On with the Search

(Note: this Article was re-published in Marketing Magazine’s Digital Survival Guide 2007)

Successful marketing engages the right audience and engaging someone is often as simple as providing them with relevant information when they want it. Search marketing has proven the success of this extremely simple idea by delivering targeted text-based advertising to search engine results pages (SERPs) when users are actively seeking products or services.

But we know all this. We’ve been hearing for years how effective search is at driving customers through the online / offline door with minimum spend. What we’ve seen more recently is search advertising technology – the audience-targeting capabilities of search – rolled out across more delivery platforms and in different forms. This includes display advertising and branding as well as rich media and interactive advertising. Now the major search engines, Google, Yahoo!, Microsoft / MSN, can possibly be more accurately termed “ad auction houses”. If the Yahoo! marketing services site spiel is anything to go by they are also actively repositioning themselves. It reads: “Think of Yahoo! as a research company that sells media.” The major search engines control ad delivery to an increasingly large proportion of the entire Web, both via their 3^rd-party “content networks,” and an ever-growing portfolio of advertising-supported software tools such as Google Maps & Gmail.

For those not clear on the difference between “search” and “content” networks, “search” ads are displayed as sponsored links alongside the natural search results when a user types a query into a search engine such as Google, Yahoo or Live.com. Search ads are only displayed to users actively seeking the keyword which is set to trigger the ad. Google’s auction-based system for selling these ads is called AdWords. Yahoo! Search Marketing has recently released a system called Panama, which brings their technology into line with Google’s. Ads displayed on the content network, on the other hand, are served in response to the content of a page – which means they can appear on a vast array of sites.

Here’s an example: you are running an ad about dog training. On the content network, a web page about dog breeds might trigger your advertisement. On search however, your keyword must be “dog training”, so the ad will only appear when a user types “dog training” into the search engine.

The Google system for displaying these ads is called AdSense while the Yahoo! system is called the Yahoo! Publisher Network. The ads displayed by Google are those of their AdWords clients who set their daily budgets, build keyword lists and provide ad copy to Google.

According to analysts Frost & Sullivan Google AdWords accounts for around 59 percent of the total $254.5 million paid search market in Australia and AdSense for just over a quarter of the market. NineMSN controls 7.7 percent of the market, Yahoo! Search Marketing 4.1 percent and Sensis 2.1 percent. It remains to be seen whether Yahoo!’s new Panama system will help them claw back some ground from market giant Google.

Expected growth of the market

Meanwhile in the US, the big search engines are getting bigger as they buy out ad-serving companies, ad networks, media exchanges and interactive agencies, and grow their share of the online marketing dollar – while simultaneously improving their ability to deliver the most targeted advertising we’ve ever seen.

$US12-billion online marketing shake-up

This year has seen a flurry of merger and acquisition activity in the US online & search marketing sphere. And, as is usually the case in the online industry, what happens in the US will have a big impact here in Australia. On April 13, Google announced their intention to acquire ad-serving giant DoubleClick for US$3.1 billion cash. By July, Yahoo! had announced the completion of an acquisition begun in October 2006 for Right Media, who run an auction-based digital media exchange for advertisers, publishers and ad networks. The cost? Around US$680 million. In May, Microsoft revealed plans to buy DoubleClick rival aQuantive for US$6 billion and, at the end of July, Right Media competitor AdECN for an undisclosed figure (experts guess between US$50 and100 million).

A number of these deals are still to pass regulatory and shareholder approval, but should they, and other takeovers, go through this will represent well over US$12-billion-worth of merger and acquisition activity in the industry since January 2007. A busy year.

But what does this all mean for advertisers, publishers and web users involved in auction-based, I mean, paid search advertising? Google, Yahoo! & Microsoft are keen to transform online banner advertising by combining the same attributes that make search ads so effective. They want to show consumers extremely relevant ads and offer advertisers the chance to buy ads via a transparent, market-rate auction system. In general terms, the consolidation of ad systems has been geared toward building up a critical mass of user-behaviour data and ad-serving technology and the ability to offer more targeted rich-media ads across a larger networks of sites. The idea is that as consumers will be seeing more relevant ads, response rates will hike north, and advertisers, consumers and publishers alike will be better served. The biggest concerns for consumers lie in privacy intrusions, which we’ll discuss below.

Targeting display

One reason for the acquisition activity is that search engines are hoping to get more control of the display (banner) advertising market. Early adopters of Internet marketing – in industries such as jobs, finance, cars, homes, pornography, etc. – were often primarily focussed on driving customers across the line (i.e. generating sales or leads). Text-based search advertising on SERPs and across targeted content networks served this purpose very well.

More recently there has been a second wave of online advertisers to enter the marketplace – fast-moving consumer goods and big brand players, businesses that are often as interested in promoting their brand as generating leads. Display advertising is the obvious choice for branding, but it hasn’t been possible to delivered display ads with the same open-market pricing and targeting as search.

While Yahoo! (in Australia the Yahoo!7 portal) and Microsoft have been active in the display advertising market for some time, the DoubleClick acquisition could propel Google into a commanding position in this space. DoubleClick manages one of the largest ad-serving systems on the web. Their system delivers and tracks display advertising on a huge number of websites.

