The Best Decisions and The Worst Mistakes – Ranking Search Engine Strategy

How did Google become #1? Was it Larry and Sergei’s massive brainpower? Perhaps it was the plentiful free food provided to employees?

Of course, there are many reasons that explain why Google is Google, Yahoo is Yahoo, and AOL is Google, I mean, AOL. Here’s my brief list of the seven most important strategic decisions and idiotic blunders that have defined the search industry as we know it.

The Good: Super-Smart Decisions

1. Google’s partnership with Yahoo Search: June 26, 2000 – a day that will live in infamy. On this day, Google and Yahoo announced their partnership whereby Yahoo would pay Google to power search queries on Yahoo. This deal for Google was like Microsoft’s deal to provide the Operating Systems for IBM PCs. It was like getting paid to get tons of free publicity and market share. I could also put this event in the “worst events” category, since Yahoo basically gave what would turn out to be their biggest (well, bigger) competitor a desperately needed shot in the arm.

2. Yahoo’s acquisition of Overture: OK, so Yahoo created a monster by falling asleep at the search wheel for five or six years. To a degree, they redeemed themselves by acquiring Overture in July of 2003. The total acquisition price was $1.6 billion, which probably repaid itself in about a year. Just imagine what sort of trouble Yahoo would have been in had MSN or Google made this acquisition.

3. Google’s acquisition of Applied Semantics: In April,2003, Google acquired Applied Semantics, a “producer of software applications for the online advertising, domain name and enterprise information management markets” according to Google’s press release. More to the point, this acquisition was key to Google’s development of their multi-million dollar Domain Park and AdSense Distribution businesses, businesses that exceed the revenue Google makes from running ads on its own site.

4. Yahoo’s acquisition of Delicio.us: This one I admit may be a bit of a darkhouse pick, but hear me out. In December, 2005, Yahoo acquired Delicio.us, the application that allows users to “tag” their favorite sites and thus create their own personalized guide to the Web. My sense is that something like Delicio.us could be the killer app that destroys search as we currently know it. Granted, tagging still lacks the critical mass (or understanding by the public) to be too big a concern for Google, but if the next generation of Internet surfers catch on to Delicio.us, general algorithmic search engines could become obsolete! To read more about my far-out theory on this point, check out my posting on search engine death that I wrote earlier this year.

The Bad and the Ugly: File Under “What Were They Thinking?”

1. MSN’s failure to win AOL away from Google: When Google renewed its contract with AOL to provide paid search listings in December 2005, there surely was a collective sigh of relief heard in the Googleplex halls. After all, AOL provides a huge amount of traffic to Google (10-15% I think?) and it also happens to be high-quality, low-click fraud traffic, which is becoming more and more important. To me, it is simply shocking that Microsoft (who was allegedly bidding aggressively to become the search provider for AOL) didn’t do whatever it took to win this contract. Had Microsoft pushed Google out of AOL, Microsoft would have instantly become a major player in paid search, while at the same time knocking a lot of wind out of Google’s sails. Even if Microsoft had to pay two times what Google offered for this deal, they should have done it.

2. Yahoo lack of paid search technology innovation: Yahoo has been resting on its laurels ever since acquiring Overture in 2003. The Overture (now YSM) user interface is nearly identical today as it was in 1999. The YSM content network (called YPN, just to confuse you further) is still non-existent, while Google AdSense continues to dominate. Even the YSM bidding model (pure cost-per-click) is a proven loser versus Google’s yield-management cash cow. In short, had Yahoo invested in technology three years ago, they would have a lot more money and market share today. Instead, Yahoo has focused on building a traditional media empire out of Santa Monica, inviting celebrities to campus, and creating nifty TV commercials.

3. Google’s launch of many pointless features: Mars, Page Creator, Web Accelerator, Catalogs, Earth, Talk, Orkut, Base, Spreadsheet – the list goes on and on. At this point, I can’t keep up with all the new and amazing betas Google launches. Even more discouraging, most of these have little chance of every making any money, are released with oodles of bugs, and often have little actual value to consumers. I’m all for innovation, but my sense is that these releases are indicative of a lack of product leadership inside Google. Perhaps there are too many “yes men” who have convinced Google product managers that they can do no wrong. At some point, if Google keeps spreading its engineering resources across dozens of random products, the products that count – like AdWords and AdSense – are going to suffer.

