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Old 11-04-2004   #1
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Simplify PPC Costs - Flat Rates

A clickz article named Yahoo!'s Overture Looks At Simpler Models to Court Advertisers discusses the possibility that Overture will flatten out pricing models.

Danny blogged on this article, pointing to an article he wrote in the past.

So what are your thoughts on how flat PPC costs will impact the market?
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Old 11-04-2004   #2
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I got a survey yesterday from Overture that included questions about whether the difficulty of managing bids was a problem.
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Old 11-05-2004   #3
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Flat click pricing is one of several reasons that LookSmart got flattened. Advertisers might be paying too much for some traffic, but for really good traffic, LOOK was leaving far too much money on the table. Lower profits meant less growth potential, worse service to advertisers, etc.

Surely Ov. and Google understand that the model they've stumbled into is a goldmine.

Flat click pricing is inefficient. I think it would hurt both advertisers and the auctioneers.
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Old 11-07-2004   #4
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Yahoo has already introduced a hybrid PFI programme with 'flat rate' PPC component back in March 2004 - Yahoo! 'Site Match'.

I would hate to have picked up the bar tab for the brainstorming session that designed the Site match model. I've still not met a client who is keen to pay an upfront "PFI" (Pay For It once) pricing component - with an ongoing "Pay some more flat rate per click" (with no position factored into the payments).

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Old 11-08-2004   #5
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Arugably, in time, the model will change as more users start to track their success. If bid management tools are increasing market conditions (i.e. CPC) as they are mixed in with manual bidders, then eventually the tools will lower bids to achieve ROI goals or metrics.

The more people who track and the more people who use bidding tools, the more chance there is of market conditions levelling off or reducing.

Trouble is, for the foreseeable future, that companies still look to traffic, especially those with an advertising model on their site, those with a lack of tracking or essentially all those who have bulk traffic models (such as affiliate networks) will result in Overture and Google making way too much money for the clicks.

I wonder if a flat CPC is a measure to control client's expenditure before they realize just how staggaring a loss they might be making?

JC.
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Old 11-08-2004   #6
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Overture Survey Asked a Lot of Questions about Google AdWords

Quote:
Originally Posted by cline
I got a survey yesterday from Overture that included questions about whether the difficulty of managing bids was a problem.
I also got a survey from Overture. Most of the questions were very explicit in asking how Overture compared to Google AdWords.
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Old 11-09-2004   #7
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Quote:
Originally Posted by Chris_D
Yahoo has already introduced a hybrid PFI programme with 'flat rate' PPC component back in March 2004 - Yahoo! 'Site Match'.

I would hate to have picked up the bar tab for the brainstorming session that designed the Site match model. I've still not met a client who is keen to pay an upfront "PFI" (Pay For It once) pricing component - with an ongoing "Pay some more flat rate per click" (with no position factored into the payments).

There are a bunch of companies that do something similiar... such as the Link Spider program I was told about yesterday at AdTech by DetLev Johnson... he likes the product and I have to respect his experience and test it out.... will write about the results in a month or so...
They solidly position you for longer keywords in Google free search and make a negotitaed PPC rate ... the results for direct ecommerce sites seems very impressive.
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Old 11-09-2004   #8
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before adwords

A few years ago, the company I worked with negotiated a flat-rate partnership with Google. We loved this deal because it was extremely efficient for us. When the contract expired, Google refused to re-sign and migrated us to the adwords product. The relationship became much more lucrative for Google (although still efficient for us).

The bidding model yields more revenue for the SEs so I don't see it going away any time soon. That said, I agree that managing accounts on a keyword basis will soon be a laughable thing of the past.

Agencies, third-party software developers and the SEs themselves will continue to roll out automated bid-optimization software. These tools will integrate with our back-end tracking systems and use complex business rules to manage to the desired ROI.
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Old 11-09-2004   #9
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Quote:
Originally Posted by tomslick
A few years ago, the company I worked with negotiated a flat-rate partnership with Google. We loved this deal because it was extremely efficient for us. When the contract expired, Google refused to re-sign and migrated us to the adwords product. The relationship became much more lucrative for Google (although still efficient for us).

