Google stops agency bribes

A version of this piece was published in Marketing in 2007

Late last week, Google announced the latest changes to their controversial ‘Best Practice Funding’ scheme – the most significant of which is, it’s being dumped.

Launched in 2005 with just 13 weeks’ notice, the scheme upset many agencies and concerned many advertisers, who saw it as anti-competitive, market distorting and untransparent.

The scheme was designed to incentivise agencies to invest in search, by kicking back a percentage of their spend with Google.  But of course because it was only predicated on an agency’s spend on Google, its purpose was to incentivise investment on Google.

But for many agencies who had transparent relationships with their clients, the kickback was passed directly back to those clients, thereby negating the incentive effect and only rewarding agencies who kept the payment.

Advertisers complained that the unpredictability of the level of rebate made it harder to budget, and found that rebates coming back five months after the activity simply got deployed into whatever happened to need funding at the time – as often as not, something other than search.

But much worse than this, the scheme incentivised all sorts of behaviour that the ubermenschen at Google hadn’t anticipated.

There are a lot of clever people in marketing and media, and they’ve spent a large amount of time over the past two years figuring out how to play the system – time that might have more profitably been spent making their search campaigns work better.

Google’s offering an extra 5% ‘growth kicker’ to agencies that showed a given level of quarterly growth led to certain advertisers moving agency every quarter, knowing that their addition to an agency’s billings would qualify it for the extra 5%.  And since this applied across all the agency’s billings on Google, these advertisers often demanded a share of other clients’ rebate too (did you get all yours?).

The scheme’s market distorting effect was proved when tenders for search business started to include the question “what is the level of your agency’s BPF rebate?”, with procurement departments (understandably) seeing this as a part of the competitive dynamic between agencies.  

This seriously disadvantaged small agencies, creating barriers to entry and allowing poorer performing (but multinational) operations to offer greater rebates.  (arguably Google were knowingly subsidising the fees of poorer performing agencies in the knowledge that their inefficiency was actually more profitable to Google).

So the news that from 2009, the scheme will be dropped is a healthy development for the search market, which has grown to over £1bn in the UK.  In the meantime, it’s adjusting the scheme, dropping the problematic growth kicker and reducing the qualifying thresholds for the higher tiers of rebate.  Additionally it’s dropping the flat-rate 10% commission on non-search products like YouTube.

Whilst some agencies will fear the abolition of BPF, relying on it to fund their businesses, the move to a net model will create a level playing field in this market.  Agencies will have to demonstrate the value of their service, and will now only compete with each other on ability rather than rebates.

Advertisers’ attention will be focused on the role and effectiveness of their search activity, and won’t be subject to the distracting lure of deceptively cheap fees and market-distorting incentives. 

And whilst it’s irritating that the scheme will continue for a further 15 months, these businesses do need time to adjust their commercial arrangements, and Google’s preparedness to listen and to learn from previous mistakes is to be welcomed.

Google this year is expected to make more profit in the UK than ITV and Channel 4 combined, and with a market share of over 80% its imposition of the BPF scheme has led to it being accused of abusing a dominant market position.

With the EU’s competition authorities taking industry soundings over their acquisition of DoubleClick, the company is understandably wary of such accusations.  BPF’s demise is to be welcomed, but it could be little more than a sign that Google has bigger fish to fry.

Brand terms and the navigator

A version of this piece was published in Marketing in 2007

Every day, I walk through a street market to get to my office.  From fruit and veg to improbably large pants, the traders call out their wares, trying to attract attention and bring customers in - but whilst they all look the same, very different motivations drive those punters. 

Some know exactly what they want, and whilst they hear the stall-holder calling out, they’re going to buy anyway.  Others are simply browsing, and only are only attracted to buy when they hear that call.  If the traders had to pay every time they called out, they’d be a lot more careful who they called to.