Google Could Still Become Pan Am

It’s interesting to look back and say “what if.” Hey, Google has a bunch of really smart folks, they’ve developed some tremendously innovative products, and they’ve got brand value second to none. Innovation and smarts, however, do not make a company into a giant by themselves. Google made some very smart business decisions over the last five years – about which the same cannot always be said for their competitors.

Of course, I always remind my friends that the business world is a fickle world. You can be #1 today and bankrupt tomorrow. For example, if you asked someone in 1970 which airline would be the biggest in 2006, they’d probably tell you “Pan Am” (no longer in business). The same would be true for Big Box retailers (Kmart, coming out of bankruptcy), or automakers (Ford – have they been acquired by anyone yet?).

In fact, if you had tried to predict the biggest search engine in 1996, you might have said “WebCrawler” or “Magellan.” Later in the 1990s, AltaVista, Yahoo, and Excite all had their days in the sun. And today of course, Google is the search engine du jour.

So yes, Google has been smart, but they can’t rest on their laurels. Otherwise in 30 years they’ll end up in the same category as Pan Am, Kmart, Ford and Yahoo!

Do Keywords Matter Anymore?

Once upon a time, you could make thousands of dollars a month in search engine marketing simply by finding the “long tail” keywords that your competitors had overlooked. This usually meant one of three things:

1. Misspellings: “mortage rates”
2. Run-ons: “mortgagerates”
3. Multi-word phrases: “san mateo county bad credit mortgage rate loan offers”

These words were veritable goldmines. While your competitors fought tooth and nail just to show up on the first page of search results for “mortgage rates”, you often found yourself alone (and with a bid of $.10) on the tail.

As a result of this phenomenon, SEM experts spent a lot of their time focusing on keyword research, perhaps at the expense of ad copy optimization, landing page optimization, and process automation. But who could blame them – they were taking advantage of market inefficiencies and making a lot of profits!

These days, the value of the tail has diminished, if not disappeared entirely. There are three primary reasons for this:

1. The Search Engines are Smarter: All of the search engines now have “broad matching” or “advanced matching” features. This means that a big competitor that bought the keyword “mortgage rates” will still likely show up when a user types in “best mortgage rates” or “discount online mortgage rates.” The rationale behind this – from the search engine perspective – is fairly obvious; by populating obscure long-tail searches with results from very competitive keywords, the bids increase dramatically (no more $.10 clicks on the long-tail).

It used to be that the search engines tried to balance their drive for additional revenue with user experience concerns by looking at “token matching.” Think of a token as a word. A phrase like “bad credit mortgage loans” has four tokens. The old rule was as follows: if a generic phrase matches at least 50% of the tokens in a long-tail phrase, the search engine would consider that relevant enough to show the broad match results on the long-tail phrase.

So, in the “bad credit mortgage loans” example above, “mortgage loans” and “bad credit loans” would be broad-matched, but “mortgage” and “loans” would not (because they only have 25% of the tokens).

Based on what I see in the market today, this is no longer the case. The search engines have basically moved away from the “token-matching” system and are getting closer and closer to a “category-based matching” approach. In this model, a broad phrase like “mortgage rates” could be matched not only on “bad credit mortgage rates” but on “home loan rates”, “find a mortgage”, and “san mateo county loans for new home buyers.”

One other related point worth noting. In the olden days, even if a broad match had a 50%+ token match and did show up alongside long-tail searches, it had to compete in the same auction for top ranking.

Here’s what I mean: let’s say that you paid $5 CPC on Google for the keyword “mortgage rates” and you elected to be broad-matched across all long-tail keywords Google thinks are relevant to you. Let’s say that I bought the keyword “alabama low mortgage rates” and I was willing to pay $2 CPC for this keyword.

