Is SEM Becoming Unaffordable?

I’d be hard-pressed to name a medium in which upward price pressure is as strong as it is in search engine marketing (SEM). Overture’s and Google’s keyword pricing is spiraling. Some of the most popular terms may have stabilized in Overture, but marketers are savvier. They’re finding phrases with lower inventory and lower CPCs, bringing up averages across Overture’s network. In Google, keyword prices evolve differently, but the upward trend is undeniable.

When there’s a scarce resource (searches) and an auction-style pricing model (direct or quasi-auction), prices will rise to their true worth to the best marketer (perhaps a bit above their true worth). More marketers discover SEM every day. Once critical mass is achieved, prices shift dramatically.

Paid inclusion marketplaces aren’t immune to price increases, either. There have been upward trends in LookSmart (paid directory inclusion) and Inktomi (XML paid inclusion), although search inventory isn’t sold in an auction environment. Search engines are motivated to capitalize on the value of the inventory, so they use auction engine pricing as an indication of targeted search traffic’s going rate.

Think organic/natural search engine optimization (SEO) traffic isn’t more expensive? Think again. A whole industry exists around tapping into highly prized “unpaid” search traffic. Internal and external resources work to leverage organic search traffic. Search engine optimizers understand how to build user-friendly sites that are also “search friendly” for Google, Inktomi, FAST, AltaVista, and Teoma algorithms. An SEO team may implement online PR campaigns for additional relevancy through links. Just because the engines don’t charge you money directly doesn’t mean traffic is free. You invest time and money pursuing “free” search engine traffic.

Winning at search marketing can make or break a business. As prices rise, the best marketers are the ones who still squeeze positive return on investment (ROI) from higher prices. Inefficiency results in poorly performing campaigns.

Marketers are preparing for escalating challenges associated with rising CPC prices. It’s critical to combine knowledge and expertise with the best technology. Then, to execute on the ever-changing strategies resulting from continual testing and improvement.

Unfortunately, some marketers are giving up without giving paid search a chance. They entered the arena neglecting one or two best practices — just enough to sour the experience. Conversations at two recent conferences revealed significant exasperation. I heard statements such as, “Search marketing didn’t work for me” and “Search engine marketing is too expensive.”

A bit of detective work reveals how paid campaigns fail. When asked how success was determined, several didn’t have a success metric. Others have unrealistic metrics for their businesses. Some didn’t implement the most basic of best practices. Common mistakes include:

• Managing auction engines by position only
• Delegating SEM decisions to junior staff without the experience to understand company objectives
• Lacking ROI or profit-based success metrics
• Not accounting for/estimating lifetime value when calculating success objectives
• Not seeking professional support
• Not managing campaigns on a granular level
• Not going broad with keywords, engines, and listings
• Using set-and-forget strategies or campaign mix
• Not testing creative on listings
• Not testing landing pages
• Forgetting searchers are at different points in the buying cycle but may still be valuable
• Not automating ROI/profit optimization based on business rules
• Forgetting to check for daypart effects in auction engines
• Not optimizing the content mix in inclusion engines

How many of these will put marketers on track for success? It depends on margin, as well as the rest of marketing and operations. To participate and win in search, every opportunity must be taken to improve and optimize the campaign.

You might think you’re doing OK without best practices. In reality, you’re missing opportunities and wasting dollars with less-than-optimal strategy and execution. Your boss, shareholders, or clients may not know you could have done better. After all, SEM is complicated.

The real risk is the competition. At some point, your biggest, richest, most efficient competitor will take SEM seriously. It’ll invest in the best minds and technology. It’ll fully optimize its Web site. Then where will you be?

Are you ready for the competition? If search marketing is important to your business, get ready to implement all the best practices quickly. Chances are, the competition is reading this column.

Meet Kevin at the Jupiter ClickZ Advertising Forum in New York City on July 30 and 31.