Why is Pay Per Click Advertising Important?

A recent Nielsen study found that among the 74% of internet users who conduct searches, 55% clicked on paid search results. With PPC advertising, the advertiser has the potential to dramatically influence the behavior of the buyer, as the advertiser can tailor their message to the specific terms the buyer is actively searching.

In addition, PPC advertising offers many benefits as a marketing tool, including:

• A high level of consumer targeting
• Cost and pricing control
• Conversion-tracking capabilities
• Fast feedback loops
• Active consumer participation
• A powerful branding presence

How Pay Per Click Advertising works?

Pay Per Click networks are often associated with Search engine result pages, which can be targeted (bought) by search term. Hence they are also called Keyword ads. It’s worth noting that Pay Per Click ads can be shown on non-Search pages (i.e. contextual targeting). This site focuses on Keyword and Content-Targeted PPC networks.

Distribution
The ad networks amalgamate traffic from numerous familiar and not so well known web sites. These range from Google, Yahoo, AOL, MSN down to Embedded Processor Newsletter and other very niche sites. Traffic sites generally only work syndicate with one ad network. Thus, most advertisers work with more than one ad network depending on how many users they want to reach vs. the effort and expense involved in working with multiple networks.

By adding these cumulative large and small pools of inventory, and aggregating large numbers of advertisers (over 100K) the systems can allow very high degrees of targeting without ending up with unsold small chunks of inventory.

The networks vary in their openness in discussing their network syndication. Overture, Google and Kanoodle mention a handful of websites, while FindWhat remains very secretive about where their ads appear.

Geo Targeting
Google, Sensis and Overture now offer Metro area localization of ad campaigns. This may be essential for local businesses such as auto dealers, restaurants etc. 

Pricing
How is the CPC determined? In most cases, there is an open auction for inventory. Since the web pages display multiple ads (typically on the right side), the highest bidder is given the top spot, and so on.

Naturally the higher the rank of your ad, the more clicks it will get. While the price difference per rank position varies greatly, 20% is a rough rule of thumb for top positions on very competitive keywords. Coincidentally, 20% is also the rule of thumb for how much more traffic the next high position would get.

Thus if you were spending $100/mo to be in the #2 position, and bid 20% more to be #1 and got 20% more clicks, you would now spend $144/mo for 120% of the clicks you were originally getting.

Smart Bidding – in the case of  Overture, Kanoodle and FindWhat, the price you’ll pay is can be less than what you actually bid. Specifically, it will be 1 cent more than the next lower bid behind you. E.g. if you bid $1 cpc, and the next highest bid is 50 cents, you’ll end up paying 51 cents per click. This saves you from having to constantly monitor the bids of your competitors to avoid wasting money.

Bid Jamming – Note that in the example above, if you bid $1, and the competitor raised their bid to 99 cents, you would end up paying $1 CPC. Sometimes people do this on purpose

AdWords Pricing
Google AdWords uses a modified bidding system. In their case, there is a Max (or bid) CPC, and the actual CPC is guaranteed to not exceed that value. However, Google also takes into account the clikckthru rate (CTR) of the competing ads in addition to the Max CPC in determining rank.

For example, if someone bids $1 CPC and has a 1% CTR, and a competitor bids 75 cents and has a 2% CTR, then the competitor would be ranked higher.

The actual CPC is then based on the resultant ad position on the page. I.e. even though you bid $1 and the competitor bid 75 cents, your action CPC would be lower than theirs.

The formula for how this is determined is not published (and probably changes over time). As a result, it can often take many iterations of altering Google bids to reach the optimal situation. 

Creative
Here again the world divides into Google and everyone else. All the non-Google networks have a Title (40 chars in Overture) and a single Description line (190 chars in Overture).

Google has 3-line Ads with a 25 character Title, and two 35 character Description lines.

Editorial Guidelines
The ad networks vary in terms of editorial rules. For example, some may not allow exclamation marks in Titles, while others allow a single exclamation.

There are generally also rules about superlatives. E.g. The Best Widget!” or “The Lowest Cost”. Superlatives should generally be avoided.

Awards on the hand should be trumpeted. E.g. “PC Magazine Top 10”. Generally ad networks want you to cite the source of the award, and want to see an awards page on your website – stating the publication, issue, and headline.

Image Ads
A new development in this space has been the introduction of Image Ads in Google AdWords. While this concept may prove valuable in the future, at present, distribution is limited to Content Targeting partners. 

Targeting
Ad Networks generally allow targeting on Keywords. For example, if you have a site selling baked goods, you can purchase major keywords like Online Bakery, as well as minor ones like Kiwi Pecan Pie. The minor (tail) terms will have less traffic, but generally lower CPCs as well.

The net result is that the optimal strategy for many businesses is to have a large keyword list (often over 1000 KWs) in addition to lower position bids on major keywords.

Match Types
Keyword matching is more intelligent than simply literally matching the search terms that you specified with what a user types in. For example, plurals are often implicitly included. For the search term Muffin, Overture would match Muffins as well.

In addition, Overture and Google offer selective control over how broadly this implicit matching goes. The exact definition of the filtering varies over time and is quite complex, so a general description is provided here:

• Exact/Standard Match – In Overture, this will match the term plus plurals of it. Google matches the exact pattern only.
• Phrase Match – The user’s search term includes most of your specified keyword. For example Shoe would also match Red Shoe.
• Broad Match – Here the specified keyword will be matched against other related terms that may not include any of the words in the specified KW. For example Pastry Shop for Bakery.

Specifying Broad Match will get you the most traffic, but depending on your specific situation, the relevance of the derived KWs may cause your conversion rate to decrease. This may call for some experimentation.

