Kick it to me, kick it to me

Search engine marketing is a hot area for hot innovators, and with the big retail names yet to realise its potential, it is one market that is on a roll. By JAMES BENNETT.

By James Bennett

Search engine marketing – which involves companies advertising on search engines such as Google and Yahoo – is the hottest area of the booming online advertising sector.

Last year, search marketing spending in Australia grew by 81.4% to $399 million, as the total online advertising spend leapt 61.5% to just over $1 billion.

It is little wonder that people like Frank Grasso, founder and chief executive of search engine optimisation company e-channel, are suddenly getting plenty of attention.

Grasso’s business helps companies make money out of their website by improving their search engine marketing strategies.

The company has recently received $750,000 from a group of investors led by venture capital firm Playford Capital, and will use the cash to push its ambitious new product Dynamic Creative.

Grasso started e-channel in 1999. He had been working as a mechanical engineer in the late 1990s when he discovered the dot-com boom starting. “I saw this brand new industry, started to have a look and realised I had a passion for it.”

Grasso and his business partner started out designing websites, but after building about 20 sites Grasso realised he was missing a bigger opportunity.

“I kept being asked the same question by clients: how am I going to make money out of my website.” Grasso did some more research and discovered the answer lay in search engine optimisation.

Getting noticed on the internet can be difficult. To ensure that search engines such as Google and Yahoo notice a business’s site, e-channel helps companies adjust the layout and content of their website to ensure search engines pick up the “keywords” contained in the site and generate advertisements based around these keyword searches. This helps drive traffic to the company’s website, which in turn boosts sales.

E-channel offers clients five service levels, depending on the complexity of their site and the competitiveness of the keywords a client wants to target.

Dymanic Creative helps to automate much of that process. “It solves a very big problem for very big websites,” Grasso says. The software works best with websites that are supported by big databases, such as a travel website or a website that sells cars. Dynamic Creative can generate more than a million keywords based on that database.

Here’s an example. Say a traveler is looking for a hotel. They may start looking simply at “hotels” and then narrow the search to “Sydney hotels” and finally “Hilton Hotel in Sydney”.

“Dynamic Creative will produce an ad for every part of the purchase cycle,” Grasso explains. The first ad may read: “Hotels, thousands to chose from”. The second ad might promote: “300 hotels in Sydney from $150 a night”. The third ad would offer a room rate for the Hilton in Sydney. Dynamic Creative is being used by a number of companies, including Fairfax Digital’s Drive site. The package has created more than a million keywords for Drive.

Grasso will not discuss turnover, but says he has a staff of eight. He admits the search marketing sector is quite crowded. E-channel has a number of competitors of a similar size and low barriers to entry are enticing more start-ups.

But Grasso says that new players tend to get stuck serving SMEs. “It’s hard to get a big contract unless you’ve got experience.” Investors are clearly untroubled by any potential overcrowding in the sector and are piling in.

In March, listed media and communications group Photon bought 51% of search marketing company The Found Agency for $1.63 million. In November 2006, newly listed IT company BlueFreeway bought 20% of search marketing group Cogentis for 70,000 shares, now worth $101,500.

Grasso says the money from Playford Capital will allow e-channel to hire a sales team in Sydney to start pushing Dynamic Creative. Playford Capital has also bought in three strategic investors – including dot-com veteran and former chief executive of the Internet Industry Association Philip Alexander – to provide experience and advice as well as money.

Playford’s investment manager, Doug Adamson, says he was particularly attracted to e-channel because of its leading-edge technology and the passion of Grasso and his team.

Adamson says one the biggest challenges for e-channel will be finding the right people. The search engine industry is facing a war for talent, with top search engine marketers commanding salaries up to $200,000. “I think building the team is the single most important thing – making sure we get the right people.”

Grasso says the biggest challenge for e-channel and the entire search marketing industry is educating potential clients, particularly the big retailers such as Woolworths and Coles who have a minimal online presence. “They haven’t got a grasp of the internet yet,” Grasso says. “When they do, this industry will change forever.”