Search Engine Marketing

S. Bartlett Boughton

St. Edwards University

Search engine marketing (SEM), which allows acquisition standpoint. Whereas during the dotcom boom
rms to target consumers by placing ads on search engines, of the late 1990s, companies would spend millions of
has proven to be an effective audience acquisition strategy. dollars on advertisements and have no clear idea of their
Unlike traditional online advertising, advertisers pay only effectiveness, executives can now do detailed cost-benet
when users actually click on an ad. When successfully analyses. This allows for realistic business models with
implemented, SEM can generate steady trafc levels visible rewards.
and tremendous return on investment (ROI). As SEM
becomes more common, the level of competition is Strategies
driving bid prices through the roof. Many advertisers have Online businesses have a variety of audience
found that they can no longer afford to bid on the most acquisition tactics to choose from, including opt-in, viral,
highly searched words. Instead, they are forced to expand banner ad, search placement, and pay-per-click (keyword)
their campaign to include multiple search engines and marketing. Opt-in marketing gives users the option to
tens of thousands of keywords. Advertisers are also faced subscribe to services, such as newsletters or e-mail groups.
with the issue of lost clicks (the difference between what Viral marketing is using word of mouth to gain exposure
they pay for and what their Web site actually receives), to a product or service. Banner ads are either textual or
which are often the result of click fraud. Despite these media-based advertisements on a Web site that contain
obstacles, SEM can provide better returns on investment links to other Web pages. Search placement marketing,
than other marketing channels and should be a part of any also called search engine optimization (SEO), is a method
sophisticated advertising campaign. of creating or altering a Web page so that it will appear
Most online advertising campaigns have two main more relevant than other pages to the search engines.
objectives: brand development and direct response. This research focuses on SEM, which is also referred to
Selecting an appropriate marketing channel ultimately as keyword marketing or pay-per-click advertising (PPC).
depends on which strategies will provide the greatest ROI. This technique allows advertisers to place bids on specic
Firms that offer products and services through the Web keywords or phrases and have their advertisements show
clearly stand to gain from Internet advertising because up alongside the organic search engine results.
their prospective customers are already online. Non web- Advertisers that choose a SEM strategy as part of their
based companies may choose online marketing in order marketing mix may do so for multiple reasons. First of all,
to increase exposure and promote brand. SEM allows an SEM account is very simple to set up and can generate
companies to closely track their ROI from an audience trafc very quickly, depending on the level of competition