When a user did a search for Alabama low mortgage rates, Google looked at two factors to determine ranking – maximum CPC and click-through rate (CTR). The key point here, however, is that Google looked at CTR on a keyword-specific basis. So, if your broad matched keyword had an overall CTR of 10%, but only a .5% CTR on the specific keyword “Alabama low mortgage rates”, Google would use the .5% CTR to determine ranking. So, if my $2 bid had a CTR of 10% (due to the fact that I would likely have highly-specific ad-text, and I might be an Alabama-specific mortgage lender),
my effective “cost per thousand” (CTRxCPC=eCPM) basis would be $200 and yours would only be $25. So, if we went head-to-head against each other, I would clearly show up more highly than you.

That is not the way things work today. As far as I can tell, Google has moved away from the keyword-specific auction model to more of an “overall CTR” auction model. In this new scenario, if your generic keyword has an overall CTR of 5% (but remember, only .5% on the specific keyword) and my specific keyword has a 10% CTR, the eCPMs would be $250 for you and $200 for me – you would show up first. The long and the short of it is that this new system decreases the relevance of the tail by enabling high-CPC generic keywords to outposition targeted keywords.

By changing “token matching” to “category matching” and by changing the concept of a “single auction” to an “overall auction”, the results may be slightly less specific-ads for the user, but virtually eliminate market inefficiencies (read: no more low CPCs) for the search engine.

Of course, the flip-side of that is that as user queries are consolidated into a few categories, the bulk of ad-generated traffic is consolidated into those advertisers who can pay top position for the most popular searches. Or, to put it another way, instead of entering into 10,000 auctions for 10,000 different keywords, advertisers are now entering into just a few auctions for those 10,000 keywords. If you want to get traffic, you have to win in one of these few auctions.

2. Competitors are Smarter: Even assuming that the search engines weren’t doing everything in their power to move generic keywords into the long-tail results, the advantage of huge keyword lists has been reduced simply because competitors have caught onto the tactic. There are now dozens of companies (Trellian, WordTracker, GoogSpy, BadNeighborhood) that offer reams of keywords for pennies a day. Some of these folks now even offer APIs so that you can directly send the keywords right from their databases to your search engine accounts.

On top of that, the search engines have realized that being open about keywords helps their bottom line. Both Yahoo and Google offer keyword suggestions (taken directly from either user queries or other advertiser’s keyword lists) at multiple points in the account set-up process.

Two years ago, perhaps 30% of any keyword market was relatively devoid of advertisers and presented great arbitrage opportunities. Today, my guess is that less than 10% of the keyword universe isn’t heavily saturated. Combine smarter advertisers, more advertisers, and better tools and tail keywords are much less valuable.

3. Consumers are smarter: Finally, let’s not forget about the consumer. Remember the growth of AskJeeves – the “natural language” search engine. Consumers loved the fact that you could type in a question like “Where can I find low mortgage rates?” and get relevant results. Of course, it turned out that this was basically a gimmick – the system simply excluded noise words like “Where can I” and found results based on “find low mortgage rates.” Consumers caught on to this, the novelty wore off, and now Ask has abandoned the “natural language” concept all-together and is just another search engine.

Apparently, consumers are getting smarter on Google and Yahoo as well. A friend of mine who has already poured through the millions of user queries inadvertently released by AOL, tells me that user “query length” (the number of tokens in a search) is getting shorter. This to me suggests that user recognize that you can basically get what you want on a search engine with a basic search, rather than a 20 word diatribe.

No doubt searchers will also gradually learn to eliminate noise words like “and” or “where”, as well as to stop typing in searches like www.ebay.com into the search engines (did you know, by the way, that one of the top searches on Google is . . . “Google”? This will decline over time . . . I hope).

In any event, as searchers become smarter, the volume of long-tail searches seems to become smaller, thus reducing the need for huge effort into keyword research.