The bidding model yields more revenue for the SEs so I don't see it going away any time soon. That said, I agree that managing accounts on a keyword basis will soon be a laughable thing of the past.

Agencies, third-party software developers and the SEs themselves will continue to roll out automated bid-optimization software. These tools will integrate with our back-end tracking systems and use complex business rules to manage to the desired ROI.
You got in when they offered the featured sponsored listings... similiar to the ones at MSN... unfortunately for the advertisers that got in on it, the product was discontinued.
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Old 11-09-2004   #10
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The article refers to the local search product recently launched.

There is a big market potentially and many local advertisers will eventually go beyond the horizon and move into the next town and cookie cut there way across countries. This is a great opportunity for franchises and similar model.

The idea of a flat pricing model means less bandwith needed for auction style bid management, and it seems like strategic keyword selection will not be the skill it needs to be at the moment.

There is definately a seperate marketplace for local search, and I am sure many stabs will be made at the pricing before the one that works for everyone comes into play. My bet is that the losers in the early stages will be the advertisers who can liken the costs of local search to the online Yellow Pages and seeing yp.yahoo.com as a frequent source of traffic from Overture can only be part of that experimentation process.
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Old 11-09-2004   #11
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Quote:
Originally Posted by Web Diversity
The article refers to the local search product recently launched.

There is a big market potentially and many local advertisers will eventually go beyond the horizon and move into the next town and cookie cut there way across countries. This is a great opportunity for franchises and similar model.

The idea of a flat pricing model means less bandwith needed for auction style bid management, and it seems like strategic keyword selection will not be the skill it needs to be at the moment.

There is definately a seperate marketplace for local search, and I am sure many stabs will be made at the pricing before the one that works for everyone comes into play. My bet is that the losers in the early stages will be the advertisers who can liken the costs of local search to the online Yellow Pages and seeing yp.yahoo.com as a frequent source of traffic from Overture can only be part of that experimentation process.
If they create a flat rate then when everyone opts for it the inventory will have to be rotated amongst the advertisers... great for Google as they will then have a locked in return... sort of like a CPM deal.... while the advertisers get dwindling traffic as more people come for the flat rate.
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Old 11-09-2004   #12
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Part of me thinks that you will end up being able to pay for banner style placement, enhanced listings with boxes, 1/4 page 1/2 page in much the same way as the YP is sold now.

In the UK this should make the offering of Webfinder much more of a compelling one moving forward as they understand the whole local community issue better than most with Thomson Directory.

No sitting back and putting feet up over Christmas!
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Old 11-10-2004   #13
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Won't fly.

People like the competitive bidding. The whole reason competitive bidding started is because corporations with big pocketbooks and few brains whined they couldn't compete with SEO's who knew how to rank sites on terms organically.

Their whine "Why can't I just PAAAY for #1...I don't want to do all that [SEO] work."

I sincerely believe that.
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Old 11-11-2004   #14
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Quote:
Originally Posted by tomslick
A few years ago, the company I worked with negotiated a flat-rate partnership with Google. We loved this deal because it was extremely efficient for us.
You got lucky! I talked to a company in one industry that got offered a $95 CPM deal for the premium slot (indeed this program is now discontinued). Tough to make a profit at that rate.

But I sense there are reasons for advertisers and Google to join together and revisit new flavors of the old premium program.

Some of the various weird rumors I've heard add up to the following prognostication.

Let's say Google sets aside a certain industry and family of common commercial queries as a pilot project. Let's say you type "Audi A4 reviews." Their "automotive advertising suite" is enabled as this is part of the highly commercial world of searches for buyer-related automotive info according to Google's patented IntentWhiz(TM) technology. After several organic listings, down the page a bit but above the fold, a prominent ad unit would be shown for whatever advertiser(s) had paid to buy targeted inventory in that area. Remember, this would be targeted ads on a page of SERP's that are highly commercial in nature, so Google might consider doing it since it doesn't (a) actually 'pop up' on the competitor's website, but rather on Google's SERP as a targeted ad; (b) such ads would only show up in areas where people are unlikely to squawk, because of the highly commercial intent of the query; (c) showing Froogle results would make little sense since it would also be in "brand-oriented" fields like cars as opposed to "compare-oriented" catalog fields like electronics or garden tools.