PERSPECTIVES IN BUSINESS 29
in a given market. GeLena Vavra, an entrepreneur Because Googles paid results and organic results are often
specializing in Italian suits in Las Vegas, spent $60,000 in equally relevant, and because ads are limited to simple text
2003 on Google ads, and claimed Our business exploded boxes, users have become more willing to click on the ads.
from Google and Google alone (as cited in Markoff The quality of Googles search results has led to a
& Zachary, 2003, p. 2). SEM delivers ads to users who $1.67 billion Initial Public Offering (IPO) and a brand
are already searching for the products or services that an that has become a household name (Barlas, 2004). In
advertiser is offering, meaning that theoretically, they are February of 2004, Google enjoyed 44 percent of online
only receiving qualied trafc. Unlike traditional banner searches, compared to Yahoo!s 26 percent (Smith, 2004,
ads, advertisers are charged based on the number of clicks p. 24). Six months later, in August 2004, Googles share
they receive, not on the number of impressions (number of the pie had dropped to 36.1%, Yahoo!s to 30.6% and
of times an ad appears). Furthermore, many marketing Microsoft MSNs to 14.4% (Guth & Delaney, 2004).
campaigns place a great deal of importance on branding. Yahoo!, Microsoft MSN, and other leading search engines
PPC ads can be very effective in terms of driving home a have taken an aggressive approach in their ght against
brand name because they appear alongside search results Google, spending millions on research and development.
for thousands of different search terms. For example, the beta version of Microsofts search engine,
Today nearly 50% of all households in the United which was launched in November 2004, took 20 months
States have broadband connections, which increases to develop and cost $100 million (Guth & Delaney,
the likelihood that users will rely on the web for quick 2004). In a speech to shareholders regarding the companys
searches instead of using yellow pages, dictionaries and competition in the search market, Microsoft CEO Steve
encyclopedias (Tedeschi, 2004, p. 2). Indeed, online Ballmer said, We will catch up and we will surpass (as
users conducted 1.2 billion searches in May, a year-over- cited in Guth & Delaney, 2004, p. A12). While MSN
year increase of 30 percent (Tedeschi, 2004, p. 2). With may eventually replace Yahoo! search technologies with its
more people navigating the Web through the use of search own, executives have said that the advertising relationship
engines, online advertising has undergone something of will continue for the foreseeable future (Guth & Delaney,
a revolution. Interactive marketing is becoming a larger 2004, p. A12).
percentage of total advertising expenditures. The Interactive Advertising Bureau has found that
Keyword marketing has proven to be an effective search engine marketing is the fastest growing sector in
form of interactive marketing. When a user visits Google, online marketing (as cited in Brooks, 2004, p. 1). With
Yahoo!, or a number of smaller search sites and enters more and more advertisers using keyword marketing as
a specic keyword or phrase, the results that they are a means of reaching potential customers, it is becoming
provided with consist of organic listings and sponsored increasingly expensive to maintain top positions. The
listings. The organic results are ranked according to explosive paid search market is likely to grow to $2.5
complex algorithms that seek out the most relevant Web billion or about one third of current online spending in
pages rst. Google is very secretive about its formula, but 2004 (Smith, 2004, p. 24). Thomas Weisel Partners have
it reportedly ranks Web sites based on meta tags (keywords estimated that paid search will account for half of all online
related to a given Web page), outgoing links, and links in expenditures by 2008, which would require an annual
from other sites. The sponsored (or paid) listings consist growth rate of 21% (as cited in Francisco, 2004a). This is
of advertisements by individuals or rms that have placed a substantial gure, considering the number of companies
bids on keywords or phrases. that are using online advertising as a means of reaching
The more an advertiser is willing to pay for a click, the potential customers.
higher up the list its ad will be placed, resulting in higher
levels of trafc. Yahoo! ranks advertisers based solely on bid Competition
price, with minimum bids of $0.10. Google determines Increasing competition in search marketing is making
advertiser rank based on a combination of bid price and it virtually impossible for advertisers with limited budgets
click-through rate (the number of users who see an ad to maintain top rankings. The Atlas Institute published
divided by the number of users who click on that ad). This a report in September that analyzed the impact of paid
formula naturally moves the more relevant ads higher in search engine ranking on trafc. The study found that
the rankings and provides an incentive for advertisers to trafc drops signicantly with rank and dispelled the myth
bid only on relevant keywords and to write targeted ads. that as long as an ad was in the top three positions it would

