Internet Pay Per Click search advertising is getting complicated. Our CEO often calls it Internet Chemistry, but it’s really more like a form of Actuarial Science that is increasingly applying complex statistical methods to predict future advertising performance (e.g. the likelihood of a conversion).
Niki at Bronte Media was recently discussing an interview with Anil Kamath, one of the founders of Efficient Frontier, a search marketing firm. Anil’s interview is a great example of how PPC marketers are becoming more and more like hedge fund managers on Wall Street. Why do you need a PhD in predictive analytics to be a PPC marketer these days? Two main reasons: 1) the tremendous growth in the long tail of available keywords; and 2) the giant chasm that still exists between the click and the conversion.
Basically, Efficient Frontier and other PPC gurus try to optimize search ad campaigns by analyzing click and conversion results from a really big data set of customers. Here is an excerpt from Anil’s interview:
You can’t just Bid a keyword based on its own conversion; you need to look at the elasticity of the Bid as well in terms of how your bid effects your position in the market place that you are participating. What the competition is bidding against you, and how many clicks you’ll get more or less based on whether you bid more or less on that keyword. When you take the information of that keyword, and combine it with information that you have about other keywords; you’ll have a pretty complex problem.
Complex indeed. It seems to me that statistical expertise like this is the reason that Nextag-the master of using large sets of keyword data to create search arbitrage opportunities-was recently valued at $1.2 Billion.
But does search marketing really need to be so difficult? Efficient Frontier uses a lot of complex statistics to back into some pretty simple overall business goals on the minds of direct marketers. In Anil’s words:
The business goal could be to spend a hundred thousand dollars and maximize my registrations, or maximize my revenue. Or, it could be to get twenty percent margin, while getting you the most revenue possible.
Contrast this to the simplicity of Cost Per Action search advertising in general, and the Jellyfish Value Per Action model in particular. The beauty of VPA is that it closes that chasm between the click and conversion, eliminating risk and a lot of math homework in the process. Marketers’ jobs become much easier when they only pay for successful conversions because they can easily translate their ad spending into their overall business goals without a lot of complex math. At Jellyfish, we have lots of advertisers now using our back-end ad platform to manage their CPA commissions at a product and category level. And each time they set their commission level, they are directly setting their rankings in our system and the return on their ad spend, without having to worry about click burn, the potential for negative ROI, or the complex statistical analysis of the PPC system.
This root simplicity (complexity will develop in CPA-optimization land as well) is one of the reasons that we think Cost Per Action advertising will continue to grow to become a dominant form of online direct response advertising. Here’s hoping Jellyfish will be a big part of it.