. According to the just-released IAB Internet Advertising Revenue Report, approximately 50% of 2007 second-quarter revenues were priced on a performance basis, up from 47% reported for the second quarter of 2006. Lead generation revenues accounted for 8% of the 2007 second-quarter revenues or $408 million, up from the 7% ($284 million) reported in the second quarter of 2006. Contrast those statistics with the fact that approximately 46% of 2007 second-quarter revenues were priced on a CPM or impression basis, down from 48% for the same period in 2006.

Performance-based media is the future. We have already seen the movement with traditional Web content. Blog content, podcasts and video are all moving toward incorporating PPC pricing models, as well. I think the next move for these newer content formats is lead generation and cost-per-action. Let’s take video as an example. Silicon Alley has a write up about how advertisers are starting to take video more seriously, but that CPMs are declining. There is a debate going on around how money is going to be made on video advertising – what kind of ads will be used, the length, the format, etc. Applying the move toward performance-based media, I believe that someone is going to develop a lead generation engine around online video that will provide advertisers not only with the information on what videos were watched and how many times, but by whom and what their demographics are. Web Buyer’s Guide has a product on the market that does this, and I think it’s just a matter of time until one of the major video providers offers this type of advertising package.

And looking even further down the road – what’s the next wave of performance-based media? Right now companies pay for leads, but what if in the future companies begin to pay only for customer acquisition, and after an individual makes a purchase the lead provider gets a percentage. A large percentage. Sound like the affiliate programs that are widespread in the consumer market? Sort-of. But what happens when the technology is developed for a video provider to track an individual from the first video that they watch that peaks their interest in a product, all the way to the buy, and the video provider gets a portion of the sale?

Now that’s performance-based media worth talking about.

Disclosure: I used to work for Web Buyer’s Guide.

~ Foggy Autumn ~ 

Going back to the beginning. It turns out that the first formal advertising on the Internet happened in October 1994 on Hotwired, when AT&T launched a banner campaign on the site. Actually, there were 14 clients of the first Internet advertising program offered by Hotwired – MCI, Sprint, Volvo and others joined AT&T in using the online platform for campaigns. This is reportedly the first banner ad that was run (by AT&T). It might be clumsy, but it did turn out to be accurate – people clicked.

First commercial spam. The first commercial spam e-mail message was sent over the Internet in April 1994 by Laurence Canter and Martha Siegel Legal Services. The spam was advertising a Green Card lottery (the couple that ran the firm were immigration lawyers) and was titled “Green Card Lottery- Final One?”

Google is the Internet advertising powerhouse. This week, Google’s stock price topped $600 per share for the first time and it appears that the company now controls more than 40% of online advertising. Not bad for a week’s work. Here’s a look back at when Google’s most important Internet advertising initiatives launched, according to Google’s rendition of its corporate history.

•  
  • 1995-1997:
    Early days of Google, when it was still called “BackRub”
    
  • 1998:
    Renamed Google
    
  • September 21, 1999:
    Google comes out of Beta
    
  • August 16, 2000:
    Launched a targeted keyword ad program
    
  • October 23, 2000:
    AdWords self-service advertising program is launched
    
  • February 2002:
    AdWords gets an overhaul, including CPC pricing model
    
  • 2003:
    Google AdSense program is born 

Spending on Internet advertising continues to rise but slowed once in its history. The amount of money that has been spent on Internet advertising continues to rise and has since its inception in 1994, with the exception of a downturn from 2000 to 2002 after the Internet bubble burst.

• 1995: $37 million

• 1996: $301 million

• 1997: $650 million

• 1999: $4.6 billion

• 2000: $8.1 billion

• 2002: $6 billion

• 2004: $9.6 billion

• 2006: $16.9 billion

• 2007: Estimated $20-21 billion

~ Coming Noon ~ 

Thanks to Google AdWords, it is possible to become an Internet advertiser for the incredibly low cost of $5.05 – provided you have a Web site, that is. All you have to do is to sign up for a Google AdWords account (there is an initial registration fee of $5.00). After you select your keywords, set the minimum spend per click to $0.05. You’ll serve your first ad – and get your first click – for a grand total of $5.05. Voila! You’re an Internet advertiser.

Of course, I’m simplifying things.

 You could technically be an Internet advertiser for that cost, but the real benefits of pay-per-click (PPC) advertising come with scale and conversion. If the # of clicks x cost-per-click = less than $ earned from conversion – you’re laughing all the way to the bank. In non-math terms, the more individuals you can get to click on your ad, at the lowest cost per click, who you then convert into customers… the more money you’re making.

The recently released IAB Internet Advertising Revenue Report analyzes the Internet advertising market for the first six months of 2007 and shows that approximately 50% of second-quarter revenues were priced on a performance basis, up from 47% reported for the second quarter of 2006. Companies are increasing spend on PPC (and other forms of performance-based) advertising programs because they are measurable.

So, while Google AdWords (and its PPC sibling Yahoo Search Marketing) are a low-cost way to enter the Internet advertising market, the companies that are making a serious impact – and significant profits – from PPC advertising are those that are willing to scale and that are able to convert their visitors to customers.

(By the way, if you are looking for a play-by-play of how to set up a Google AdWords account, there is a good post at the Tech Savvy Marketer.)

~ Red Burst ~ 

There will be a point when domain name speculation as we know it will end. In its wake will remain a number of big guys – the folks like Kevin Ham and Frank Schilling who today own multi-million dollar domain portfolios and are growing their inventory daily. These guys and those like them have the money, development resources, years of experience and flexibility to adapt and change and bend with the changes of the search market and the Internet, so they will be the survivors.

Right now, much of the money with domain name speculation is made by hosting a “parked” page on every domain in the inventory – the speculators then make money on all the traffic that goes to those pages through pay-per click (PPC) advertising. Some of that traffic is accidental, some of it because people utilized “direct navigation,” typing URLs directly into the search bar. But what happens down the road when the search engines get even smarter? What happens when Google and Yahoo are able to correct misspellings on the fly? Or when consumers get savvier and learn to not click on the ads that clutter the parked pages? What happens if Google discontinues its AdSense for domains program ?  Or if a new search engine emerges that completely changes the way that search happens?

What will the new world look like? New business models are already emerging, but most of what is “new” is based on the tried-and-true media/publishing model. Richard Rosenblatt is taking his vast network of domains and turning each of them into a Web 2.0 site with user-generated “how to” content. Ham’s company, Reinvent Technology, has a mission “to transform our direct navigation business into a cutting edge media company by leveraging new technology, innovative ideas, and intellectual capital.” In 2005, venture company Highland Capital Partners bought YesDirect, a holding company with 600,000 domain names. It has since launched turned that company into NameMedia, which features a product called Direct Search that turns domain names such as www.photography.com into an online community, employing an “editorial model” to create a “compelling user experience.” They also hired Kelly Conlin, former president and CEO of IDG – a media company.

As John Andrews put it in his blog, “The next wave of the competitive Internet has arrrived, and it’s driven by the Domainers. No, not parked pages, and no, not typo squatters. Domainers as publishers.”

And in case you don’t believe him, Schilling points to this post and agrees. But instead of considering this a commentary on how the domain name industry is changing, he calls the trend the “potential/catalyst to change publishing.”

~ Today’s view:  http://www.flickr.com/photos/13799608@N08/1412989830/