According to Google’s Group Product Manager, Alex Kinnier, the DoubleClick acquisition is a no-brainer. As he explains in a post on the official Google blog, text-based search ads account for 40 percent of online ad sales, but display ads account for roughly another 40 percent. “Unlike text ads, these may incorporate 3-D graphics, full-motion video, sound and user interactivity… Three portals, AOL, Yahoo! and MSN, lead the industry in display ads. Each has more than $1 billion in annual display ad revenue… Google, however, has been a minor player in display advertising.” Google is hoping that if their DoubleClick takeover bid is successful they’ll be catapulted into a dominant position.

The acquisition is yet to be finalised, however, and trouble may be ahead. Immediately after the deal’s announcement a number of companies, including Microsoft and AT&T, voiced concerns that the merger would limit competition in the online advertising market and, in mid-July, a US senate sub-committee announced it would be examining anti-trust and privacy concerns. The findings are expected later this year.

Targeting behaviour in search

Behavioural targeting is certainly not new and the Yahoo!-Right Media, Microsoft-aQuantive, and Google-DoubleClick deals mean the major search engines control more and more of the available market data. It would seem logical that with such vast amounts of user data in their hands the search engine engineers would be dreaming up new ways to improve their services. The race for supremacy continues…

One application might be the addition of features to their paid search marketing systems. These features could, potentially, allow advertisers to serve ads based not only on keyword searches, but also the end user’s implied age, gender, income bracket etc. Targeting to this degree could only encourage advertisers to bid higher for their most-prized search engine users. This, in turn, will increase the engine’s yield-per-search. These kinds of additional product features have been talked about for years (some have even been rolled out in seminal trial products). Without large datasets of user information, though, it was just a good theory, not a practical possibility.

With the mergers, it may become a genuine – and extremely powerful – advertising reality. Whether the reality lives up to the speculators’ expectations remains to be seen.

A win for marketers?

What implications does the closer integration of search and display advertising have? For a start, a combined reporting system (Google+DoubleClick; Yahoo+Right Media; Microsoft+aQuantive) could mean huge benefits for optimising advertising results. Integrating metrics from display and text in one system would allow more effective allocation of ad budgets and, combined with rich-media technologies & the lure of behavioural targeting, the ads could potentially convert even better.

A loss for consumers?

On the downside, the concentration of data into the hands of a few has raised concerns with privacy advocates. In particular, people are worried about the implications of marrying the sorts of individual user data needed for behavioural ad targeting to search engine usage patterns. That’s why the Electronic Privacy Information Center (EPIC) has filed a complaint with the US Federal Trade Commission about Google’s DoubleClick acquisition, specifically regarding the increased ability to “record, analyse, track, and profile the activities of Internet users with data that is both personally identifiable and data that is not personally identifiable.”

The major search engines appear to be taking some note of these concerns – or at least attempting to stay ahead of regulators – with each recently announcing limits to how long they will retain data about users’ search queries. Google and Microsoft Live Search will keep data for 18 months and Yahoo! for 13 months. But are the search engines going far enough? While these announcements are definitely a step in the right direction, there are still legitimate concerns about the amount of data collected from users and how this can be used – or misused – to target advertising.

For those more interested in user-experience than privacy, though, better targeted ads theoretically mean ads that you’re actually interested in. And, as rich-media ads gain popularity and create opportunities for user interaction (for example, an ad that lets you compare prices for a product without navigating to a new page) the ads themselves become relevant content.

Targeting rich media

Making ads into relevant content is part of the push to promote higher levels of engagement through rich-media advertising. This includes technologies such as flash, video ads, product feeds and user-interactive ads. Google is well and truly in this game, having recently integrated Google Gadget Ads into their AdWords system. Google Gadgets are small web applications that anyone can develop. Some of the most popular Gadgets provide weather forecasts or dictionary definitions for the day.

Google recently announced that Gadgets will be integrated into the AdWords system, so that advertisers can develop Google Gadget Ads and publish them across the AdSense network on a cost per click (CPC) or cost per thousand impressions (CPM) basis.

The Gadget Ads would work well for verticals including travel, real estate, recruitment and online shopping where large product data sets can be delivered in feed form. Yahoo!’s SmartAds system works on a slightly different model, using behavioural targeting to serve the most relevant offer to a particular user. For example, LastMinute.com.au could create one set of creatives for an airfare specials ad but generate them dynamically. A Sydneysider who has been previously looking at New York travel on Yahoo! news would see an ad with Sydney to New York deals, whereas a Melbournian interested in travel to London looking at the same ad would get Melbourne to London offers. In theory, anyway.

The future of search

The quest for ever more relevant and engaging ads continues in the world of search, just as it does in other media, and user data is paramount. And, as the major search engines branch into more markets and gain more user data, the degree of targeting they can deliver will be both extremely attractive to advertisers and increasingly discomforting to privacy advocates.

Should old-technology, broad-reach media and ad sales businesses be worried? Google’s market dominance was won by creating a search engine that did a better job at delivering the most relevant information to their users. If old-model ad sellers aren’t willing to embrace the move to highly targeted, relevant and engaging advertising then perhaps the answer is yes.