Insightful analysis and commentary for the US and global equity investor
Contributors: Douglas McIntyre Jon C. Ogg

Previous Posts

Thursday, July 27, 2006

Advertisers Embrace Analytic Tactics

By Yaser Anwar, CSC of Equity Investment Ideas

With Internet ad spend spiraling upward, JupiterResearch finds advertisers changing tactics to keep a lid on spending for their "key word" advertising.

Jupiter research associate Sapna Satagopan told a July 18 audio conference for Jupiter clients that simply making high bids for the top three key words—which are parceled out in blind auctions—will be increasingly "irrational" given ad price escalations. The first page of results from any consumer-directed Web search contains three slots for key word ads that are most coveted.

She notes that Jupiter's U.S. Paid Search Forecast, 2005 to 2010 estimates the average cost per click (CPC) for each consumer response to such key word ads will spike 14% from 2005 to 2007.

To keep ad spend efficient, a Jupiter survey U.S. Search Engine Marketing Executive Survey, 2006 found that five advanced tactics are now the first choice to direct key word ad spend for about three quarters of "sophisticated" advertisers. The most popular of the five is making future buys based on past buys with the highest return on investment (ROI), irrespective of changes in consumer traffic. Sophisticated advertisers accounted for one-quarter of advertisers in the Jupiter search marketing survey; they spent the most on ads and tended to use complex media tools.
Besides ROI at 28%, the other top criteria cited by surveyed advertisers in buying key word ads included:

• 20% spread their ad spending over increasingly more search engines to achieve consumer
traffic goals;

• 12% place based on search marketing revenue;

• 9% cite analysis of cost of goods sold per spot;

• 4% rely on bidding tools such as Google's bidding interface, third party vendor tools such as
Atlas Search as well as agency-provided tools.

"These are smarter ways to bid," says Satagopan. As the accompanying table indicates, only 10% of these sophisticated advertisers are primarily relying on internally-generated estimates. And just 7% of sophisticated advertisers in 2006 are bidding high simply to concentrate ad spend on just the top top-positions for key word ads—an elementary tactic. "This is good news as 'irrational' bidding is down for sophisticated marketers," notes Satagopan.

She noted that advertisers juggle several considerations when buying key words such as "digital camera" or "automobile." Advertiser ads accompany search results in Google, Yahoo!/Overture, and other search engines.

Jupiter estimates the average click will cost an advertiser 47 cents in 2005, from blending the figure for expensive products such as houses at perhaps $20 per click down to low-cost key key words for mundane consumer items such as soda pop at 5 cents.

With Yahoo's search engine project being delayed, this gives Google the upperhand (not like it didn't have that already) to further boost its market share. Google has also improved its Adwords interface & customer service is alot better than before. Once the Fed stops raising rates (Historically, The Fed has to cut rates every 9-12 months after they stopped raising rates) i believe the market will pay a higher multiple for Google.

Sources: Excerpts from Kagan Research Newsletter & Jupiter Research

Powered by Blogger