In Australia, we expect to transition Yahoo!7′s organic search results (the non-paid listings found on the main body of the page) to Microsoft during January 2011.

The change in their paid listings is coming later in the year:

The transition of your paid search account to Microsoft technology is scheduled to take place in the second half of 2011.

For months now both Yahoo! and Microsoft’s blogs have been discussing the change and how to switch over for the USA and Canada. In those markets, the deadline for transitioning from Yahoo! to Microsoft Adcenter was today.

Here in Australia, we should be able to expect the same level of information during the transition period, as outlined in today’s email:

Approximately three months prior to the transition of your paid search account, we will begin sharing more detailed information with you, to help you prepare for the changes to come. Until then, please continue to manage your Yahoo! Search Marketing account as usual.

There will be one important difference between the switch in the states and here in Australia; Microsoft Adcenter is not active locally. To date Bing’s paid listings have been driven by Yahoo! Search Marketing. Personally I expect to see Microsoft Adcenter introduced into Australia well before the changeover date, to allow Yahoo!’s current Search Engine Marketing customers to migrate their campaigns across.

Other than a change of interface, there will not be any real change in how the SEM marketplace operates in Australia. Unlike in other markets, where they have gone from three to two SEM products, Australia has only had Yahoo! Search Marketing and Adwords. This deal does mean the final end to the SEM product that Overture (Previously Goto) spawned, and that, at least, is significant.

1. Artificially inflating the value of traffic and impressions from brand-focused campaigns by
   • removing direct response metrics from campaign management or
   • believing it is something it is not
2. A word I made up

In the late 1990s the Internet was going through its first real bubble thanks to a combination of optimistic venture capital and a high perceived value of impressions. At the time, companies like Yahoo! benefited from this immensely as advertisers were willing to pay ridiculous amounts for banner ads. Even at an inflated price, banner impressions were still cheap compared to TV or other broadcast media and no distinction was made in the mind of the advertisers.

Over ten years later large portal sites no longer dominate the web. Search and social media have taken their place (though Portal sites and Search Engines are not all that different), but advertising for branding online is still a factor.

Advertising for branding is different to direct response campaigns. The metrics for measuring return on investment (ROI) are different for each type of campaign. Competition between direct response and branding ads in the same query space will favour the campaign with larger margins and cheaper goals. Direct response campaigns for low margin sales based on hard ROI targets don’t usually have these.

There are a number of ways that a branding campaign will differ to a direct response campaign in a way that can raise the cost of traffic, and these include (but are not limited to):

• CPM campaigns versus CPC
• Conversion value not limited to a single sale
• Pricing based on costs of broadcast media
• Completed goal action is simpler than a sale

Like most media, Search Engine Marketing (SEM) and online display advertising benefit by providing products to maximise return on advertising inventory.

Networks like Google, Yahoo! and Microsoft have made changes and acquisitions to cater for brand advertising. These include, though are not limited to, YouTube display advertising, display networks like Adsense and advertising tools such as the option to advertise above the fold on sites using Adsense.

Taken from Chapter 13; Efficient Market Hypothesis, Jiang Wang (2003);

Definition: A financial market is (informationally) efficient when
market prices reflect all available information about value.
A precise definition needs to answer two questions:
1. What is “all available information”?
2. What does it mean to “reflect all available information”?

So are online advertising markets such as Google Adwords informationally efficient and is the Efficient-Market Hypothesis (EMH) as applied to financial markets relevant?

In an Informationally Efficient market, prices reflect all available information as participants act to maximise return. Behaviour is more uniform, and margins are low as competition is consistent across the market. When all participants have a comparable understanding of the market, from pricing and behaviour to opportunities and return on investment (ROI), market activity is determined more by the circumstances of each participant rather than any advantageous information asymmetries. With Search Engine Marketing the cost of traffic will trend towards the highest possible profitable bid for the most participants.

Google Adwords combined with site analytics can be very transparent. With tools such as the Opportunities Tab, a very generous Broad match, AdPlanner and a few others with practices like exploratory bidding combined with the quantitative nature of the data available, Google Adwords is very close to being an Informationally Efficient SEM market.

Claiming that behaviours in Google Adwords conform to EMH assumes all participants are rational with rational expectations, can access the same information at a negligible price, and only make rational decisions. Where EMH departs from reality and its weakness as a model is discussed in ‘On the Impossibility of Informationally Efficient Markets‘ by Sanford J. Grossman (1980).

You wouldn’t believe the impressions

There are a number of influences that can lead to irrational bids and pricing even with good quality information and analysis. They include but are not limited to:

• Inaccurate Value per Goal
• Internal or External Politics
• Misidentified Competitive Activity
• Emerging Non-Relevant Search Around Targeted Queries

There is a lot of information available for discovering new keywords or Adsense placements to target, and maximising competition is in the interests of the advertising networks. It is certainly a factor but it has not reached a point where it has completely killed competition, at least on some sets of keywords.

Winning at PVP in EVE Online

Wining at Spreadsheets in Space

PVP in EVE Online is not fair. In fact the challenge in PVP in EVE Online is in setting up these unfair encounters. In most MMORPGs, the actual act of combat consists of a few mouse clicks and some waiting. EVE Online is no different. It is the risk of losing stuff that makes players focus on everything before the actual combat a lot more. It is taking the right mix of ships, avoiding being out-numbered and cornered by a superior foe and acting before the opponent even knows they are in a fight where player skill starts to make a real difference.

Why SEM is like EVE Online PVP

Search Engine Marketing (SEM) in very similar to PVP. It is a zero-sum environment where operators compete for a resource through actions governed by a set of rules and environmental factors generated through user behaviour. There are a few principles that carry over from EVE Online PVP to SEM.

