I’ll be at the Internet Retailer Conference in Chicago next week with our VP of Merchant Services, Greg Kaldor. We will be meeting with a number of retailers to provide an in-person overview of the Jellyfish system and the benefits of our risk free channel. If you plan to attend and would like to meet up, please drop either of us an e-mail (mjm or gsk @ jellyfish.com)
Most people don’t care how search engines make money. They are free, right? This “free” attitude is similar to a home buyer that tells you that they didn’t care how much the real estate agent made because “the seller paid the agent’s commission.” But most people realize that the commission is factored into the price of the house they just bought. In other words, that 6% commission just came out of their bank account. Score one for the intermediary.
Now consider what technology is doing to the traditional residential real estate broker. The “For Sale by Owner” (FSBO) industry has used the power of the Internet to create a more efficient intermediary to match buyers and sellers of homes. New intermediaries like Fsbo.com, forsalebyowner.com, and a host of others charge significantly lower flat fee rates to market a home. The rationale: you don’t need to pay 6% of the sales price because technology allows us to be much more efficient in finding a buyer for your home. Even with the real estate industry controlling the MLS database, this new intermediary has been extremely successful. Experts estimate that close to 20% of all home sellers now go the FSBO route. ForSaleByOwner.com, for example, says in a recent Washington Post article that it has helped sell more than 90,000 homes since 1997, saving about $1 billion in commissions in the process. The residential real estate industry makes strong arguments for the value they provide, but new services continue to chip away (Zillow for pricing expertise, for example). I think the 6% commission will continue to go the way of the dinosaur.
Like FSBO for real estate, Internet search engines make money by selling advertising-they connect buyers and sellers on an incredible range of products and services. So the question I have is this: are these search engines using technology to lower transaction fees (and ultimately end prices) like the FSBO intermediaries claim to have done? Have Google or Shopping.com, for example, saved companies billions of dollars of advertising fees that are no longer built into the prices consumers pay for products and services?
Pay per click search advertising started out with this kind of promise. The engines used technology to efficiently harness the value of consumer attention and created tremendously targeted connections between buyers and sellers in the process. Lots of extra value was created. In the early days of paid search advertising, the transaction cost of matching up a buyer and a seller (e.g., advertising/customer) was dramatically lower than the cost in other media, creating lower customer acquisition costs for advertisers. But paid search pioneer Goto.com set this system up in a brilliant fashion; they lured advertisers into paid search in an auction environment, often at really low initial pay per click fees. Thus, as the advertising got better and competition for it increased, the advertisers began paying higher and higher fees to the search engine intermediaries. The existing auction system is very efficient at moving these fees to ensure the intermediary gets maximum benefit.
What does this mean? It means that as paid search advertising becomes ever more targeted and powerful, the intermediary will continue to soak up all of the value in the form of higher and higher advertising fees. At a macro level, the result is that even if search advertising becomes dominant, advertisers aren’t going to be saving money in any predictable, industry-wide fashion that would allow the added value created by technology to find its way back to consumers in the form of lower end prices.
Let’s turn our attention back to the FSBO analogy. Consider what would happen if the FSBO sites used the advertising auction system used by most search engines instead of a flat fee. Wouldn’t this system go something like this: you can advertise your house for sale in San Francisco by agreeing to pay us $$ each time someone looks at your house on our site, and the more $$ you agree to pay us, the more prominent you will be on our site, the more buyers will see you, and the faster you will sell. If this system took off and became mainstream (think Google/Yahoo) by creating a really fast and easy way for you to find a qualified buyer, everyone would start to use it and that competition would drive up the cost to advertise very quickly (the efficiency of markets). Ultimately, that increasingly expensive advertising would again get factored into the price of homes at a macro level. The system may not go all the way back to average 6% of the sales price (or would it as it became more powerful?), but I’m guessing it would be more than the low flat fee you pay on a FSBO site today. This analogy isn’t perfect because over time the FSBO’s of the world will also raise their prices if they gain market share, but right now home buyers and sellers are getting lots of extra $’s in their bank accounts.
