Search and the New Economy Session 4 Pay-per-click Advertising

1. Search and the New EconomySession 4Pay-per-click Advertising Prof. Panos Ipeirotis

2. Today’s Objectives • Understand current audience • Get intelligence from referring URL’s • Get intelligence from search keywords • Plan and optimize site for target audience • Optimize internal search • Optimize external search • Keyword-based Advertising (Pay per Click, PPC) • Understand pricing model • Understand keyword selection principles • User generated content and ads • Advertising Networks • Guest speaker: Heath Row, Research Manager at Doubleclick

3. Anatomy of Search Results: Google PPC Ads PPC Ads Organic Web Results

4. Anatomy of Search Results: Yahoo! PPC Ads PPC Ads Organic Web Results

5. PPC Terminology • PPC: Pay Per Click • CTR: Click Through Rate • Percentage of clicks to impressions • CPC: Cost Per Click • Price an advertiser pays for each click on his/her ad • Daily Budget • Amount advertiser is willing to spend, each day, on PPC ads

6. How PPC Works Advertiser User enters query Advertiser s place bids Engine runs auction and displays winning ads Advertiser’s Website/Landing Page Surfer “lands” on website User Surfer clicks on an ad Search Engine Server Millions of auctions executed every day Once the daily budget is reached, the ad will no longer be shown.

7. The PPC Auction Model • Basic model • Highest bidder gets highest slot • Winner pays winning bid • Not ideal! Why? • Vickrey-Clarke-Groves (VCG) auction • Second price auction • Optimal for single slot • Reveals true willingness to pay, no need to be strategic • Winner for slot i pays maximum bid of bidder that get i+1 slot • Still not the best for Google, Yahoo, MSN etc. • Why?

8. Ad Quality Score + Landing Page Quality • Search engine needs repeat customers • Needs to improve user experience for long term • Bid transformation: • (Bid $ amount) x (Ad Quality Score) ~ (Bid $ amount) x (CTR rate + relevance) In other words, rank by expected revenue for Google • High quality ads → Lower bid amount(incentive compatibility) Main difference between Yahoo and Google until 2007 Details for quality score: https://adwords.google.com/support/bin/answer.py?answer=10215

9. Mini Case: Cost per Click and Holidays • CPC increases before the holidays • Should advertisers refrain from bidding? • How to approach the problem? • CPC increases but conversion rate (CR) increases more • Cost per Acquisition (=CPC/CR) drops! • Holiday season offers better bargain than other days

10. Today’s Objectives • Understand current audience • Get intelligence from referring URL’s • Get intelligence from search keywords • Plan and optimize site for target audience • Optimize internal search • Optimize external search • Keyword-based Advertising (Pay per Click, PPC) • Understand pricing model • Understand keyword selection and bidding principles • Understand important campaign techniques

11. AdWords Demo • Issues to consider • Daily budget, Max CPC (affects top placement) • Ad generation + landing page • Keyword generator, Traffic estimator • Campaign Settings • Ad position preference • Targeting capabilities • Daytime • Geo targetting

12. Ad Generation { • Static • “Search keyword insertion” • Headline: • Ad Text: • Landing URL { • Well Written(describing product) • Poorly Written (vague, generic, dull) What matters?

13. Improving PPC ROILanding Pages Targeted Website PageAverage Conversion Rate: 2.40% Website Home Page Average Conversion Rate: 1.17% • Targeted pages that are part of the website often outperform the home page as a landing page (Clovis)

14. Improving PPC ROILanding Pages Targeted Website PageAverage Conversion Rate: 2.40% Website Home Page Average Conversion Rate: 1.17% Special Landing Page Average Conversion Rate: 12.5% • Specially-created landing pages often outperform website pages, even targeted ones, as the landing page • Use A/B testing (Clovis Group) or multivariate testing (Dale and Thomas) OK BEST BETTER

15. Keyword Selection: What keywords to bid on? • Match by topic/relevance: • Google Keyword Tool (Tools → Keyword tool) • WordTracker • Analyze keyword demographics • (See earlier discussion) • Negative Keywords • E.g., “Dove” (soap) vs. Dove chocolates vs. Lonesome Dove (book) vs. Rita Dove (poet) • Association with desirable (sponsored) events, people • Coca-Cola and “American Idol” / “Simon Cowell” / “Carrie Underwood”

16. Keyword Selection: How much? Tools > Traffic Estimator

17. Demographic Targeting: Honda Element • Target Demographic: Young, single males • http://www.youtube.com/watch?v=fxPg7CwtG2w • http://www.youtube.com/watch?v=lhkAGfS__mk • http://www.youtube.com/watch?v=5k50lKeXeTI

18. Competition Waits Though… • For every Honda Element, there is a GM Pontiac • TV Campaign from GM: “Google Pontiac” • Mazda bids on keyword “Pontiac” • 69% of Pontiac traffic goes to GM • 2.43% goes to Mazda according to HitWise • http://weblogs.hitwise.com/bill-tancer/2006/01/google_pontiac.html

19. Campaign Settings “Roadblock” Geo-targeting Daypart Targeting Rank Targeting

20. Examples of Winning Plays • Daytime targeting: Budweiser • Roadblock + daytime: HollowMan DVD • Ads in as many sites visited by target demongraphic • Ads run during lunch time, and prime time of Friday • Geo-targeting: Multichannel play (many customers shop online, but buy offline) • CompUSA: Displays inventory levels at local stores • Luxury cars: Specific zip-codes + telephone of local dealer • 40% of car rentals ads, convert offline • 30% of job applicants saw online ad, submitted offline • Rank target: “Mining behavior” of customers

21. Targeting Demographics: PRIZM • How different demographics behave online?

22. Demographics Behavior Brewing Battle: Starbucks vs. McDonalds Will McDonalds get the $4/cup crowd from Starbucks? Starbucks: Urban Commuter Family, "college-educated households containing dual income couples." McDonald’s: Struggling City Centers, "lower-income households living in city neighborhoods in the South." http://www.time.com/time/business/article/0,8599,1702277,00.htmlBill Tancer, HitWise

23. Improving PPC ROIThe “Long Tail” Concept • “The Long Tail” by Chris Anderson • An aggregate of less popular products can sell more in the “long tail” than the most popular products • Same applies to PPC • An aggregate of specific, less searched terms can provide better ROI than highly searched terms

24. The Long Tail Illustrated

25. Does It Really Work? YES. • Major athletic retailer case study • 80% of PPC sales come from long tail keywords • Specific, product-name keywords • Only 20% of sales come from broad terms, like “BRAND shoes” or “BRAND jacket” • Most “long tail” keywords are inexpensive • [web hosting] $8.30 • [freebsd web hosting] $0.10 • Targeted at customers with specific needs, closer to purchase

26. PPC Cycle Discover/Research Compare Purchase Broad,approximately 50 keywords ex: shoes Medium,approximately 100 keywords ex: running shoes Specific,approximately 1,000 keywords ex: Asics 2010 running shoes Keywords High,typically high cost per click,more competition Medium,average cost per click,medium competition Low,low cost per click,very little competition SearchVolume Obtain a ready sale now;acquire a customer who knows what he/she wants Frame the buying decision;establish credibility Compete on more specific criteria;capitalize on customer preferences Opportunity ConversionRate Lower Medium Higher

27. Alternative Models • First-price Auctions (Goto.com, Overture) • Pay per Impression (Banner ads) • Pay per Action (PPA) (Newly introduced) • Pay per Dollar Revenue (PPR) (Amazon Associate) • Advantages and Disadvantages of Each Model?