• Situational awareness is king
  • Know how the advertising network works
  • Understand competitive activity
  • Understand how the market behaves
• Observe, act and assess
  • Analysis without an accompanying action is useless
  • Assess the effectiveness of activity & reassess decision making model
  • And repeat…
• Know where you can compete and where you can’t
  • Don’t waste time & resources competing directly with advertisers intent on outspending you
  • Find alternative ways of reaching potential customers.

Information is the key. Understanding how the query space works, having good situational awareness, and knowing where in the sales funnel certain terms are is valuable. It won’t save you from the SEM equivalent of a gate camp (high margin and ‘branding’ campaigns with large budgets), but it is essential for remaining competitive without burning through your budget.

The data generated by a campaign is not a true representation of the population. The data is a snapshot limited by the markets targeted and the visibility available for the budget spent. Any single campaign can be exposed to direct competition over the whole market or specific subgroups. For example, just because “Campaign A” does not get traffic from Victoria does not mean that no-one in that state is searching for “Keyword B”.

A competitor could simply be focused on that market and value the traffic more. Other factors to consider are the effectiveness of the competition’s creatives and offers, the appeal of their product, efficiency of their site in turning clicks into sales and how much they return per conversion. All of these factors will influence their budget, and how much they are willing to spend per click or impression. Tools provided by the advertising networks that increase the efficiency of campaigns like Remarketing are also worth considering.

According to Wikipedia, a confidence interval is defined as:

…a particular kind of interval estimate of a population parameter. Instead of estimating the parameter by a single value, an interval likely to include the parameter is given. Thus, confidence intervals are used to indicate the reliability of an estimate. How likely the interval is to contain the parameter is determined by the confidence level or confidence coefficient. Increasing the desired confidence level will widen the confidence interval.

In use here, it is assumed that between similar competitors, the average Cost Per Acquisition (CPA) within the group is likely to be within a 95% confidence interval of the known CPA.

Confidence interval and estimated CPA

Confidence interval can give you an estimate of what other bidders may be paying for a conversion, assuming they are operating as efficiently as you are. In the graph included above, confidence interval of the CPA is used to estimate the most likely highest possible CPA a campaign can still compete on. In conjunction with Cost Per Click data, it is fair to assume that the competitors in the query space are willing to spend over the highest likely observed CPA. Reasons for their bidding strategy can vary from shutting out competitors by absorbing a short term loss, to a higher sustainable CPA. In a query space where a number of different verticals are competing for the same traffic, this metric is considerably less useful and your mileage may vary. For comparing CPA campaigns, creating a model for understanding the market, or simply to assess which ads are potentially performing a lot better or worse than your target in the face of direct competition, it is a useful tool.

Confidence interval can be a guide to how much your competitors expect to spend per conversion, assuming a lot of similarity in product and business practices. Arbitrage and industries with heavily commodified products are prime candidates for this, as well as campaigns with a very aggressive high cost bidding strategy, such as those competing directly with another member of your industry.

This volatility is an interesting challenge for account management, and can create a risk in responding to rapid changes. Low traffic and conversion numbers make it difficult to collect meaningful data over short time periods, making it hard to tell the difference between an emerging negative trend and an outlier. This creates problems in both managing low activity campaigns, campaigns in highly competitive and volatile markets, and new campaign testing.

Averages, Standard deviations and Confidence intervals

Averages, standard deviation and confidence intervals are a few statistical tools available for analysing the data. The actual figures used to determine response will vary from campaign to campaign even for the same product, due to other factors such as the size of the audience and the means used to reach them. The tools used to explore the information and create heuristics for guiding analysis often will not change.

The sample data tracks a gradual upwards trend in the average cost per conversion in a focused Adwords campaign. There is an outlier at double the mean that skews the mean and standard deviation in the third reporting period. Normally this would be discarded, as its apparent effect on both the reporting period and ongoing mean and standard deviation is significant.

It is only on the fourth reporting period that the data starts to become consistent. While there is still some volatility in each reporting period, the reporting period mean remains within one standard deviation of the ongoing mean. The hypothesis that the ongoing campaign mean at four reporting periods can be used as a guide for this campaign is supported by the confidence interval of the whole campaign data set. In the example campaign, it can be assumed that after four reporting periods, there will be enough information to make decisions regarding optimising this campaign.

The figures based on the whole campaign can be used as a guide for assessing the effectiveness of specific ads, placements and keywords while minimising the risk of removing a creative that can still be productive. These metrics provide a guide for deciding when a campaign, keyword or creative needs direct intervention, or may just be having a bad week.

The model that you create using data from previous and current campaigns is ultimately only a guide. It can be used as a framework for assessing creatives and traffic, but these heuristics will only ever be as good as the data they are derived from. There is need to review of any model used to guide the decision making process periodically. The market is constantly changing, be it SEM, social or display advertising. Factors such as seasonality of the product, external environmental factors and competitor activity can have a significant impact.

With the option of now adding additional links and other content to an AdWords listing, the look of some AdWords ads is closer to that of organic search. If I were to have a tinfoil hat moment, I might go so far as to say this could potentially lead to the effective monetarisation of organic SERPs returned for branded terms.

NIB Search Engine Result Page

There is one thing that has driven this renaissance of the text ad by Google, and that is the fact that disruptive advertising can work. AdWords, Yahoo Search Marketing and Microsoft’s adCenter have worked because with all the tracking available the advertiser can prove that the money spent has a return, without falling back on nebulous metrics such as branding. With SEM, disruptive advertising does work, provided it is relevant enough.

One product of effective performance measurement is the emphasis on terms that denote an information search close to the point of purchase. The most competitive terms are those that indicate a pre-purchase search. With the exception of a few groups of generic terms, this mindset has left the research and discovery keywords in most markets ignored and possibly undervalued.