Reporting
All PPC Networks provide statistics on Clicks, CPC, and Spend. Many also provide Impressions and CTR. Most networks provide this information on a daily basis. 

Tracking
At the end of the day, pay per click is a vast improvement over pay per impression pricing. However, it is still one level removed from what matters to your business – orders and revenue (ROI).

It is vital that you employ some method for tracking ROI and tying it back to your advertising campaign – ideally on a per-keyword basis.

There are several such tools available:

• Overture and Google provide (at no charge) conversion tracking tools which require you to place a small amount of code on your website’s pages. Note that these tools only work with that ad network, so if you advertise on more than one network (and almost everyone does), this may not be the best option for you.
• A variety of vendors provide independent tracking tools, at a fee. Overture has a separate tool, Marketing Console, that does this. Many other examples exist.

Calculating the ROI on a per-KW basis is the best measure of what to bid for each KW. It should also be the metric used for calibrating experiments such as new creatives, changing match types etc.
 

How to Use Them

All the PPC ad networks reviewed here have self-service user interfaces online.

You simply provide a credit card number to open an account. The next steps would be to type in some creatives (ads), specify a list of keywords, then bids for each of the keywords.

The process would then entail regular measurement/tracking, review, modification and loop infinitely.

If the prospect of this seems daunting, and you expect your advertising spend to exceed $5K/mo, SearchRev is available to serve you.

Tier 1 Ad Networks: Overture
The granddaddy of all PPC networks, Overture pioneered the space by spending vast sums of dot-com
investment money building critical mass both in terms of the traffic sites in its syndication as well as a
critical mass of advertisers (initially mostly small businesses).

Distribution

Today its a part of Yahoo and its network includes Yahoo, MSN, Altavista and Infoseek along with hundreds of smaller sites.

Pricing
Overture has an open bidding model rank is strictly based on bids, and you can see the bids of competing advertisers.

Creative
Overture has a 40-char Title plus a 190-char Description. Advertisers can convey quite a bit of information in the creative, but studies have shown that shorter creatives have higher CTRs.

Match Types
Users can select Standard (Exact)/ Phrase or Broad match for their keywords. You can also specify different bid prices for each match type.

Overture plus AdWords really dominate the PPC space, controlling about 80% of the inventory. Anyone seeking to advertise in this medium would simply have to include these two Tier 1 networks.

Adwords

Google’s AdWords network has even more traffic than Overture’s now, but they’re both in the same league. The syndicate includes Google, AOL (including Netscape and CompuServe), Ask Jeeves, along with a vast array of smaller sites.

Distribution
AdWords is different in several ways:

• It allows you to run multiple creatives.
• It can then auto-optimize them by Click Thru Rate.
• You can specify syndication at three levels.

1. Google.com only
2. Google.com plus all its partner search engines (e.g. AOL)
3. Google.com plus all its Content site partners (e.g. USNews.com, New York Times etc.)
4. All of the above

Once can expect lower CTRs and lower conversion rates on the Content syndicate. However, lower CPCs may make up for this.

Pricing

Google has an opaque pricing mechanism meaning that there’s no clear algorithm defined for predict what your charged price will be. Customers specify a Max CPC. Together with your Ads CTR, this then determines your rank on the page. Using your rank, and the Max CPCs, your actual CPC is then somehow calculated.

The Max CPCs of your competitors is not shown and vice versa. As such, bid jamming is not really a concern here.

Creative

Here again, Google is quite different from all other ad networks.

1. The Ad text is broken up into a title plus 2 description lines.
2. The Title is limited to 25 chars, and each of the 2 description lines can be 25 chars each.

The net result is that Google ads are much, much shorter, and it can be very challenging to convey your brand and identify the product in the ad itself. It can take some effort to put together an ad that doesn’t just look like “Get low prices on Red Widgets.”.

Match Types

Like Overture, Google offers Exact, Phrase and Broad matching with somewhat similar semantics.

Tier 2 Ad Networks

Tier 2 networks generally have substantially less traffic than the Tier 1 networks. Conversion rates can be somewhat lower, but bid prices are often lower as well.

1. Kanoodle has two distinct services: A Category Match product named ContextTarget. These are the usual sorts of PPC text ads, but placed on content pages of sites like usatoday.com, cbsmarketwatch.com, msnbc.com. This sort of traffic generally has lower CTR and Conversion rates as search traffic, since the content is not as finely segregated, and the users are not necessarily specifically looking for any product when they are viewing the page.
2. A Search product named KeywordTarget that currently runs on Dogpile, Search.com, WebCrawler and a few others.

Kanoodle has a third product now, named BehaviorTarget that actually segments users and allows you to target your ads to specific pools of users rather than content targeting.

indWhat is perhaps the largest of the Tier 2 ad networks in terms of inventory. Interestingly enough, their distribution pool includes many of the same search engines that Kanoodle includes.

The pricing model works much like Overture's. There are no user selectable match types. You can find out which competitors and bidding against you and how much they’re paying. It’s not as convenient as Overture in this regard, but bid jamming on the most popular terms might still be a concern.

FindWhat recently introduced a new innovation in the industry: pay-per-call pricing. This mode could be particularly useful for business that don’t primarily transact online. They may still have customers that search online, but then call the business to arrange pricing, product details etc. An Auto dealer would be one example.

Enhance (formerly A-Ha) is another ad network offering Keyword and Contextual targeting. They also have a paid inclusion program.

Enhance offers Basic, Phrase and Broad match types.

Enhance lists Excite, Earthlink and MSN among their distribution syndicate.
 

Looksmart operates its own directory as well as an ad network. It offers paid inclusion on that directory as well as keyword targeted ads. Looksmart listings currently appear on Lycos, Mamma.com, CNET Search and others.