I read the most unutterable drivel in a TechCrunch article – “Why Advertising Is Failing On The Internet“. There’s parts of the argument that I don’t have any personal experience with, but when looking at the bits that I do know about, I believe that the author, Eric Clemons, is just spewing nonsense. He points to declining advertising spend and draws an unsupportable inference.
An Analogy
Recently, restaurant revenues have been generally in decline. Is this because people are finding restaurants misdirect them to food?
Or is it because of another, perhaps slightly more obvious, factor?
What about people optimising their budgets?
Is there any reason to think that businesses do not also look to their operations in a recessionary environment? Would the shareholders be out in lynching gangs if a business was to ignore a recession?
Why Is Advertising Really Decreasing?
It’s a recession.
That’s it. When the marketing budget goes down, what do you do? You focus money on the most effective items.
Paid Search typically is icing on the cake. Not always – it depends on the business and I can cite companies where this isn’t true, too – but we’re looking at industry wide factors. IME, Paid Search is most often used to add a chunk of business for an established site. They could drop the advertising, and still see leads and purchases. So when they are keen to save money, it is an easy line item to drop.
In a recession, users spend more time looking for bargains, and click more. Conversion rates typically decrease, and ROI decreases. What is the right response? Decrease spend, and improve the site.
Instead of spending more on advertising, companies will direct effort to Search Engine Optimisation. SEO is an investment. Over months, you keep working on improving relevance, increasing user satisfaction, helping users to link to your business, developing low cost business relationships, and perhaps using grey and blackhat techniques – depending on the type of business you run and the risk you will take.
You also invest in site improvements – for a large company, that is cheaper than paid search. By optimising the site you improve user satisfaction, you can improve search engine rank, and you can decrease the need for paid search.
Strategic Impact
Two deceptively simple-seeming numbers tell a strategic truth.
In January 2008, about 90% of our leads for new business were primarily people wanting AdWords management.
In January 2009, about 80% of our leads for new business are primarily people wanting SEO and Conversion Improvement assistance.
Most of our AdWords clients have reduced spend. A few have increased their spend. But nearly everybody looking for extra business is asking us to find more economical ways to win business. That means looking at other channels, such as FaceBook and Twitter. It means exploring the use of blogs, and discussion forums. It means asking for feedback on the site content. It means looking at what users do and don’t do, and working out how to provide them with the best answer. It means improving site navigation and usability. It means offering up to date content.
Misdirection and Satisficing
The *worst* part of the article was a complete misunderstanding of how search engines, especially Google, work.
Google makes money because it doesn’t focus on making money. It focuses on satisfying users. Because Google has a large number of users, it is more appealing to advertisers. If Google presented search engine results that *didn’t* satisfy users, then users would seek other search engines that offered a better result. Advertisers would seek other opportunities. That has a direct impact on revenue. How?
The more advertisers there are in an auction, the more Google makes in that auction. If just one company bids, and users like the advert in large quantities, the advertiser can pay $0.01 per click. If there are two advertisers and users think both of the adverts are pretty good, then the average cost per click is higher – how much higher depends on the bidding strategy of the two companies.
However, if only one company bids on a keyword, and search users hate the advert – either the CTR is low or the advert is misleading – then Google will disable the advert. With a sufficiently unpopular advert you can bid $100 and your advert won’t be shown, even if no other advertiser is advertising on that keyword.
This is called “satisficing“. Google has created an auction mechanism that allows businesses to compete with each other. It has also created a system that allows users to vote on the acceptability of adverts. Unacceptable adverts – things that users hate – will eventually disappear even if the business is prepared to pay outrageous amounts.
There is no misdirection in that system. None of the parties may be completely happy, but none are unwilling to be a part of the game. That’s satisficing in a nutshell.
Misdirection Can’t Satisfice
So a central plank of the argument, that advertisers misdirect, simply isn’t borne up. If you have any real experience of paid search, you’ll know that you can decrease your Average CPC on Google by delivering improved adverts, better landing pages, easier purchase paths, links to supporting information, better customer service – *NOT* just by bidding more. Bidding more, in general, reduces ROI. Bidding management as a sole strategy is a failed idea. It was true in 2002. It is obsolete as a strategy now, and has been obsoleted for years.
Ignore The Rest
If someone pontificates at such length about something they don’t understand, I can’t read the rest with any sense of belief.
I *do* know something about PPC. I’m an AdWords Help Forum Top Contributor – I’ve read *thousands* of advertisers questions about why their adverts don’t work. I have free tutorials on how to improve adverts – which people say work for them; all the tutorials focus on increasing search user satisfaction. I’ve spent, on behalf of paying clients, budgets of up to $500,000 per calendar month – each advert leading to a specific landing page that answers the search query, with up to 4000 unique adverts flying at the same time, to bring users to the highest satisfaction landing page.
I’ve advertised, on behalf of clients, on competitor names and seen low CTR and low conversion rates and reducing Quality Score. I *know* that Google pays attention in organic and paid search results, to user satisfaction.
I’ve seen too many examples of clients in distress, asking for help, where they haven’t understood that they can’t just pay to appear.
Summary
Paid Search is declining because you get one sale from about 1% of clicks; it costs for each of the hundred clicks (or whatever the rate is – we see between 1:5 and 1:500 for various clients). In a recession, you can save costs by reducing items that are per-sale. SEO is not a per sale factor, it is closer to a capital investment; you can weather an economic crisis by living off the organic search results or investing further during the downturn so that as the economy recovers, you are better positioned for increasing user interest – but you aren’t paying more while users shop around.
Almost every single client that we have is working on improving their site, and improving their SEO results as a consequence. A year ago, they’d have spent money to bring in leads, and spent less time improving the site. That’s why PPC spend is down. Not because users are misdirected, but because advertisers are actually focusing on improving performance in a downturn. It is often cheaper to address user needs than to advertise and an improved site is improved for some time – whereas a click is transient. Pay Per Click appeals less than Conversion Improvement and SEO. That’s it. That’s the story.
Pretty flaming obvious, IMO. Oh, gee, I wrote about 2009 strategic advertising responses months ago. In a prediction. Hoop de doo.
Update
Danny Sullivan versus Eric Clemons in TechCrunch.