30 SEARCH ENGINE MARKETING

receive relatively equal trafc (Brooks, 2004). While your at least one or two paid ads with afliate or aff in them,
sales may be costing you 10 percent less by maintaining even for the most obscure terms. This, in conjunction with
third rank, you could be losing nearly half of the customer direct search advertising, has led to a bidding war for the
acquisitions (Brooks, 2004, p. 3). This is why managing most highly searched terms.
a PPC campaign becomes largely a nancial decision. The In 2002, there were over 100,000 advertisers using
top position for a given keyword may cost $5 a click, and Google (Markoff & Zachary, 2003). That number rose to
the third position, $4.50. The advertiser in third position 280,000 in 2004, and Google expects to add 372,000 new
pays 10% less than the top advertiser, but may receive 50% accounts over the next four years (Kopytoff, 2004). Kenneth
less trafc. Marketers must look at their ROI and decide if Cassar, an author for the Internet research rm Neilsen/
the increase in trafc will be worth the increase in price. NetRatings, has stated, In the long term, well hit a wall
A rm that is trying to break into this market for the where a lot of the search buys that make sense today wont
rst time is going to have a difcult time if it does not have make sense anymore because prices will have risen so high.
a large enough advertising budget to compete for the most So for the search engines to grow their revenues, theyll have
highly searched words. The mortgage company eLoan, for to increase supply (as cited in Tedeschi, 2004, p. 1). This is
example, was willing to bid $6.26 a click for the phrase the major hurdle that Google and other search engines will
mortgage lender, second behind Centex Corporations have to overcome in order to maintain protability in the
$9.31 bid (Tedeschi, 2004, p. 1). eLoan advertises for long run. There are a nite number of possible keywords,
well over 100,000 search terms, including morgage and and search engines will have to constantly innovate to solve
other misspellings (Tedeschi, 2004, p. 1). The phrases the problem of limited supply.
mesothelioma and car accident lawyer will cost $100 and In October 2004, Fathom Online, in conjunction with
$50 respectively for the top positions (Francisco, 2004a, MediaPost, both well known marketing rms, released a
p. 2). The results for these search terms include law rms tool intended to measure the price volatility of the search
that obviously have a high enough ROI to justify such market (Fadner, 2004b). This tool, called the Keyword
astronomical costs per click (CPCs). Unless your marketing Price Index (KPI), is intended to serve as a base for
strategy calls for a bidding warand provides the budget comparing the relative cost effectiveness of search engine
for itits a good idea to diversify and bid on the largest marketing (SEM) campaigns. Going forward, it will track
possible number of well-researched, lower cost keywords the uctuations in cost per click (CPC) over time (Fadner,
(Eroshenko, 2004, p. 5). In the years to come, major search 2004b, p. 1). So far, this effort has revealed that some
engines are going to have to address the problem of limited industries have high enough payouts to justify CPCs of more
supply in order to maintain market share. than a dollar or two, while others simply do not (Fadner,
Large companies such as eLoan and Centex are not the 2004b). The nance/mortgage industry, for example, had
only reason that search marketing has turned into a bidding a weighted average CPC of $3.17, which sounds more
war. A couple of years ago, an Internet marketer by the reasonable when one considers the potential earnings from
name of Chris Carpenter began something of a revolution the sale of a mortgage or an investment account (Fadner,
with the invention of a trafc-brokering strategy dubbed 2004b). Retail, on the other hand, had a weighted average
GoogleCash. In this system, an advertiser signs up for an CPC of $0.32 because neither the potential gains nor the
afliate program, in which companies pay commissions conversion rates are substantial enough to justify higher
to advertisers that generate leads or sales. The advertiser bid prices (Fadner, 2004b). Ultimately, this index will give
then signs up for a paid search account (Google, Yahoo!, advertisers a better understanding of bid price uctuations
etc.) and places ads, sending users directly to afliates in their industry over a period of time.
Web pages through a URL, which includes the advertisers
account number. Each time a user signs up for something Challenges
or purchases a product, the referring advertiser is paid a Search marketing is so volatile now that even news is
commission. The prot is the difference between the cost causing bidding wars in some categories. Friday, October
of the clicks and the commissions that were paid. This is 1, 2004, a day after Merck recalled the arthritis drug Vioxx,
quite literally one of the simplest businesses to start. It a search for that term on the top search engines yielded ads
requires no Web site, minimal start up costs, and very little for three law rms offering to represent consumers who
maintenance. Afliate marketing is so common today that had been hurt by taking the drug (Francisco, 2004a). The
it is nearly impossible to do a Google search without seeing going bid for the top position on Yahoo! was $2, and a