You may be able to poke holes in my analogy (please do!), but I hope it gets you thinking about the inherent misalignment of interests at play here. The simple fact is that the more powerful, targeted and valuable paid search advertising becomes in the existing ppc auction system, the more $$’s search engines will extract from the system. The increased value is very efficiently soaked up before it can find its way to end-consumers in the form of lower prices.
Think about what would happen if Google became so powerful it could predict with 99% accuracy what advertising you wanted to see. Advertisers would compete to get their message in front of such a pure targeted audience (you). Fees would be incredibly high. Would you get any of that extra value? You certainly would obtain relevant advertising, but is that enough? And to make it worse, this system is hidden from you (you have no idea what a business paid for your click). It is like you are buying a home, but you can’t tell whether you are talking to a fully commissioned broker or someone who is getting a $90 flat fee. But don’t worry; you can take the attitude of our home buyer at the beginning of this post that doesn’t worry about the broker commission because he isn’t paying it. Search engines are free, right?
At Jellyfish, we think consumers need to be brought directly into this value chain. Technology can make consumers an equal participant in the advertising ecosystem. We look forward to showing you how when we launch.
A company called Xedant claims that have come up with a way to rid the world of Adsense Arbitrage (explained here and here). The solution? Teach people how easy and profitable it is to game the Adwords/Adsense programs. Their online tutorial (posted here) records how easy it was for them to build “Made for Adsense” click optimized pages and make money from them by buying Google Adwords. (e.g., buy traffic from Google (Adwords) and monetize that traffic by getting those folks to click on higher paying Google Adsense links).
The company claims to be doing this because they are sick of competing on Google Adwords with these arbitrageurs. They figure if the problem gets big enough that Google will eventually have to do something about it. I can’t vouch for their actual motives (or the research they claim to have done on the extent of the problem), but you have to hand it to them for creativity.
It is early in the first quarter of a long game, but Internet advertising is way behind technology. I was talking about this fact with our CEO Brian Wiegand yesterday and he came up with the title of this post. My goal is to show you how this is true.
Let’s first consider our relationship with advertising. To most people advertising is a dirty word. Look at the traditional world. We have been bombarded and interrupted by unwanted advertisements from the time we could walk and most of us have developed a healthy animosity towards ads. In fact, we hate them so much we actually spend money to avoid the damn things by buying things like Tivo DVR’s and Satellite Radio. Yet, advertisements fly around our heads every day like pesky insects on everything from city buses to products placed in our favorite movies. Occasionally, we find one entertaining or relevant, but mostly we simply endure them as a necessary evil.
But technology has given us the tools to dramatically change this relationship. Think about it. The potential of online advertising is astounding. For the first time in the history of the world, it is now possible to accurately measure and track how consumers are actually interacting with each individual advertising unit on a global scale and in almost real time. Advertising now has the potential to become 100% accountable; a scientific certainty instead of a crap shoot; a laser beam instead of a shotgun. Technology has given us the potential to turn advertising on its head.
Yet, for all its potential, most people still view advertising as a dirty word. We avoid banners, and hate things like pop-ups and interstitials that continue to interrupt us. We have to sit through a full page ad on our screen before we can enjoy our New York Times or CBS Sportsline and we try to avoid these ads as much as we can (Steve Gilmor even correctly pointed out that RSS is like a Tivo DVR for the Internet). Businesses sell us “free” versions of their products with ads included and paid versions that are ad-free. We fret openly when the pesky insects start to invade previously pure environments like video games or organic search results.
