Click-through “commitment”: Understanding search engine advertising

Search engine users may find the sponsored links that pop up alongside results distracting and irritating, but that does not stop them from using them. Search engine advertising is the fastest growing online ad segment in Australia and most of the revenue pouring into Google and Yahoo’s tills comes from people clicking through on “sponsored results” and ad links.

The rapid growth of search engine advertising (SEA) – where businesses pay search engines to display ads alongside search results – presents vast opportunities for companies seeking to drive traffic to their websites and convert it into sales. But research consistently shows that while SEA, a uniquely complex and dynamic form of advertising, works outstandingly for some companies, it’s a failure for others.

Researchers have looked at why some businesses use this sort of advertising more effectively than others. But the relative newness of SEA, which forms part of, and is sometimes referred to as search engine marketing (SEM), has precluded a detailed understanding.

Search engine advertising looks deceptively quick and easy, but a new study conducted by an Australian School of Business PhD student, Hamed Jafarzadeh, and Information Systems associate professors, Aybüke Aurum and John D’Ambra, found that the most outstanding search engine advertisers are effectively devoted to the cause. They have a strong marketing culture, specialised SEA skills and relentlessly monitor their outcomes, which allows them to refine their campaigns.

The school’s new research has significant implications for the growing number of companies looking to exploit SEA opportunities. “It is not just a matter of obtaining a place in the search results, and then waiting for increased traffic to your website,” insists Aurum. “An effective SEA strategy requires planning, such as identifying keywords for the search engine to associate with your site. It may also involve a potentially expensive bidding exercise against other business operators who want their websites to be associated with the same keywords. The business then needs to monitor their click-related data to evaluate the success of their SEA strategy and monitor it on an ongoing basis.”

Industry experts, including advertising agencies, have backed up the findings and say any company looking to fully exploit advertising on search engines needs to work on ensuring all the success factors are in place before launching SEA campaigns.

Immediate conversions

SEA appears straightforward: a search of “insurance” (Google’s most expensive search word), for example, turns up more than a billion results. Above the results, in a coloured box for Google, will be a series of links. They also cascade down the right side of the page.

But how the ads get there is complex and highly competitive. The advertiser bids against other advertisers for keywords, and their ad is then displayed when their keywords are typed into the search engine. Advertisers pay the search engines when a user clicks on their sponsored links. The more popular the keyword, the more the company pays per click.

“In certain categories – financial services, travel and automotive – there’s a lot of competition around key category terms,” notes Josie Brown, director of digital at advertising agency JWT Melbourne. “Insurance”, “banks” and “mortgage” are bestsellers.

Businesses that have an online offering that people can click through to and purchase straight away are prime candidates for SEA. A recent study found the businesses that generate the best return on investment from search engine marketing operate in the banking, superannuation and insurance industries “because people can get all the information they need online, make a transaction and activate services straight away”, says Nathan Bush, head of interactive strategy at advertising agency BCM Partnership.

Search engine optimisation (SEO) – activities designed to get an internet site high search engine rankings – can be a slow process, which means businesses need to spend money on search engine advertising to get an instant presence on search engines. “If you’ve got a new website it can be 12 to 18 months to get up there (on search engines),” Bush reports. “Anyone whose SEO isn’t up to scratch has really got to hit the SEM (marketing) side until the website starts ranking a bit higher. You’ve got to hit SEM so people know you’re out there.”

Internet searchers, using a keyword search, want the most pertinent results to appear in the actual results list. They tend to perceive any advertising in a negative light, suggests Aurum. “From a user’s perspective, paid advertising may be nothing more than a distraction to be ignored. Yet interestingly search ad companies, such as Google, obtain more than 90% of their revenue from these ads. So there is clearly a group of people who do click on these ads.”

In its latest digital media research report, released in November 2011, research company Frost & Sullivan estimates that Australian online search and online directory advertising grew 23% in the 12 months to June 2011 to A$1.4 billion.

Search engine advertising grew 28% – outstripping all other mainstream advertising including general online advertising (online banner, advertorials and email marketing), online classifieds and online directories. Search advertising accounted for 76% of the online search and directories segment.

Search engine advertising is expected to grow strongly at a compound annual growth rate of 16% over the next five years, well above 6% for online directories. “The search advertising market, while maturing, continues to remain popular as it’s a very efficient and cost-effective way of advertisers reaching their target market,” says Phil Harpur, senior research manager for Frost & Sullivan. SEA growth is being boosted by continual improvements in search ad formats, search targeting techniques and search algorithms.

Why only some win

Within the growth are two stories: one of companies using SEA successfully to drive search engine traffic to their sites; the other of companies wasting marketing budgets on ineffective campaigns. “Research shows a lot of businesses are not benefiting from this type of advertising,” Aurum says. “When they look for the reasons, one of the things that comes out is they don’t really know how to measure it and how to use it.”

