AdWords has become a black box beyond the means of many small advertisers. To help some advertisers automate their accounts tools like free conversion tracking and CPA based bidding have came about. But all the tools that help enhance the perceived value of search ads and the value of conversions does nothing for brand ads or the other ads people see before searching and buying.

Content ads, which were relatively expensive when AdSense first came out, have seen their price drop over the years as

• advertisers adjusted content bids downward
• smart pricing reduces prices (again, again, and again)
• quality scores that drives out arbitrage ads
• the clickable region has got smaller

The value of many publishing based business models has aggressively eroded as

• publishing markets get saturated
• AdSense has replaced direct ad sales for many sites
• Google keeps discounting the price (and perceived value) of non-search ads
• Google’s search based ads get conversion credit for demand created by other ads

Google claims their success is just because they are simply better than the competition and they have been doing search longer (that second claim is untrue - Yahoo! owns Inktomi and AltaVista, which have both been doing search longer than Google). The truth is they have a huge advantage in network effects, have advertising believe that their inventory is worth more than it is, and that other online ads are worth less than they are. It is going to be hard to create a viable competitor unless the metrics for measuring value are changed.

Microsoft’s answer to this is called Engagement Mapping, yet another black box, but one that aims to share part of the ad credit with display ads (clicked or not) instead of tying most of the ad value to the search based conversion. Publishers would clearly benefit from this, but if it is hard to get advertisers to buy AdSense ads on Google (where Google essentially giving away the ads) how hard will it be to get advertisers to buy in on this? Perhaps big brands will use it, but smaller companies will not be interested.

If Microsoft does not own a big piece of the search market, another big hurdle is how will they advertisers trust this model without giving Microsoft their analytics data?

How might this pricing model change online publishing (for better or worse)?

I recently bought a few AdWords ads for Microsoft adCenter’s affiliate program. These links were direct affiliate links that headed directly to Microsoft - the searcher never touched my site.

Compare the following 3 AdWords ad campaigns

The first campaign is a strategic one, where I do not mind losing money if it increases usage, which may lead to more links (and better organic rankings) over time. But that second campaign, with a similar number of clicks, never even touches my site and still has a baseline conversion rate and conversion cost similar to the strategic ad group.

Truth be told those conversion sample sizes are so small that it is hard to draw concrete evidence from them, but if I was telling myself that some of the ad sales caused by that strategic ad campaign help subsidize at least some of the cost, then I might be operating under a false pretense. Some of those conversions may have happened anyway.

That third ad campaign consists largely of brand related keywords and a few other somewhat related terms. Notice how the conversion rate is higher. Microsoft recently published research that brand related search terms tend to convert better than twice as well as non-brand terms.

Why is this important? As Google controls an increasing large piece of the online advertiser pie, if you use their analytics, many of those conversions THEY track are falsely tied to their ads. They would have happened even if you were not buying AdWords ads. As far as brand related conversions go, conversions tied to brand phrases typically are not incremental, which means those would have happened even if you were not buying AdWords ads.

You can use direct conversions as a proxy for the value of advertisements, but if you have a large ad campaign and a well known brand, you are likely buying brand exposure more than direct conversions, even if you control your spend on using a CPA metric.

Laziness is Beyond Your Control

Everyone, at least on some levels, is lazy. I work my ass off, but am still lazy about doing things I do not enjoy doing. If my wife asks me to wash the dishes the hand of God strikes upon me a mean streak of laziness. It is outside my control, I swear

Right now I am trying to write a sales letter, which has made me lazy, and instead made me want to write this post.

Laziness Leads to Productivity Gains

I don’t like having to think some things through too much if they can be automated. And so tools like keyword list generators are made.

I recently found a sweet affiliate program in a field where no other affiliates existed. For the right keywords, click value was about $12 a click, and I was paying like 60 cents a click. With under an hour of work, I made hundreds of dollars in daily profit with virtually no effort.

Find Something You Love And Make it Your Own

I just logged in today and saw that my conversion stats dropped to virtually nothing over the past couple days. Odd. So then I searched, and like 10 affiliates (or, more likely, 1 competing affiliate 10 times) launched ads showing for many of the keywords I bid on, with many of them stealing my exact ad copy - word for word.

Slimming Profit Margins

Bidding Wars Reduce Profits

So what is the solution? Maybe I increase my bids again. But then they will increase their bids again. A bigger and bigger piece of the profits get shipped to Google, while these clowns and I eventually compete for crumbs. One of the reasons Google does not care if others steal your ad copy (or all the content on your website) is because at the end of the day they know it erodes the value of copyright and creates a bidding war that deposits more money in their bank account.

Quick Paydays

PPC affiliate marketing and arbitrage works that way, where you find a payday, hold it for a few weeks or a few months, then someone competes and the profit margins drop, unless you have a higher visitor value it keeps costing you more time to make less, until the opportunity cost exceeds your profit potential, and then you are off hunting for the next big idea. Competitive forces make it hard for this strategy to build long-term value unless you are operating in a small market or are using a technique that is pretty dirty.

Super Affiliate Secrets

One of my friend that was doing well with PPC affiliate stuff got up to about $1,000 a day of profit for an affiliate network. He ran it for about a year, then his affiliate network decided that they would find something they love and make it their own.

If you don’t own the supply chain or have a distribution chain that is hard to replicate your competitors consist of

• other affiliates
• the search engines
• quality scores and algorithmic changes
• the companies you affiliate with
• anyone else interested in the keyword you are buying

SEO Loves Your Profit Margins

This is why I like SEO so much more than PPC. Most people are too lazy to spend years researching their topic, years building a brand, years building links, and years building social and customer relationships. We are afraid of failure, afraid of success, and afraid that we are investing too much in one place. But, if someone sees me ranking in the organic results they can’t just clone it unless they know SEO well, and are committed for the long haul. In many cases, knowing SEO well means having capital, time, passion, and a lot of marketing knowledge.

Emotionally Engaged Brand Evangelists

Off the top of your head, how many people or brands in the SEO space can you think of? How many give you some sort of emotional response? How many helped you change your life for the better? Even in some of the most competitive and most saturated marketplaces there is not much real competition.

Thanks for the Laziness, PPC Affiliate Dude!

SEO separates out real businesses from 95% of the people buying PPC ads. The guy stealing ad copy is too lazy to compete at that level. I’ll enjoy the logarithmic growth in profits (which have been at least doubling every year) while he keeps stealing table-scraps from Google and other affiliates until his accounts get banned.

Find Something You Love And Make it Your Own!

I put a Microsoft AdCenter affiliate ad in the sidebar of the blog.

I generally do not like putting too many ads on this site, but…

• their traffic converts well because it is such a clean source (no dirty clickfarm syndication partners)
• I recently fell in love with Microsoft’s Ad Intelligence tool. If you have not tried it yet I urge you to try it. This post and this video offer a review of some of the features
• $50 in free clicks is a great offer for search marketers who have yet to try Microsoft’s ad platform
• I think the web is healthier if Google has some competition, and Yahoo no longer attempts to compete

Are you against affiliate ads? Have you tried AdCenter or the Ad Intelligence tool yet?