Conclusion

Combine search engines maximizing revenue by showing generic ad results, competitors who now understand the long-tail, and consumers who have a much better understanding of how search engines work, and I think it’s safe to say that the Holy Grail of search engine marketing is no longer the keyword. No doubt keyword lists are important, but you won’t be able to retire in Aruba just because you concatenated three adjectives, two cities names, and two suffixes.

This basically means two things: 1) that SEMers are going to have to get a lot smarter about the other elements of SEM – like ad text, landing pages, bid prices, analytics, and filtering and 2) that folks who survived on the long-tail and market inefficiencies are in trouble (especially when you add in Google’s Quality Score changes).

A few months back, I wrote about the similarities between SEM experts and eBay power sellers, the concept being that both eBay and SEM used to be easy for anyone to do but is now rapidly becoming the domain of specialized experts. The end of keywords is yet another example of this phenomenon for SEM.

Random Observations from SES in San Jose

Ah, SES week. A week filled with parties, free lunches, colorful business cards and the always interesting Google Dance. I learned a lot of interesting things this week – some of which I’ll share today, others of which may merit a full column a bit later on.

In no particular order though, here are some of my observations about SES:

1. A Standing Ovation at Google: When you entered the Google Dance this year, you wear greeted by dozens of Googlers (mostly temp-to-perm client service reps) who gave you a standing ovation and shouted “thank you.” I had two (not surprisingly cynical) observations about this greeting. First, I thought: you graduate from Stanford with honors, and your first job is a temp answering phones by day and applauding by night? Leland must be proud! The second was that the greeting reminded me of the “Arbeit Macht Frei” signs at Auschwitz. The slogan means “work will set you free.” Of course, that was meant to put new arrivals at ease and to shield them from the truth. As Google rolls out a overly-broad Quality Score algorithm that will literally kill thousands of their most loyal and long-standing customers, I couldn’t help feel that the standing ovation I received rang a bit hollow.

2. . . . But Save the White Gloves for the Press. Once past the Stanford cheering section, I waited in line for my little yellow wristband. Here’s the interesting part – at SES in San Jose, I decided to be a good Samaritan and offer a ride to some random folks who were waiting in the 500 person deep line for buses to the Google dance. The guys I pulled out of the crowd ended up being two technology journalists for USA Today (actually, one of them was the guy who wrote the big spread on Danny Sullivan a few weeks ago, the other was once the manager of the first underground radio station in the US – KSAN in Berkeley!). So when a co-worker, the two journalists, and I arrived at the Google Dance, we were suddenly surrounded by several Googlers with clipboards. For a split second, I thought maybe I had been randomly selected for some sort of prize or something. It turns out, however, that they were only interested in our journalist friends.”Can I get you your wristband? Do you need a tour of the party? Is there anyone you want to talk to you? What can I do to help.” In other words, the advertisers who were getting the standing ovation were clearly not as important as the almighty press, who got the white glove treatment.

3. Big Plates and Small Plates. OK, one final Google Dance observation. When I got in line for the food, I noticed that the plates were “appetizer-sized” at best. I mean, these plates made Las Vegas buffet plates look huge. The next day, however, I got to go to lunch at “Oasis” which I guess is the newest Google cafeteria. The plates there were practically serving platters. And every table had fresh bread and a nice cheese plate. They also had a delicious heirloom tomato salad, tuna steaks, and flank steak. Does the size of a plate mean anything? Hmm, you decide.

4. The Show Seemed Dead to Me: OK, as to the show itself, I actually only went to the exhibit hall. I gotta say, it seemed like a ghost town. Especially compared to Ad-Tech San Francisco,SES was virtually empty. It reminded me of a trade show I went to in 2001 after the bubble burst. You kind of wanted to go talk to exhibitors out of pity. One more thing: why does Google exhibit at search trade shows anymore? Does anyone actually go to SES without having a Google account?