The last step in the purchase process, search is on the face of it, hyper-accountable.  Tracking lets us to establish precisely which keyword resulted in a sale – allowing the online marketer to pick out which of perhaps thousands of keywords are generating business – and that information can be fed back into bid strategies, continuously adjusting the amount it’s worth paying a search engine for a click.

Attracted by the apparently low cost per acquisition in search, investment has spiralled, often at the expense of other media.

But whilst there is no doubt that search is an incredibly valuable tool, most marketers are working under some fundamental misconceptions about how search works.  And as a consequence, they’re often substantially over-valuing what they get.

Why?

Because almost half the people who search directly for your brand name aren’t really searching at all.

Nielsen research tells us that 43% of people don’t type the web address of the site they’re looking into the address bar of their web browser.  Instead, they type it into a search engine.

So when someone types “easyJet” into a search engine, it isn’t because they don’t know the address is www.easyjet.com.  It’s because they don’t know how to use their browser properly, or because they can’t be bothered. 

Either way, they’re not searching.  They’re using the search engine not to find the website, but as a means of navigating to it.

The impact of this is profound.

Navigators were going to your site anyway.  The search engine added little or no value here – it didn’t present your brand to them when they weren’t expecting it or were considering another – it merely directed them on.

This has some value, but this value isn’t equal to that generated when a consumer is actually searching.  Here, a search engine has moved them on substantially in the purchase process, and often at a critical point.

On Google, easyJet have successfully prevented others from bidding on their brand term and are almost certainly therefore paying the minimum bid of 1p a click.  The term itself is probably their best converting term in terms of sales.

But if 43% of the people typing that term into Google are Navigators rather than Searchers, and we say for argument’s sake that a navigation is worth one third what a search is (I’d argue it’s really much less), then the true cost per acquisition is going to be much higher than the conventional wisdom would measure.

Under these circumstances, the ‘true’ cost per acquisition is actually 40% higher.

That knowledge could make the difference between a term being cost-effective and a dud, and particularly if it’s a brand name that can’t be trademark protected.

So how can we tell a Navigator from a Searcher?  If we could tell them apart, we could choose not to put a paid-for listing in front of a Navigator, letting them rely on our natural search results, and saving a bundle.

But regrettably, you can’t.  They type your brand name and either buy something or not, and you’ll never be able to spot one coming unless you’re a mind-reader.

But you can gauge the overall impact of Navigators, and factor cost per acquisitions to allow for this.  If you don’t, you’re paying the search engine for value it hasn’t created.

Online travel and the trialogue

A version of this piece was published in Marketing in 2007

Back in 1996, I was standing on a conference platform talking to a room full of travel agents.  I had a laptop in front of me with a dialup connection to the internet, and I decided to take a risk. 

I’d just spent twenty minutes talking to them about how the web might impact on their business, and frankly, they weren’t impressed.  “People”, one delegate said, “will always want the advice only a travel agent could give them”. 

I’d just returned the previous year from a round-the-world tour where every hotel I’d stayed at had been found online, and flushed with confidence, I asked the audience to name anywhere in the world, promising I’d find them a hotel there.

“Easter Island” called out one smartarse at the back.

It took me an admittedly nerve-racking thirty seconds to find one and read out the details.

You could have heard a pin drop.

Now, travel is one of the biggest commercial sectors online.  easyJet sells over 90% of its flights online, around 15% of searches are travel-related, and the European online travel market was worth E38billion last year.

Not bad for ten years’ work.

But although technology gave consumers information about far-away places, access to airline and hotel availability databases and the ability to communicate directly with these organisations (without waiting for the next assistant to be free), it gave them something else - which until recently businesses have not got to grips with.

It gave them access to each other.

Through sites like tripadvisor, holidaywatchdog and myholidayreport, consumers started telling each other about their real experiences, good and bad.

“The manager approached us by the pool, saying the fans we’d bought were using too much electricity… we will never stay at this hotel again”

The second bedroom in the Chateau had a continuous combination smell of mould and rotting flesh."

