Efficient Frontier Insights

The Microsoft/Yahoo! Deal - Open Questions and Implications

History was made today with the partnership between Yahoo! and Microsoft but as with most things, the devil is in the details and open questions still remain.

First, let me start by saying that overall, I think the deal is good for the industry because a combined Yahoo!-Microsoft will allow them to compete more effectively. Search requires a huge capital and talent investment. In recent years, Yahoo! has not been able to make the required investments in either area so the deal makes sense from this perspective. Clearly, this will also help Yahoo! from a capital expenditure stand point but there will be people implications as a result. 

From a marketers perspective, they want access to high quality leads in the most cost efficient way. If a Microsoft-Yahoo! deal allows them to get that through one channel with increased liquidity, we will see more marketers invest resources into the combined entity.   

But there are still a lot of open questions that remain including how specifically will data be shared between the two companies for targeting purposes? How do Microsoft and Yahoo! both tell the combined search and display story? How will they address the market share issues in Europe? What is the timing on when this will be implemented?

It will be interesting to watch how this unfolds in the coming months. The key will be for Yahoo!-Microsoft to make the buying process for both search and display as easy and painless as possible. If done right, it has the potential to be a huge boon for marketers but if this new agreement is implemented poorly, it could have disastrous consequences.  

Time will tell and those of us with a clear stake in the game on the side of marketers will be watching.

David Karnstedt, President and CEO

Stuck in reporting hell?

Ask anyone in the SEM industry what they spend the majority of their time doing, and the answer will probably be something to do with reporting and data. In such an accountable industry, providing analysis and recommendations is key for clients, but sometimes the sheer quantity of data can be overwhelming. 

While some agencies might just employ more graduates to crunch numbers and format excel spreadsheets for clients we decided to do things a little differently. We developed a flexible system which automatically populates Excel sheets on a regular basis with both search engine data and sales statistics. Essentially this means that we can provide a bespoke report formatted in any way our clients need, updated each day without any manual intervention.

For an Account Manager, this reporting automation combined with the always-on Efficient Frontier dashboard, takes out the laborious administrative tasks that would normally slow us down; we have more time to analyse trends, troubleshoot and work on strategic issues and new ways to boost our client's search campaigns. Likewise, our Search Marketing Specialists, spend less time crunching data, and more time building keywords and ad-copy as well as implementing campaigns. For our clients this means reports are delivered on time, every time, in the format that they need, which makes us all happier.

~ by Jimmy Felstead, UK Account Manager

Search Advertising in a Recession - Part 2

- The best weapon in a recession

"The time is fast coming when men who spend money (on advertising) are going to know what they get. Good business and efficiency will be applied to advertising. Men and methods will be measured by the known returns, and only the competent men can survive."
 - Advertising pioneer Claude C. Hopkins in his influential book Scientific Advertising

Search isn't immune to times of economic uncertainty; however science can deliver accuracy that will help marketers see their brands ride high.

By using mathematical models to determine cost-per-click and conversion rate, an agency can leverage optimization technology to create a campaign strategy that reflects business goals. That goal could be maximizing revenues within a fixed budget or, as vital in a recession, reaching a sales target while minimizing costs.

This model provides far greater forward visibility into campaign performance. It also enables marketers to make informed decisions when determining their budget for search. Trackability plus accountability makes search the only viable option for marketers navigating their brand or product through a recession. The marketer is always in control and campaigns can be fine-tuned along the way to maximize ROI. Additionally, predictive modeling technology can reduce search spend while keeping volumes steady.

In a recession, control and targeting will become vital if organizations are to remain competitive. Daily budget caps, geographic targeting, and site targeting give search marketers unprecedented control and flexibility. Hopkins would have loved it.

(Search Advertising in a Recession - Part 1)

~ By Jonathan Beeston, Client Services Director, Europe

UK Search Engine Report Findings

CPCs down

Last week, we released our UK Q2 2009 Search Engine Performance Report which is available for download here. Our UK data indicated that advertisers are seeking efficiency as cost per clicks (CPCs) fell dramatically year on year (YoY) – allowing advertisers to capture more volume at lower cost. CPCs across the engines decreased by 20-31% YoY; with the biggest fall being from Google with 31%, followed by Bing and Yahoo! with 30% and 20% respectively. Efficient Frontier advertisers capitalised on this price reduction and achieved more click volume while maintaining the return on investment levels of prior quarters. Return on investment (ROI) for advertisers remained stable with a 2% improvement YoY. Advertisers were still able to grow campaigns at a profitable return as dynamic search marketplaces adjusted to lower cost tolerances and less competition.

Spend down

In addition, Search Engine Marketing spend for the sample fell by 11% when compared to the same period last year. The biggest drop came in the month of April, indicating advertisers revised Search Engine Marketing budgets for the quarter adjusting to more conservative forecasts for the new financial year.  The data does provide a glimmer of hope for recovery in that advertisers, after the initial drop in April, increased month on month spending in May and June. Econsultancy gave an interesting analysis here.

Engine Efficiencies

Search engine efficiencies varied significantly over the course of the year. While Google operated 7% more efficiently for advertisers YoY and Bing operated 16% more efficiently, Yahoo! Search was 5% less efficient than Q2 2008 at producing ROI for advertisers. Yahoo!’s lower efficiency, given stable click volume and lower CPCs, indicates a likely decline in quality. If left unchecked, it will drive spend allocation away from Yahoo! Search to the other engines in coming quarters.

by Merinda Peppard, European Marketing Manager

Interesting Trends Hide Beneath a Stabilizing Search Marketing Marketplace

 Yesterday, we released our Q2 2009 Search Engine Performance Report which is available for download here. Generally, our data indicate that search marketing in the U.S. has stabilized, which is good news for the industry. While year-over-year spending remains down significantly, quarter-over-quarter and month-over-month spending is relatively stable while taking into account seasonal changes.