5. Domain Parks are Relevant but Affiliates Aren’t. At the DoubleClick party, I had some fun playing bocce with Geoff the Bocce Superstar, but I also had a few minutes of conversation with a very visible Googler (I am going to withhold the name – gotta protect my sources!). I mentioned to him that I thought that if Google was going after MFAs and affiliate sites with their new Quality Score algorithm, it only made sense that they would eventually get rid of the Google Domain Park. After all, if you take the absolute worst affiliate Web site and compare to a virtually blank page with AdSense on it, that only gets traffic by capitalizing on misspellings of a trademarked name, surely the cyber-squatter presents a much worse user experience, right? Well, apparently not. The official Google line I guess is that there are “many domain names” that are common English language terms, and that when someone types one of these terms into the browser bar, they are taken to a page with highly relevant advertisements. I would translate this response a slightly different way: there’s too much money in domain parking for Google to do anything about it.

6. MSN made Yahoo an acquisition offer over Christmas? Another little birdy told me that MSN made Yahoo a formal acquisition offer last Christmas, but Yahoo rejected it because it was too low. I still think that Yahoo and eBay are the most likely merger candidates, but MSN does have a lot of money to throw around. One person also told me that he thought that eBay was a likely acquisition candidate for Google. If that happened, that would be downright scary. Talk about Internet dominance.

7. Should SEMs root for the underdogs? SEMs must have a rough time at trade shows. It’s virtually impossible to really understand the differences between all of them. Moreover, the value they add is often difficult to measure anyway. How much incremental lift can you achieve in your ROI by having some folks in New Jersey do your SEM versus you and a nice Excel spreadsheet? One thing that occurred to me though, is that if the PPC market becomes more diverse in terms of publishers – if Ask, MSN, Yahoo, and maybe one other provider can actually grow as opposed to lose marketshare to Google – the role of an SEM can actually become quite important, simply because it would be very laborious to actually manage 5-6 different user interfaces.

8. Mr. X and the War at Google: A good friend of mine who started at Google in around 2002 (and has now left) had some interesting observations about the war inside Google between “Larry, Sergei and the engineers” and the “business side.” Apparently the engineers think that most marketers are “scum” and should be avoided like the plague. The only legitimate marketers are the big brand advertisers or direct sellers of products. In other words, everyone from affiliates, to lead generation companies, to comparison shopping engineers are nothing but leaches on the system. The business side, of course, disagrees, and thinks that with the right rules in place, AdWords and AdSense should take all comers. Until recently, the business side has been winning. But apparently that is changing, and that’s partly due to the good work the business side has done in attracting more and more big advertisers. Now that the brand advertisers are getting into SEM, the engineers at Google can argue that the financial impact of booting out the “scum marketers” will be minimal if at all. And the good news is, even if the engineers are wrong, the “Quality Score” algorithm is so ambiguous that it can always be changed later on to allow the scum back in to help hit those quarterly numbers!

9. SES Milan? It looks like there are something like 20 SES shows a year now – Milan, London, Germany, Japan, China, New York, Chicago, Miami, San Jose, etc, etc. Is this really necessary? I could see San Jose, New York, London and maybe Japan. But Milan? Maybe that explains some of the low attendance at SES San Jose – burn out!

10. YPN coming soon? Finally, over at the Yahoo booth I was told that YPN was going to get out of beta “very soon” and start kicking AdSense Ass. Of course, I was also told that Panama would be released on August 15th. I’m betting that by February, YPN and Panama will still be ‘in the works.’

Google vs. eBay: All Out War!

I regularly read stories about how Yahoo and Microsoft are ganging up on Google. Whether its the recent announcement of instant messenger compatibility, or the simple fact that Yahoo and MSN are both spends tens of millions of dollars promoting and revamping their search engine marketing offers, there is a lot made of the increasingly bitter fight between these three giants.

My sense, however, is that the real struggle is between Google and eBay. Let’s face it, as much as Yahoo and MSN try, the battle for search (or search engine marketing) is over. Google owns something like a 56% market share, has smarter people, and has amazing brand recognition – such that irregardless of how bad Google’s search might become, consumers will still perceive it is the #1 search engine.

So I think that Google has (rightly) concluded that it is game over when it comes to online search. The focus now is on figuring out the next high margin online business to enter into. There are basically two choices – pure ecommerce a la Amazon, or the “online marketplace model” of eBay. Considering the impressively low (or nonexistent) margins for Amazon, there is actually only one choice – eBay.