PERSPECTIVES IN BUSINESS 31
week later it had risen to nearly $16 (Francisco, 2004b). In the long run, search engines are going to reach
One well established law rm began bidding on Vioxx and a critical mass in which they cannot meet advertising
related terms for $2 on October 1, 2004, and eventually had demand. The industry leaders, in an effort to maintain
to pause the campaign after spending $5,000 to evaluate protability, will be forced to innovate and shape the future
potential clients (Francisco, 2004b). The campaign was of SEM. Elkin (2004) notes, as CPCs currently continue
so effective that the rm Web site received 25 times its to rise, the largest search engines remain locked in a battle
normal daily trafc (Francisco, 2004b). for market share.
Competition such as this often causes advertisers to Microsoft CEO Steve Ballmer earlier this year admitted
turn to smaller search engines, which tend to have lower that the company was behind on search technology
CPCs than the leaders. The smaller engines pay their development but vowed that it would catch up to
partner sites a share of the revenues every time an ad is take on Google and Yahoo! All three companies are
clicked on. Often the advertisers do not even know what working on customized, personal search tools for the
sites their ads are showing up on. Many of these marketers desktop, as well as local search services. (p. 3)
experience a difference between the number of bought Greater user personalization is being explored as a way
clicks and the number of clicks the Web site actually to allow advertisers to connect with even more targeted
recorded (lost trafc), which is frequently a result of click customers than at present. For example, if a user types the
fraud. According to Clicklab (as cited in Fadner, 2004a), phrase new car into a search engine today, he or she will
a Web analytics provider, there are two major types of typically see advertisements for large, national companies.
click fraud: competitor fraud, in which competitors run Search engines would like to be able to serve advertisements
programs that repeatedly click on competing advertisers relevant to the users location, income level, family size, etc.
sponsored links in order to deplete their daily ad budget, This could potentially reduce competition among advertisers
or afliate fraud, in which afliates utilize similar programs by categorizing them according to user preferences.
that repeatedly click on a link in order to increase their In closing, this research proves that search marketing
compensation (p. 2). has come of age. More Americans today are using search
This is not just a problem for those advertising on engines to navigate the Web than ever before, and paid
lesser known search engines, as it occurs on major engines search advertising now makes up one third of all online
as well. Google warned in its registration statement with the ad spending (Smith, 2004). Because there is so much
Securities Exchange Commission (as cited in Eroshenko, competition for popular keyword phrases, many advertisers
2004), that cannot afford top positions on the major search engines.
We are exposed to the risk of fraudulent clicks on Advertisers may be compelled to turn to second-tier search
our ads. We have regularly paid refunds related to engines in search of better position and greater ROI.
fraudulent clicks and expect to do so in the future. Smaller engines offer lower bid prices, but are often faced
If we are unable to stop this fraudulent activity, these with the problem of click fraud, in which competitors
refunds may increase. (p. 2) or afliates click on advertisements themselves, either
Click fraud is a huge problem because it is very running up a competitors ad spending or increasing their
difcult to detect. The most effective way to combat own compensation. Click fraud is very difcult to detect,
click fraud is for Web masters to closely monitor analytic and the best solution is the implementation of advanced
software that determines where incoming clicks originated software systems that track the locations of incoming clicks.
(Fadner, 2004a). Another strategy is to display a pop up Despite these obstacles, an SEM campaign, when properly
after repeated clicks on an ad through the same IP address, implemented, has proven that it should be a fundamental
warning the user that the Webmaster is monitoring part of any well-developed interactive marketing strategy.
recurring search engine visits (Eroshenko, 2004). There is
no ideal way to prevent click fraud, but these steps can
help to minimize overall trafc losses.

32 SEARCH ENGINE MARKETING

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Biography
Bart Boughton is a student in the MBA program in the School of Management and Business at St. Edwards University. He
majored in economics at Rollins College in Winter Park, Fla., where he was on the varsity rowing team for four years and
belonged to Phi Eta Sigma National Honor Society. He currently works as a marketing consultant for myDNA Media, Inc. (a
health information Web site: www.myDNA.com).

PERSPECTIVES IN BUSINESS 33