This problem is true even of paid search advertising, the current superstar of online advertising. Google may have scored a touchdown with this model through its AdWords/AdSense program, but this touchdown isn’t going to win the game (I’m sure Google would agree with me on this). On occasion, people view Google sponsored links as helpful, kind of like the yellow pages are helpful. But don’t you still try to avoid these ads? Aren’t you happy that they are pushed off to the margins of the screen and conspicuously labeled “Sponsored” to help you tune them out? This is even more true of Adsense syndication. Think about all of the Web 2.0 companies that are using Adsense as their revenue model. Aren’t these ads simply a necessary evil and a minor distraction that interrupt you from what you are really doing on the site?
At the end of the day, most people still view sponsored links with mistrust; the necessary taint of capitalism that is included to support a better world of pure organic, trusted content (if you had the choice to use a site with or without ads, which would you choose?). Even in their purest form, paid keywords on the engines (Google/Yahoo/MSN) still suffer from an inherent misalignment of incentives and potential for mistrust. The GYM ad bidding systems fuel the inverse relationship between the amount a company paid for a sponsored link and the end value to the customer because the cost of that advertising is built into the end product price. And how does GYM organize these ads? By their revenue potential, which doesn’t directly equate to customer relevance. To add insult, this whole auction system is hidden from users (isn’t this why we mistrust ads?).
In short, even with Google’s touchdown, technology is still kicking advertising’s butt.
Our mission at Jellyfish is to turn the tables by using technology to dramatically change the relationship people have with advertising. To use the “database of intentions” that John Battelle writes about to make advertising something that people actually seek out, something that they control and love to receive. We think this new form of transparent advertising will transform how you view advertising and how the Internet connects buyers and sellers. We hope it will create the holy grail of advertising that marketing guru Seth Godin defines as “perfectly matching sellers to highly receptive buyers.”
How does our advertising work? By creating a transparent market in which advertising and consumer value ALWAYS flow in the same direction. The precision of the Internet makes this possible. We can use technology to empower individuals to take control of advertising in a new and radically different way. We aren’t the only ones working on this problem (see Root.net and Attentiontrust.org, for example), but we think our form of transparent advertising will be the tipping point that takes this idea to the mainstream consumer.
I hope you agree that this is a big idea and that you stay tuned.
An article on CNNMoney.com yesterday discusses some of the problems with bogus merchant reviews at comparison shopping engines (CSE’s).
As the article points out, there is a huge incentive to unjustly manipulate these ratings because users put a lot of stake into them when making a purchase decision. And although the current CSE’s claim in the article to have the problem under control, there is plenty of opportunity to game the system with bogus content.
The two experts interviewed in the article both basically conclude that consumers shouldn’t accept the individual merchant reviews at face value.
We think consumers deserve a system with more integrity. A system that has an effective gatekeeper. And we are working hard to put our money where our mouth is by launching the Jellyfish shopping engine with a completely different kind of merchant review system. I hope you stay tuned . . . . .
Google’s recent $90 million click fraud settlement has led to an increased level of discussion about the fraud problem inherent in PPC advertising.
Now comes the inevitable rumbling over whether the settlement will be approved by the affected advertisers and ultimately, the judge in the case.
Michael Liedtke at the AP started tracking these developments yesterday in his piece “Click Fraud Concerns Hound Google.”
I just read The Register’s interesting article today “Full-up Google choking on web spam?”
The article cites estimates that “robot-generated spam consists of anywhere between one-fifth and one-third of the Google index” and indicates that Google is “engaged in an arms race with search engine optimizers.” But I wonder, is this web spam actually bad for Google? And are Google (and Yahoo! for that matter) really out to get the SEO industry (like posts here and here indicate)? Do they really want to destroy SEO as a whole or even the worst kinds of SEO like web spam?
Maybe not. Google may take some action here and there, but I believe that they actually like a little mud in the main organic results for commercial terms. Why? Because less than stellar organic results (from practices like web spam) mean higher CTR’s on their paid links and more juice for their quarterly earnings.
