April 2004 Newsletter

Get All the Users You Can - Using Advertising and Paid Placements

**** The 4specs Perspective

Last month we looked at how to maximize the number of users on your website for free by optimizing your website for best natural search results. This month we will look at advertising on the Internet and how to achieve cost effective results.

The first advertising on the Internet used banners. Typically banners are not targeted to what the user is looking for. When was the last time you clicked on a banner to see what they were offering? I think that banners and similar images are phasing out as they are not productive.

Banners have not proved to be cost effective and generally cannot be targeted to a timely interest of the user. Most advertisers compare the cost of each user brought to your website to the benefit gained from that user. Banners typically cost $10-50 CPM or one thousand views of the banner. Typical results are that 2-3 people per 1,000 views will click on your banner. At a $20 CPM, 3 referrals means each one cost $6.66.

In the past 3 years, advertising on search engines websites has become the most effective`method to bring new users to your website. Goto.com started the trend with their bid-for-position advertising. Goto.com was renamed Overture.com and then Yahoo purchased Overture along with several other companies related to search technology.

Providing search results is a big business. Google and Yahoo are in a race to capture users and their searches, and then get paid for the search results. As this newsletter is being written, there are major changes in the offerings.

The advertising revenue stream is why Google is expected to have a market capitalization valuation of $15 billion when they go public. The projected capital value of Google is about the same as Southwest Airlines! And in turn, Southwest has a greater value than all the other US airlines combined.

Here are some of the things you need to know to effectively advertise on the Internet. There are two different types of paid programs, with some blurring of the line between them.

  1. Pay Per Click or per referral - where you want premium placement on the search engine and are willing to pay for each person referred to your website. The Yahoo sponsored websites are on the top of the free, or natural, results. Google positions their ads above and to the right of the natural results. Search for a term like mortgage and you can see the results for your self.
  2. Pay for Inclusion - where you pay to be included in the search results. Google has taken the approach that their user wants to find all the websites, not just the ones that paid. Yahoo is accepting for free (at least for now) all the existing websites they currently include in their database, and charging to be included for new websites. Cost of 10 pages is around $100 PLUS 30 cents per click through referral.

The Yahoo and Google Pay Per Click (PPC) programs start out at 5-10 cents, and quickly go up from there. Bids are difficult to evaluate on Google as the values are typically hidden; I have seen bids of $5 and up on some common terms in Overture where the bids are more easily found.

These ads need to be paid by credit card and there are few ways to predict the total annual cost of the advertising on search engines. The variable you can control is the cost per referral.

Companies with a short selling cycle - say the same day or at least the same week are able to evaluate the maximum bid to generate a sale with a specific profit. Think about selling a consumer product like such as books or CD's on the Internet. You can easily track the user through the buying cycle and evaluate the cost of getting the customer to buy verses the cost of the advertising.

What is the value of a referral for a typical manufacturer listed in 4specs? This value is very difficult to determine. For most construction-product companies, especially those with products that must be specified, 2-4 year selling cycles are not uncommon. I can recall one project where there was a 7 year selling cycle, starting from when we first discussed the roof with a major company on a major project, to when the material was sold and shipped.

Conversion rates (number of buyers or specifications per Internet referral) will be almost impossible to calculate. The closest comparison will be the cost per trade show inquiry, and that is high and not really equivalent.

As I was writing this I tried several different ways to estimate value of a referral, and kept hitting dead ends. If you have any suggestions I would like to hear them, and we may be able to develop a newsletter article about this.


Colin Gilboy
Publisher - 4specs
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