I had the enjoyable opportunity to debate the future of pay-per-click with web pundit and all-around nice guy Steve Rubel, SVP of Edelman's me2revolution practice, and A-list blogger at MicroPersuasion. Steve predicts a PPC recession looming. I think he's wrong. The growth rate will slow, but the PPC channel is strong. Paul Dunay moderated the podcast. The audio files are here. Here's the transcript:
Paul Dunay: Welcome to another Buzz Marketing for Technology podcast, conducted in cooperation with MarketingProfs. I'm your host, Paul Dunay. Today we'll be debating pay per click. Is it set for a boom or headed for a fall? So here with me to weigh in on the issue is Alan Rimm-Kaufman who leads the Rimm-Kaufman group, a direct marketing services and consulting firm, and a fan of pay per click. And Steve Rubel, SVP in Edelmans’ me2revolution practice who's skeptical about the future of pay per click. Let's start with Alan. So Alan, what's the current state of the market for pay per click?
Alan Rimm-Kaufman: Well thanks. I'm pretty bullish on the channel. And hopefully that's not just because that's the industry I'm in. Looking at this as a direct marketer, we see many of our clients, primarily online retailers, still enjoying healthy and profitable growth in sales this year over last year. CPCs have certainly risen. It's not as easy as it was in the past. And probably the growth rate of the channel will certainly slow, but fundamentally, it's such a tremendous way to match someone looking for something with an advertiser looking present an offer. We think '08 and '09 will continue to be extremely strong for the paid search industry with double digit growth, but perhaps low double digit growth.
Paul: OK. So Steve, in a recent blog post you wrote: "I'm calling a top to this market now. There are five reasons why pay per click advertising recession looms." So for the audience, can you give them what they are?
Steve Rubel: Sure. And just to be clear, I'm very bullish on the future of pay per click advertising. I think it's a wonderful medium when it works. However, I think there are some big things that are really starting to get in the way of it growing as fast as it did before. And I think that these are important that any marketer consider this as part of their mix.
Steve: The first one is clutter. You know, Google seems to be adding to the number of ads that they run around the content. There's a lot of ads there, and therefore, there's a lot of clutter and I believe that a lot of people are ignoring those ads. Second is that there's a whole relevance to traffic. Those ads may deliver traffic, but what are people doing once they get to your site? And Google is in the process of transitioning to a cost per action model and I think that's going to take time to evolve. And with that, I think people may begin to question the whole notion of irrelevant traffic or traffic that really doesn't do anything for you. Third, cost for pay per click's are rising. They've been going up 33 percent each month. And so I think that eventually people are going to say, "Hey look, we can't keep paying for pay per click." I'm seeing that already at client meetings and they're looking for other alternatives. Which leads me to fourth, I think marketers are spreading the ball around. It's no longer just about the 30 second spot or paid clicks, I think you have lots of other options to claim behavioral targeting episodes, social networking, etc. And fifth not but last but not least, search ads and views are untrustworthy. There's a study done up by Neilson and it revealed that search engines are not returning stuff that's lower trust. And we find that things that have higher trust value, particularly an editorial for example, continues to remain very strong. So when you look at those five factors, I think all those are kind of potential stumbling blocks for pay per click advertising.
Paul: Excellent. Alan, so what's your take on that?
Alan: Well I think it's really important to split paid search into the two different kinds of paid search. There's core search in response to user queries, and then there's the contextual networks, AdSense networks, and so forth. Steve mentioned the cost per action move that Google's now providing. That's in the actual AdSense contextual advertising networks, which have always been quite weak. Many marketers pay maybe 10 cents on the dollar, that is one tenth as much, for those content clicks as they would for core search. The fact that contextual advertising isn't targeted and fills up quick with fraud, yes, I agree. But core search is working and is working great. Steve mentioned that 33 percent, I think he said monthly, but he probably meant yearly rise in CPC's. You know, among our clients we've seen more modest increases. All in, the difference between '06 and '07 is only up about five cents last year for our major clients, weighed all in. We're paying about 51 cents per click this year. To date, we're at about 54 cents per click. Now granted, when terms go through the roof and get too expensive, we don't advertise them anymore because we're very efficiency based. But that being said, while certain sectors are seeing CPC's go through the roof, I think there's rationalization in a lot of the areas there that the people bidding on the clicks are saying. I totally agree with Steve about spreading the ball around. Editorials are more trusted and there's lots of options out there. But I think I'd point to the size of the pay per click industry and the fact that advertisers are piling money into it. It's not all dumb money. Google's growth is really fundamentally different than the dot com boom -- there's true sales happening at the end of the day going back to the retailers. And I think that the evidence, whether or not paid searches are as trustworthy as editorial query, editorials are more trustworthy, but the clicks are converting and converting better than catalogs in the mail, yellow pages ads, and so forth.
Steve: Yes, the clicks are converting. It's just the question is how many of them? How long will that continue?