So we'd be back to "flat" pricing, but it would be at an exorbitant rate and CPM-based, in a special position on the page only allowable on certain terms. It would also be very clearly ADVERTISING since it would allow rich graphics or at least would be moderately graphical and delineated.

I do believe Google and others are seeing that there are big advertisers and agencies who (a) want to spend far more, and are in fact ticked off by the low budgets they're able to spend on search ads; (b) big advertisers and agencies do not want to play this childish "CTR" game -- they are used to hitting people over the head, and if given a chance to do things their way, and claim "brand impact," they will gladly pay 10X more for the privilege.

So I do see the case for flat pricing as long as that model is used in conjunction with the auction for clicks, and as long as it's CPM-based and set very high and targeted to the "branding" crowd.
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Old 11-11-2004   #15
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Why does flat pricing have to be CPM based? I disagree.

Imagine this situation. Nike says to Google, we want to be listed tops of shoes over the next three months. We want to write a big, fat check -- and we don't want to mess with all this bidding stuff, etc. It's a nightmare (and it is).

Google says fine -- but you don't just want shoes. You want a bucket of terms that all related to your audience, a particular type of shoe buyer. Here you go, here are 1,000 terms we've determined that meet that.

Further, we think those terms will generate 1,000,000 clicks to you over the time. This isn't perfect -- but that's our estimate. The contact will cover you getting that many clicks at a flat rate of $1.00 per click, +/- 20 percent. In other words, you might end up with only 800,000 clicks or perhaps 1.2 million. If it's far lower, these other contract provisions kick in. If it's far higher, the contact allows you to pay more if you want for an additional chunk of clicks.

Can you make the $1,000,000 check out to "Google, Inc." please?

Nike writes the check -- now they've bought guaranteed placement for a set number of terms for a set period of time. Maybe Google might earn more if each term had been bidded competitively. But they make a lot, and they simplify the process. And the cost remains tied to performance.

That, to me, is the future. The system we have now made sense when it started with Overture, but it doesn't scale. It's absurd. We're using technology to try and keep up, which helps. But it could be much more simple. The big advertisers will demand this. But where they don't set up contracts, I expect we'll see competive bidding continue.
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Old 11-11-2004   #16
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Featured Sites Model?

Danny

You're response sounds very much like that of MSN Featured Sites. Their process is identical, here is a term I want, MSN says here are 100 more, this is the traffic estimate, here is the CPC (on which negotiation is hard) and a contract for 12 months. The same applies to other engines, Ask Jeeves also springs to mind.

If this is the future, and I'm not disagreeing, then why is MSN one of the first listings that many companies single out to cut if things aren't going so well? The answer is, possibly, that they can't control it as freely as the current PFP mechanisms and with the rigidity of CPC it's hard to control performance and impossible to improve position at the drop of a hat.

This would surely limit Google's revenues as they are now tied to a fixed CPC for a position and despite the traffic levels staying the same Reebok can't come in and bid that one cent higher for the same traffic.

For this to be scalable there would need to be more placements on sites like Google for these advertisements as one of the major drawbacks to advertisers with the model as it currently stands is that inventory is 'sold out' where as with bidding its 'always available'.

Thoughts?

JC.
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Old 11-11-2004   #17
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Danny,

I think your point makes sense, but how would it work if Google made deals with both Nike and Reebok? Who would get top billing?
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Old 11-11-2004   #18
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If you are saying we get 1 million clicks and are going to charge $1... true it is not automatically CPM but Google factors the numbers they have on the top 4 positions and what the average CTR is and hey presto they decide a number (and they are using CPM methodology).
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Old 11-12-2004   #19
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Quote:
If this is the future, and I'm not disagreeing, then why is MSN one of the first listings that many companies single out to cut if things aren't going so well? The answer is, possibly, that they can't control it as freely as the current PFP mechanisms and with the rigidity of CPC it's hard to control performance and impossible to improve position at the drop of a hat.
It's good feedback. I wasn't aware that this was something companies consider to drop first, though. My impression was more that many companies aren't even aware of it at all

Quote:
This would surely limit Google's revenues as they are now tied to a fixed CPC for a position and despite the traffic levels staying the same Reebok can't come in and bid that one cent higher for the same traffic.
Yes, one cent on a particular keyword. But if I bucket a mass of keywords, a ton of them that were originally "low cost" are now going to earn me a lot more money.

