Have you ever looked at those listings on the top and to the right of Google, Yahoo! Bing & MSN and wondered what they were all about? Well if you answered “Yes” then hopefully you will find this post of value.

Search Engine Advertising (SEA) aka Pay Per Click (PPC) aka Sponsored Links. Whatever you choose to call this medium it has been the fastest growing method of advertising of recent years. It has seen companies such as Google & ReachLocal, both of which derive the majority of their revenues from this medium, achieve unprecedented growth levels as explained by this press release from renowned professional services firm Deloitte.

Let’s stick to the term SEA for the purposes of this post. SEA involves bidding on certain keywords (read phrases) that relate to a business. When a potential customer is searching for a product or service, they type in what they are looking for which brings up a list of ads related to that search. The person searching then looks for an ad that best describes what they are looking for, clicks on it and arrives at the advertiser’s website. Voila!

One of the main reasons that SEA has boomed in recent times can be attributed to how the advertiser pays for their campiagn. Just imagine conducting an ad campaign with traditional media but only paying for the ads that caused the audience to visit your website? Imagine trying to explain to your account manager that you don’t want to pay for those ads where the individual did not do this. They’d think you were crazy! But that’s how SEA works. Your ad could appear on Google, Yahoo! Bing or MSN millions of times and you won’t get charged a cent. You only pay when someone actually clicks on your ad and arrives at your site. In other words, it’s pay for performance. All of those occasions where your ad appears and the person doesn’t visit your website you can regard as free branding!

As SEA is a digital form of advertising it’s much easier for those that use this format to gauge the effectiveness of their campaign and to tweak it according to the information that the campaign produces. Those that run such campaigns, whether they be individuals or SEA specialist firms, typically look at which words get the most clicks and the highest Click Through Rate (CTR – the % of those who view your ad who then click through to your site) and then manipulate the keyword bidding accordingly. Another key factor taken into consideration is the cost of bidding on those particular keywords. For example, a word may have a great CTR but if it costs 5X the price of your average keyphrase, do you really want to be spending that amount of money on each click? However, the best way to optimise a campaign is to look at the keywords that cause the most conversions, ie. leads and sales and adjust the bids accordingly. The previously mentioned ReachLocal is the only company I am aware of that as well as knowing which words resulted in emails, submitted forms and online sales, also knows which words caused the phone of a business to ring and automatically adjusts the bids accordingly. Powerful stuff!

As you may expect there is a whole lot more to it than that. For example who sets the price of these words? Google? Nope. Yahoo!? Not them either. So who does determine the price? Adam Smith’s invisible hand doctrine, written more than 230 years ago is the blueprint for what sets the prices of keywords. It is also the blueprint for what we all know as the market. Similar to the stock exchange, if the market determines a word should cost $0.85 for a click, then that’s what it costs.

Aside from which words to bid for and how much to bid for them, a variety of other considerations come into play. Some of these include how to best segment a particular geographic area, choosing a budget that is appropriate for your industry and the goals of your business, how to write an effective text ad, how to tweak your website for both maximum conversions and improved SEA ranking, the vast array and quality of reporting techniques and systems … the list goes on. The capability of SEA “specialists” to manage all of the above varies widely, (believe me when I say I have seen some less than impressive workmanship), so as with most things in life it is extremely important that you do your research before committing to any contracts.

I think that’s enough information for now. Over the coming weeks I will be exploring each of the aforementioned considerations in more detail. If you feel you cannot wait that long, please feel free to get in touch and I will do my best to answer any queries you may have.

Disclaimer:

I work for ReachLocal Australia and any views that I express here are purely my own and are in no way representative of ReachLocal Australia, ReachLocal Incorporated or any of our corporate partners.