Paul: So Steve, there was one assumption in there that I kind of liked which was something around: the effectiveness of these ads where going down, similar to what sounded like to me, like banner ads, right? So people got sort of numb to banner ads. Is one of your assumptions that people will become a little bit more numb to pay per click?
Steve: Yes, I do believe that especially as the Google results get even stronger than they are now and if that's even possible. But I mean, Google's updating a search engine in real time, yes, for at least a good many sites. And so if you go look at new searches, you'll see how fast it does updates. So there's also, I think, an overall backlash in in Internet advertising. So you know, what I'm kind of saying is that it's mature.
Steve: And when it gets to be mature, changes start to happen. And I think that you can't just take it for granted that the growth is endless and at the pace that it was for the last six, seven years or so.
Alan: I would agree that the growth rate is going to come down and the channel is maturing. And the maturity comes from both slowing in the growth of inventory. There are only so many people with broadband and only so many searches people do per day. So that's one falling factor. Another falling factor is the advertisers are becoming a lot more sophisticated. And I think too, the channel requires and increasing amount of sophistication as it comes down to tracking, good management, and so forth. Whereas when the industry started, if you weren't printing money through the paid search channel you were asleep. It was just so easy. Clearly standards have risen as cost per clicks have gone up. But still, even in a mature channel, paid search is still the largest piece of the Internet pie. It's a highly significant channel. And it's controllable. A lot of editorial content -- word of mouth, pass along, blogging, and so forth -- it's more akin to public relations. It's critically important, everyone should be doing it, but it's not a knob that you can dial up or down at your whim.
Steve: I can't dispute that. And I'm in PR so I'm biased there. But I do think that the trust factor is really important. And if that's trusted more, then the money may move that way. Trust wins again and again.
Alan: For clients that have both highly placed organic results from news, word of mouth, or their own sites and a pay per click, we find that they get better return on both their unpaid and their paid. It's kind of a deal where one and one equals three. And so the combination, just as in physical print, where having both editorial coverage and a print as side by side, where you can control the message through the paid advertising and show you’re established, strong, and also have the independent content --that combination, that's really the winning magic element to get coverage on both sides of the page.
Paul: And Alan, one of the assumptions that's within here is that we're reaching a saturation point, which to me, sounds like every marketer's already in the pool and that there are no more late arrivers coming into that party. But I don't fundamentally believe that. I still think that there's people who have yet to sort of adopt some of the pay per click. Are you seeing that in your business?
Alan: I would agree. And even people that are running significant campaigns really aren't as sophisticated as they should be. We regularly review campaigns from major Internet Retailers 50 clients who still don't have proper tracking or proper economics. They're bidding at the campaign or the adgroup level; they're managing at the ad level, they don't have well developed copy or term lists. So while most of the advertisers are already at the party, it's clear that not all f them have found the bar. So the sophistication will continue to rise over the next 12 to 24 months. The growth in the spending in the channel, the growth of search, that's going to be fundamentally constrained by how many people are running searches. Maybe that will increase with mobile. Allow me to go back to the difference between core search and the contextual networks. The contextual networks, in a sense, were invented by the search engines to drive up their inventory. They needed more clicks to sell to keep up their revenues, to keep up their market valuations. And necessarily, ads matching search terms to words on the pages are weaker. I think advertisers are seeing that and understand that. But as to core search, I’m bullish on the channel, because I just see it working day in and day out.
Paul: Yes. Steve, another angle, which I think is a classic, is form Google's point of view. What they're doing is they're doing the product line extension, right? They're moving into video, they're moving into radio, TV, and print using their same exact model. Isn't that designed to yield more inventory and also keep the early adopters from getting bored?
Steve: Yes, it is adding more inventory in more formats. And with the purchase of DoubleClick, obviously they're going to move very hard into display and sponsorship. So I think that they're raising their bets in the portfolio approach which is smart for them. Again, why are they doing that? And I think the reason might be they may anticipate eventually there could be some softening of pay per click.
Paul: Interesting, Alan, your view?
Alan: I would agree. It's important to differentiate the softness in the channel verses the softness in the growth of the channel. The exponential stratospheric growth in spending, clicks, and adoption just can't continue. But I think when the dust settles and things calm down, this channel will have a very prominent place, a very stable, a very mature place in the direct marketers’ and the brand marketers’ bag of tricks.
Paul: Nice. OK. Bottom line this for me guys. Give me a quick answer. What should marketers be doing about pay per click today, Alan?
Alan: It's the blocking and tackling. You need great great tracking, good management, strong campaigns, big long term keyword lists, copy testing, solid bidding, and landing page testing.
Paul: Great, Steve, last word?
Steve: Yes I think you have to be thinking about it from an action perspective not just traffic. You know, traffic is commodity. You can get traffic organically. It's what are people doing once they get there, what action are they taking, and how are you measuring that? And I think that the model is eventually going to move towards being measured that way. Paul: Great. All right, thanks a lot for your time, guys!
Link: audio file for podcast