- May 18, 2010
Every now and then I like to get out my crystal ball and think about where I see the search industry heading. It’s impossible to predict because every day brings new changes, but there are certain trends that are likely not going away.
The way I see it, there’s an intractable problem between the breakneck pace of innovation in the search marketing industry and advertisers’ abilities to take advantage of the new hotness. I’d love to know if you agree, disagree, or have any thoughts to add in the comments!
PPC Advertiser Challenges
Ad targeting options are becoming so varied and complex that less sophisticated advertisers are missing a lot of opportunities to improve efficiency and are unable to effectively compete. Given the inherent complexities, the vast majority of advertisers will not be able to remain efficient even with more advanced and automated bidding optimization tools at their disposal.
The primary disconnect is lack of conversion data. In a mathematical model where profit margin and Cost Per Conversion is critical, less sophisticated advertisers will either slowly bleed to death or decide to advertise elsewhere.
The Intractable Problem
Here’s the rub – the PPC space is going to be so competitive and saturated that only the smartest mathematicians and analytics gurus will be able to turn a profit. Why? They are the only ones that can effectively manage a PPC campaign to a target Cost Per Conversion that allows for a predictable, manageable profit margin. Everybody else is paying too much for customers and that is not sustainable in the long run.
Sure, more advanced and automated bidding tools are becoming available every day, but the level of understanding and experience to configure and manage them is still high. No matter how smart the black box is, it will still always require a human to make decisions based on the data provided and factor in offline inputs.
Who Should Be Worried?
PPC advertisers have the most to lose by spending money with little to no hope of generating a positive return. That’s a lesson quickly learned (hopefully) and marketing dollars can be reallocated to a more profitable channel.
Secondly, I believe Google, Yahoo/Bing and other PPC advertising engines have to do a better job of keeping a level playing field. Their real-time auction pricing models and profitability depend on having a steady stable of advertisers bidding on as many keywords as possible to drive up prices.
Just as water always finds its level, fewer, more sophisticated advertisers will eventually find the “ceiling” price for a click and would be forced to find operational efficiencies and higher conversion rates to improve their margins.
Am I Right?
Who knows? The PPC industry will be different in 5 years, that’s a given. But if these trends continue to hold, I think that only the smart will survive.