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Old 07-30-2004   #1
Mike Sack
 
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Search Inventory vs. Conversion

In a recent NY Times Digital Article the author claims that there is an upward ceiling on available search inventory which the industry is fast approaching.

What effect will the search inventory ceiling have on conversion activity? Do you think more and more companies will shy away from the high priced, competitive terms in favor of lower CPC, more specific terms? Will that have a negative or positive affect on conversion rates?

Last edited by dannysullivan : 08-01-2004 at 02:58 PM. Reason: removed reprint of article and replaced with direct link
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Old 07-30-2004   #2
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Granted, it's all in semantics, but I don't think we're approaching a “ceiling” on available ad inventory, the number of phrases and spaces that people can bid on isn't going to change, it's the amount of people in the marketplace that is changing.

Think of it like buying commercial space on a show like Friends. There are only so many advertising spots available. In the beginning, when companies didn't realize that Friends was the "be all, end all" commercial spot, it probably wasn't that expensive to buy ad space. Heck, there may have been a time when NBC was practically giving away ad space, just to get folks to buy those spots. Over time, people realized the value and impact of advertising on a show that was as popular as Friends. The same amount of space was available as before, but now that people wanted it, the costs went up. Each company had to debate the cost of the spot verses the expected pay-off in brand recognition and/or sales. If it was worth it financially, they'd buy the ad. If it wasn't, they wouldn't.

The same goes for paid advertisements on the search engines. There have always been a limited number of total advertising spots; there just hasn't always been the intense interest in them that we’re starting to see now. In a capitalist market, the prices will rise along with the demand and will level off at a point that can be sustained long-term.

Ultimately, any company, big, small, medium, whatever...will have to track and analyze the impact of their campaigns and bid on ads accordingly. Sure, you can say that a large company has more money and can outbid a small company, but that's not a realistic long-term advertising proposition. Ads either make money or cost money for a company. No company, no matter how large, can run ads that cost them money forever. Thus, even a large company that is trying to drive competitors from the market is going to eventually have to stop using this advertising method if they can't turn a profit on it.

To the same degree, some might say that a small business has a better shot at maintaining that top spot. Small companies, especially some of the mom and pop shops that run out of people's basements have virtually no overhead, thus, more of their sales turns into profit, instead of going toward company expenses. Theoretically, this could allow them to bid higher than the larger companies.

So what does that all boil down to? I, for one, don't believe that all of a sudden, no one will be able to compete in the PPC market. We’re not going to run out of space one day and see people going “oops! Guess there’s no more spots to buy…oh well.” I believe that as the market matures, the advertisers are going to be forced to mature with it. We won't see companies running campaigns without taking the time to test them and track the results. "Limited ad inventory," if you want to call it that, will simply serve to give advertisers a choice: Get smarter, or get out of the market.
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Old 07-31-2004   #3
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I think it's too early to call the ceiling. Yes, bid prices are over the top in obvious fields. But I'm still seeing tons of barren inventory (no advertisers or one or two advertisers). I came across a campaign in the field of medicine that uses hundreds of keywords in each of dozens of ad groups. Over half these ads are showing for under 10 cents.

In the second place, we're not quite done with the contextual rollout -- some types of websites are totally untapped. Furthermore, GMail and PPC-in-email are barely off the ground.

Just based on that, I think it's a couple of years yet before it's time to start talking about the "ceiling."

There is also the broader spectre of local search and the much wider future of search ("the day when Tivo has java," "yelling at your car for the answer" - or whatever the likes of Godin, Page and Brin, and Ballmer are always prattling on about) leading to vast increases in inventory for "search" which used to be considered something else (print or broadcast).

It goes without saying that there will be some kind of ceiling, but for now it's just an article filling up space with prognostications from particular advertisers who are only too happy to kvetch about the ceiling so they can get their name in the paper.
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Old 08-01-2004   #4
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A short thread on the same NY Times article was first started on 7/23 in the Search Engine Advertising forum.
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Old 08-02-2004   #5
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The ceiling will start to form when the actual numbers of searchs hits a limit. Each month more people use search engines more and for more varied things.

Until that hits a wall how are you going to build the ceiling over it???
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Old 08-02-2004   #6
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Good question and this was brought up several times today at the SES conference. Search inventory is limited, so how do the engines increase the inventory? They are now expanding and improving "contextual ad networks". My coverage of the Dealing With Contextual & Other Non-Search Ads discusses some of this.
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Old 08-09-2004   #7
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Limited but...

The search inventory is limited but more and more targeted impressions opportunities are coming available every day. Before GMail there was Adsense, and before Adsense, we were getting used to Overture. Online media moguls are defining new advertising opportunities every day, and the ceiling is not even comprehendible at this stage in the game.
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Old 08-09-2004   #8
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I agree the ceiling is not conceivable... and that many of these articles about hitting a wall are from people who see that there is a max number of searches for every term... and as you note forget about the straight search methods (which will rise as more see the benefits - though not in such considerable numbers are there once was when search was still new) there are all sorts of other places word associative results can be placed.
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