This is the balancing act the search engines face. Do they make more in a bidded environment, or does flat-rate help? Or can both be combined. I think the problem with the bidded environment is that it doesn't scale well. More and more large advertisers, with very deep pockets, are just going to get frustrated. And that means they may not put as much money in as they might with a different system.

Quote:
I think your point makes sense, but how would it work if Google made deals with both Nike and Reebok? Who would get top billing?
Contracts and pricing. You want the top spot? Then you are first in the door, and your contract spells that out. At renewal time, you probably get first right to renew. If not, then Reebox gets to step in -- and Nike can decide for spot two, if they want. Keyword-linked banners sales used to operate like this. But unlike banners, paid listings can position multiple advertisers at the same time.
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Old 11-12-2004   #20
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Quote:
Originally Posted by dannysullivan
Why does flat pricing have to be CPM based? I disagree.

Imagine this situation. Nike says to Google, we want to be listed tops of shoes over the next three months. We want to write a big, fat check -- and we don't want to mess with all this bidding stuff, etc. It's a nightmare (and it is).

Google says fine -- but you don't just want shoes. You want a bucket of terms that all related to your audience, a particular type of shoe buyer. Here you go, here are 1,000 terms we've determined that meet that.

Further, we think those terms will generate 1,000,000 clicks to you over the time. This isn't perfect -- but that's our estimate. The contact will cover you getting that many clicks at a flat rate of $1.00 per click, +/- 20 percent. In other words, you might end up with only 800,000 clicks or perhaps 1.2 million. If it's far lower, these other contract provisions kick in. If it's far higher, the contact allows you to pay more if you want for an additional chunk of clicks.

Can you make the $1,000,000 check out to "Google, Inc." please?

Nike writes the check -- now they've bought guaranteed placement for a set number of terms for a set period of time. Maybe Google might earn more if each term had been bidded competitively. But they make a lot, and they simplify the process. And the cost remains tied to performance.

That, to me, is the future. The system we have now made sense when it started with Overture, but it doesn't scale. It's absurd. We're using technology to try and keep up, which helps. But it could be much more simple. The big advertisers will demand this. But where they don't set up contracts, I expect we'll see competive bidding continue.
I'm going to suggest that by making hypothetical Nike exempt from the stringent rules imposed on (and adhered to by) today's many PPC auction participants, basically you WOULD see the "far lower" scenario, at which point the "other contract provisions" (reducing Nike's commitment and leaving Google with only $100k where it had expected $1,000,000) probably *would* kick in.

No doubt they will test this type of program, but they are probably wary of guaranteeing x number of clicks. Google knows it cannot force users to click. Hence the genius of asking advertisers to target sufficiently that they *do* click. This is why I'm thinking that Google would consider trying to simplify things for big advertisers, but only on a CPM basis. I mean when AOL and Yahoo were making those big portal deals in the day, did they promise clicks? No. Just eyeballs. Good move.

The elephant in the room, potentially, is as soon as it's common knowledge that Nike wrote the check... well... who's going to audit click quality? Will Nike take ownership of that? If so, they'll soon find out that the quality keeps dropping as competitors and Adbusters types engage in low-level click fraud (that will slip through in spite of Google's detection tech).

If not - if Nike doesn't get into carefully tracking response - then CPC and CPM are essentially the same thing, since any CPC program has an effective CPM, or vice versa. In some sense there is no difference; it comes down to who gets what (how much Nike gets for its money).

Basically, in a CPC deal, if the listings are less relevant, and users stop clicking, Google gets the short end of the stick, and Nike winds up running a CPM-oriented campaign but paying a tiny amount for the exposure. When users get used to a generic Nike ad in a certain position they will develop the old banner blindness and stop clicking. That's fine for the publisher as long as it's a CPM deal.

I don't agree that it doesn't scale. Does the NASDAQ scale? It's an auction too. Like the stock market, the paid search market needs to be more, not less, careful about creating fair access for the smaller participant. But the analogy is not very good. It's been a long week, or I'd try harder.
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