The sheer granularity of these sites was unachievable before users started creating the content – the daddy of them all, tripadvisor, claims to have over ten million reviews covering 190,000 hotels and 140,000 restaurants. 

Barry Diller’s InterActiveCorp, owners of Expedia, saw the potential back in 2004, when he acquired tripadvisor, placing real reviews next to hotel listings.  In the UK, Thomson asks consumers to submit reviews, but and the company reserves the right to edit, refuse and withdraw contributions. The result is a very different feel to tripadvisor - in 15 minutes I wasn’t able to find a single negative review.

The latest addition to these is a familiar face from the dotcom boom, reincarnated as a travel site.

Boo.com is fast, well-designed, packed with useful features that speed up the experience.  It seamlessly merges data, listings and user-generated reviews and packages it well.  It’s honest with its readers – a one-line review read: “situated as it claims on a quiet street, this hotel is also near a noisy one”.

The old-world view would see this as a high-risk strategy.  Placing bad reviews next to hotels you’re offering for sale can’t be in their commercial interest can it?

But the reality is that consumers are using other consumers’ opinions to rationalise purchasing decisions.  There’s nothing a travel site can do about this, so bringing these reviews into the site achieves the double benefit of increasing trust in the agent’s brand, and not losing that consumer when they go off to check out your recommendations.

Boo crashed and burned the first time round, trying to sell a product people weren’t ready to buy online, using technology that users couldn’t access using the slow connections of the time, and failing to control costs. 

This time, it’s in a booming sector, with technology that puts the consumer at the users at the very heart of creating its product – a true trialogue brand.

Ads on YouTube will struggle to pay the bills

A version of this piece was published in Marketing in 2007

When Google bought YouTube in October last year for $1.6 billion, its revenues were virtually non-existent, and nobody there seemed to know where or how it was ever going to make a profit.

Was this a return to the old dotcom days when companies were measured by their burn rate – the pace at which they burnt through their investors’ capital – or had the ubermenschen at Google spotted something us mere mortals hadn’t?

Whilst Google’s paid-for search listings have been next to much of YouTube’s content for some time now, attention is mostly focused on the video – and if it performs for advertising like any other social networking site, revenues aren’t likely to be spectacular.  Almost a year after the acquisition then, with a small amount of uncharacteristically Google fanfare, we’ve just seen the launch of in-video advertising on YouTube.

We’ve all seen pre- and post-rolls before, and we know how irritating they can be.  Google have wisely avoided this video format, but not just for this reason.  Pre-rolls aren’t interactive.  You can’t click on them, and they can’t be served out of an adserver.

So whilst pre-rolls appeal to traditional media folk (they feel like ad breaks and work like linear media), they’re just not going to set the world alight.

Google have instead gone for an overlay – an ad that appears over the bottom 20% of the video screen and runs for ten seconds, starting 15 seconds after the video.  The ad is partly transparent, and the video over which it plays is paused automatically if the user interacts with it.

This isn’t a new approach.  Videoegg, a competitor of YouTube have been doing this for just over a year now and claim to have patents for the technique.  But then Google didn’t invent either search or the Vickery auction that has so successfully powered its growth – they’ve just done these things better than anyone had before.

YouTube built its name on content created by its users, and understandably this move has created much controversy on the messageboards around the site.  Interestingly though, whilst predictably there have been the usual anti-commercial outbursts from the swivel-eyed end of the community, the majority of posters have taken a more supportive view, either accepting the need for YouTube to make money to keep their service free, or suggesting different ways the site might consider implementing in-video advertising.

One of these is sharing revenue from advertising with the content owners who upload videos.  Competitor video-uploading sites Revver, VuMe and Flixya all offer to share ad revenue, and YouTube founder Chad Hurley announced a similar deal to the BBC in February which was slated for launch “in a couple of months”.  The company have gone a bit quiet about that one since then, and it hasn’t formed a part of the current plan.