The simple fact is that Google and Yahoo! want their paid links to be more relevant than their organic results on searches of a commercial nature. Saying Google/Yahoo wants to get rid of SEO is kind of like saying the National Hockey League wants to abolish fighting. They may say this publicly, but the right mix of fighting fills the seats and gets more people tuning in (e.g., makes more $). There is a saturation point where fighting detracts from the game, but the NHL has engineered their rules, fines, suspensions, etc. to create an optimal level of fighting.
Isn’t the same thing going on in the SERP’s? Doesn’t Google/Yahoo like these to be slightly irrelevant and haven’t they engineered a system that makes this so? The Register article today posted a really interesting comment from a webmaster regarding Google’s manipulation of its index: “At this rate, in a year the SERPS will be nothing but Amazon affiliates, Ebay auctions, and Wiki clones. Those sites don’t seem to be affected one bit by the supplemental hell, 301’s, and now deindexing.”
It would be over the top to say Google wants its organic results to be completely irrelevant (like the comment above suggests) and they certainly have every incentive to be fantastically relevant for non-commercial search terms (which they are). But a little irrelevance is good for paid links and paid links is how Google makes money.
SEO isn’t the bad guy here. They are simply playing in a system set up to create mud. Consider also how Google displays SEO optimized pages. A recent search on “printer cartridges” brought up these two paid links first, with a cleanly optimized title and marketing message:
The same search brought up the following two organic listings first:
Why do these organic links have such a muddy message? Because this is the way Google has engineered the system. Webmasters have to manipulate their sites in this manner to get listed. Which set of links would you rather click on? Which one makes Google money?At the end of the day, I come back to the following inherent problem: For commercial terms, Google and Yahoo! have a huge incentive to make their main search results less relevant than their paid search listings. Because the system rewards them for paid links, users have to put up with some mud in their main results. Shouldn’t we just accept that SERP’s on commercial terms will be a bit muddy because most if not all of the organic results are gamed? Is Google Base going to change this? Or maybe there is a better way.
The Washington Post reports that a new PPC fraud lawsuit has been filed this week against Yahoo. Interestingly, the complaint cites a new flavor of click fraud (called “Syndication Fraud” in the suit) that involves Yahoo’s alleged partnership with spyware companies and typosquatters to unjustly drive up click revenues. One of the attorneys in the case, Ben Edelman, highlighted these practices here.
The complaint cites a classic example at www.expedai.com of how typosquatters are partnering with Yahoo, using its syndicated PPC advertising as a tool to collect click tolls from unsuspecting users who type in a wrong address. In the example cited, Expedia’s own PPC ad is included and I’m sure lots of vistors click on this Expedia ad without realizing their poor spelling just cost Expedia $. What a waste.
Lawsuits like this will raise awareness, but until we change the underlying PPC system to add transparency (so users understand when they click on the Expedia link they just charged them a fee) or better yet align the underlying incentives between advertiser and intermediary, these practices will continue.
Wonder whether Microsoft accomplished anything with their launch of Windows Live Shopping? Most of the community has attacked them for not supporting Firefox and for the poor use of AJAX.
But they do have an impressive database of products and merchants right? Not so, it seems. A little research on the site shows that Microsoft is continuing to simply serve up data from Pricegrabber and Shopzilla, albeit with a fancier front end. Couldn’t they at least build a shopping engine with their own advertisers?
Hopefully the next company to launch a comparision engine will come up with something more innovative.
The Washington Post and Wall Street Journal just covered the parked domains problem. We highlighted Google in our title, but both Google’s Adsense and Yahoo’s syndicated advertising program are fueling the domain name speculation market, giving the speculators a powerful new way to earn rents on their .com property.
We think this activity (for example cellphoneplans.com or hotmial.com) is bad for consumers, cheapens the Internet experience, and doesn’t do credit to the web’s vast potential for connecting buyers and sellers. Posts at Google Blogoscoped and Threadwatch tend to agree. In reality, these parked domain sites are just a very basic collection of paid links that create an unfocused user experience and rack up millions (soon to be billions) of dollars of fees for the search engines and the domain speculators, all at advertiser expense.