But a deeper examination of the data reveals varied impacts to advertisers and engines beneath the overall stabilization trend. Large advertisers, which are defined as spending more than $200K per month, are in line with the general market stabilization.  However, medium sized advertisers, defined as those spending $50-200K per month, are increasing their spend to capitalize on better efficiency in keyword marketplaces and gain share. Smaller advertisers, on the other hand, those spending less than $50K per month, continue to reduce spend adding immediate savings to their bottom lines. In the finance category, advertiser spending bounced back as the stock market improved while travel advertisers, faced with consolidation and lower revenue per sale, maintained a trend of lower spending. And the efficiencies of the engines themselves, a measure of the returns advertisers generate for their search marketing investment, varied greatly with Google and MSN rising while Yahoo! fell.

We also found that search is operating at a 30% higher efficiency - that is, advertisers are using more aggressive ROI and CPA targets than they did a year ago. This is good news for marketers because it means they are getting a bigger bang for their buck. But there is a reason that search has become more efficient. Businesses demand higher returns today as compared to this quarter last year. As a result, while finding an opportunity to grow campaigns is likely easier today than in the recent past, finding an opportunity to grow share efficiently remains a challenge.

These variances in engine efficiency highlights the need for marketers to implement is cross-engine optimization. While each engine represents a certain click opportunity, marketers are best served by allowing their goals to dictate where the next click and the even more efficient click should come. Mandating engine spend allocations will result in a less efficient and lower scale campaign. And in today’s business environment, finding efficient scale is most often top priority regardless of the advertiser category.

by Justin Merickel

SEM and the Power of Now

When analyzing spend data for our upcoming quarterly report, we made a startling discovery - the spending patterns of Efficient Frontier clients in the financial vertical were very strongly tied to the S&P 500 index. The correlation between the two datasets is a startling 89% ! This revelation begs two questions: (1) Why the correlation and (2) What does it mean.

Stock markets and the PPC market are very similar in many ways. Keywords are like stocks, both markets are reasonably transparent where the data on every keyword/stock is available and most importantly both markets are highly fluid. A positive or negative piece of information can be acted up on immediately; you can buy a stock/ bid up a keyword or sell a stock/bid down a keyword. It is no surprise then that the portfolio theory that has proven itself in the stock market works so well in the SEM space. It should also come as no surprise, that both markets are intrinsically tied to the state of the economy. In the case of SEM, advertisers take immediate action on the information they have on their businesses. It is the power of now!

Just as stock markets are leading indicators of trends in economy, trends in SEM indicate what is to come in the business world. We reported a flight to efficiency in Q4 2008 and the same emphasis on efficiency is currently being felt in various sectors of the economy. Consumer search patterns also reflect the states of mind of consumers as a whole. Our report on customers embracing frugality, should come as no surprise in this recession.

The upcoming report will thus provide insights into how businesses have adapted to the downturn. It will also indicate shifts in consumer buying patterns and adaptations in lifestyles. Finally, it will give advertisers clues on how they could make their SEM campaigns more efficient.

UK Travel Report: Travel Advertisers seeing an increase in ROI

As the recession continues, Return on Investment (ROI) in Search Engine Marketing (SEM) in the Travel sector has shown a significant increase, a testament to the continued strength of the channel, according to the Efficient Frontier UK Travel Report: Q1 2009. The report, is based on an analysis of 4.9 billion impressions and 65.7 million clicks across a portion of Efficient Frontier's travel clients.

 

The results above show that Advertisers in the sector are continuing to invest in Search Marketing as a way of maximising revenues. Despite the economic downturn, impression volume increased by 32% from Q1 2008 to Q1 2009. There are two main reasons for this. 

Firstly, in an attempt to offset the overall decline of CPCs, Google have been able to optimise their unused inventory by removing minimum bids which brought a large number of previously inactive keywords into play. By using Efficient Frontier's portfolio bid optimisation techniques, Advertisers have been able to effectively mine this longer tail of keywords and generate significant volume and ROI. Although search spend in the travel sector dropped a mere 1% Y/Y, ROI actually increased for Advertisers by 11% Y/Y.  

Secondly, the recession has caused cost conscious consumers to search longer and more carefully for a better deal online. This has not only triggered impressions to increase, but it has also caused a decrease in click-through-rates (CTRs) by 28%. 

What's more, although the Efficient Frontier Q1 Search Engine Performance Report for all sectors (17 April) saw cost-per-clicks (CPCs) drop as the overall market deflated, CPCs in the travel sector have actually increased by 4% Y/Y indicating there is still a high level of competition amongst advertisers.

This is an interesting anomaly we see in Travel when compared to the overall market. On the one hand, overall Advertisers are cutting budgets resulting in cheaper clicks, on the other hand Travel Advertisers are seeing CPC inflation as competition in the space heats up. This situation indicates Travel is very much reliant on search. In the current economic environment, ROI will continue to be a priority as Travel Advertisers trend towards the efficiency model in an effort to reach a higher ROI as a buffer against economic uncertainty.

The Efficient Frontier Q2 Search Engine Performance Report for all sectors will be released July 13th.

Jonathan Beeston
Client Service Director - Europe