So if their audience is prepared to accept the format, is this going to be a hit with advertisers?

Google’s record in selling non-search products to advertisers has been poor to date.  The refusal to accept third-party adserving (the bedrock of the accountability that has driven online advertising’s success), combined with the lack of a sales culture deriving from a lead product that sells itself, have led to lacklustre performance when it comes to display advertising.

And as I wrote about last week, advertising in social media is cheap.  Response rates tend to be low, and advertisers offset this by reflecting it in the rates they pay.  So unless the performance of this new format is radically different from other types of advertising, it’s unlikely to yield the sort of revenues that would move the needle at Google.

So the format’s good, the audience seem prepared to tolerate it, YouTube is competitively a strong product.  But it’s going to take a bit more than this to get their $1.6bn back.

All Human Life is There

A version of this piece was published in Marketing in 2007

“All Human Life is There” – the words that once ran over the masthead of the News of the World describe social networking sites like MySpace, Facebook and Bebo even better.

Lots of attention has been given over the past few weeks (in what seems to have been a bit of a slow period for news) to the pitfalls of advertising in these sites.  Most has focused on whether such activity is safe for advertisers (who might end up next to distasteful content) – but a much bigger question is whether it’s worth it in the first place.

When an advertiser was spotted recently appearing next to a British National Party group on Facebook, a small journalistic feeding frenzy ensued with commentators competing for the holier-than-thou spot.

But most of the sites were already addressing the issue.  MySpace had in place a PG rating for profiles on their site which advertisers could select to avoid appearing next to inappropriate content.  Bebo don’t run advertising on users’ profile pages, so it’s unlikely to be an issue, and Facebook quickly rushed out a fix, allowing advertisers to exclude advertising from running on groups (rather than individual people’s pages) which was the source of the problem on their site.

So it all looks like job done.  Social networks can keep on raking in the money, and advertisers can sleep soundly at night knowing they’re not appearing next to material the Daily Mail would get upset about.

Except it doesn’t work like this.

A huge chunk of the advertising running on these sites is bought through ad networks – sales houses that aggreggate together billions of impressions from thousands of sites and sell them on cheap to agencies.

Much of this inventory is ‘blind’ – the agency doesn’t know where the ads are going to appear – and it’s commonly used as a way of bringing down the average cost of a media schedule so it doesn’t look too daunting.

But it’s much harder to apply controls over content when buying media this way, and the low price reflects the fact that environment isn’t really a primary consideration.

Because whether you buy advertising on social networks directly or indirectly, the chances are, it’s cheap.

And it’s cheap for two reasons.

First, there’s absolutely boatloads of it.  Social networking is one of the most popular online activities in the UK, and it generates huge quantities of audience.  Second, it generally doesn’t work very well.

People who go to these sites are highly engaged with the content, and not in a consumer mindset.  Forrester’s new report “Marketing on Social Networking Sites” is spot on when it says advertisers should “ditch the marketing tactics – this is about building trusted relationships.”

Advertisers have already spotted this, and offset poor response rates with low cost per thousands for the media.  Whilst few have moved on and created the imaginative and engaging marketing programmes that Forrester call for, they’re filling their boots with cheap banner ads.

The argument about appearing next to distasteful content is an old one, and rests partly on whether audiences consider there to be an implied endorsement by the advertiser of that content.  Marketers have fallen into three camps – the ‘get me out of here’, the ‘consumers are smart enough to make the distinction’ and the ‘don’t care just make it cheap’.  There’s no right answer – each of these positions reflects the needs of different brands and the views of their stewards.

What we have to remember here though is that we’re in a different sort of media environment.  Here, all the content is made by real people, not journalists or publishers.  So it’s their media not ours, and it should be us that treads carefully when we place our wares there.  But more than this, it reflects real life – warts and all.  Social networking isn’t to be criticized for this, it’s to be celebrated for it.

All human life really is there, and it’s up to marketers to figure out how comfortable they are with that.