Academic literature to date has generated conflicting evidence about the specific factors that determine a company’s success or failure using SEA.

ASB’s Hamed Jafarzadeh sought to narrow the list of those possible factors, build a theoretical model, and exhaustively test them. He combined the results of a deep literature review with insights from resource-based theory (RBT) and developed a conceptual model of what determines search engine advertising effectiveness. The theory suggests that firms gain a competitive advantage by exploiting internal resources such as capabilities, skills and know-how.

Jafarzadeh’s model identifies key internal determinants of search engine advertising effectiveness as keyword and bid management skills, the ability to measure and monitor outcomes, marketing knowledge, and the capacity to detect click fraud. External factors included using third-party tools (usually advanced software and subscription products that create and monitor SEA campaigns), and involving external experts. Other possible factors included commitment to SEA and integration of SEA with other forms of marketing.

To test his model, Jafarzadeh surveyed 5420 Australian companies. The results, yet to be formally published, found four key factors determining SEA success:

1. Knowing how to manage keywords and how to bid for them

Selecting the right terms on which to bid is crucial for search engine advertising success, but there are multiple issues that need to be addressed, including sticking to reasonable budgets. Many companies say it is one of SEA’s most difficult areas.

A common mistake is using keywords popular with industry professionals, but not used by searchers. BCM’s Bush outlines how one client focused their SEA campaigns around the keyword “notebooks”. Unfortunately, while the company and manufacturers referred to them as notebooks, the searchers were looking for “laptops”. “They were missing all that traffic purely because they were using industry jargon,” Bush says.

Another issue is whether to bid for highly popular broad terms or more specific ones. According to Bush only large organisations, such as a major bank with a multi-million dollar budget, can afford to bid on popular “short-tail” or “head” words, such as “insurance”, “home loans” and “banking”, which may cost up to or more than A$100 per click. Other companies need to focus on “long-tail” keywords that are more specific, such as “home loans in Brisbane”, to keep costs down. And they may be better off bidding on 50 to 100 “long-tail” words than one or two more general “short-tail” words.

2.  Monitoring outcomes

Effective use of search engine advertising also means precise measurement of its success, and a continuous refinement of campaigns. But research has found that many companies struggle with this aspect of SEA due to complications and lack of internal skills. Some businesses that are not succeeding at SEA don’t monitor their campaigns closely, and fail to find and fix problems on an ongoing basis. That’s despite search engines providing detailed reporting and analysis tools.

One of the benefits of SEA is the ability to measure outcomes. “It’s the most measurable of any medium out there,” Bush insists. Analytics clearly show that an advertiser spent $X on a search engine advertising campaign and it directly converted that into X times $X worth of sales. That allows the advertiser to make strategic decisions to increase SEA spend.

JWT’s Brown agrees that monitoring is one of the key benefits of this type of advertising. “You can tell exactly how many people responded to an ad, how many times people saw it, and the types of words they’re responding to.” Adept search advertisers “use that information to keep refining campaigns”, Brown concurs. Many deploy more sophisticated software to get richer data and to integrate SEA with other elements of their marketing.

3. Have existing marketing knowledge

Another clear determinant of SEA success is the level of a company’s advertising/marketing knowledge. Companies generally weak in marketing and advertising are at an immediate competitive disadvantage. “There’s a cultural thing about effectiveness in advertising,” Brown says.

Marketers who know about an individual business and how consumers behave provide a competitive edge. Companies need “someone who can analyse the data, and once you get a campaign in place, someone to stay on top of it: which keywords are performing and which aren’t, and where opportunities are,” advises Bush.

He says the key to effective SEA is knowing the business, what is important and not important to customers, and where the key margins are. SEA is not simply about pulling information from Google about what people are searching about the company. “It’s about having that internal business knowledge and understanding of exactly where their money makers are.”

4. Commitment to SEA

The final factor is the amount of energy devoted to SEA. Research shows that some advertisers view search engine advertising as a “low-risk task”, due in part to the ability to set daily budget limits. Therefore, they don’t fully commit. But because SEA is competitive and complex, not devoting time, budget and resources to SEA increases the risk of failure.

Commitment leads to consistency. “You wouldn’t want to be switching it on and off,” says Brown. “It doesn’t require lots of people to work on it, but you do need to stick with it. There has to be a commitment that you’re going to do this and keep optimising it.”

SEA is a fast-growing segment of the online ad market because the opportunities are enormous – successful advertisers can drive big traffic to their internet sites, convert them to sales and measure the process closely. But success is not easy. It requires knowledge, skills and a strong marketing and advertising culture within companies. And above all, a major commitment to making SEA work.