How Google is Attacking eBay

Google hasn’t been too stealthy about how they intend to beat eBay. The strategy is quite simple: build competitive products, attract users by pricing the products well-below eBay rates (or even free), and leverage Google’s bully-pulpit – that is, the massive traffic and market share of the Google search empire – to virtually require people to use Google’s products at least as a complement to eBay’s rival products. Let’s look at a few examples of how Google has used this strategy to date:

1. Froogle - Competitor to eBay’s Shopping.com; Offered for free (compared to CPC pricing for Shopping.com); Promoted with one of only five links on the Google homepage. Clearly, if you are selling products online, you would be dumb not to use Froogle. Note that Google monetizes Froogle via its AdSense contextual marketing product (which, ironically, is also how Shopping.com generates a lot of its revenue). Suffice to say, with this monetization in place, Google can forever give Froogle away and forever cause Shopping.com’s margins to compress as a result.

2. Google Base – Competitor to Craigslist and eBay; Offered for free (compared to listing fee and sales commission on eBay and flat fees on certain categories on Craigslist); Promoted by requiring Froogle users to enter their products into Google Base first before they can show up on Froogle. Google Base is definitely a product that Google has yet to perfect and in its current iteration it is a blip on the radar compared to eBay or Craigslist (note: eBay has a 25% stake in Craigslist). That being said, the fact that Google rushed this product onto the market and is continuing to promote it via Froogle indicates that they have not yet given up on the dream of competing with eBay/Craigslist for the ‘classifieds/marketplace’ market online.

3. GTalk – Competitor to eBay’s Skype; Offered for free (Skype charges for some services); Promoted by integrating it into Gmail. Here’s an example of a product that will probably never make Google much money, but could be very effective in reducing eBay’s ability to monetize its $4 billion acquisition of Skype. After all, why pay for Skype when Google is free?

4. Google Checkout – Competitor to PayPal; Offer for free up to a user’s current AdWords spend with Google (PayPal charges a percentage of the sale price); Promoted by giving users a special “shopping cart” logo on all of their Google AdWords placements on Google. As I noted in my last column, the shopping cart logo on AdWords really gives eCommerce sites no choice but to use Google Checkout. And since it is free, there’s actually a strong incentive for advertisers to push purchasers toward Google Checkout as opposed to eBay’s PayPal.

5. Quality Score – Google’s recent update to its “Quality Score” algorithm was allegedly made to ferret out “made for AdSense” (or MFA) arbitrage sites participating on the AdWords network. It turns out that these MFA sites aren’t the only sites that were targeted by the Quality Score update. In fact, Google is directly attacking “incentive sites” like “FreeIpods.com” and removing these from AdWords (or more specifically, raising their minimum bids to $5 or $10, effectively making it impossible to advertise at all). The rational behind eliminating incentive sites is “bad user experience” and “frequent user complaints.” Of course, no one really knows if Google really received lots of complaints about incentive sites, we just have to trust Google’s word on this point.

But let’s play this scenario out a little further. Google has just removed sites that are either MFAs or have “bad user experience.” What other sites could possibly be included in one of those categories? Recall that Shopping.com has publicly stated in its SEC filings (prior to being acquired by eBay) that something like 40% of its revenue comes from AdSense ads on its site. In other words, Shopping.com could very easily be classified as an “MFA” and removed from AdWords by Google.

Similarly, eBay is famous for buying millions of seemingly irrelevant terms like “Nuclear Bomb” and “Belly Button Lint.” Surely there have been tons of user complaints about the poor user experience of clicking on an ad on Google, being sent to eBay, and not being able to purchase the aforementioned nuclear bomb the user had his heart set on. I don’t think it would be a reach for Google to conclude that many of eBay’s ads create a bad user experience and therefore should be banned from AdWords.

And since so much of the Internet’s traffic flows through Google (something like 56%), if Google did indeed prevent eBay and Shopping.com from advertising on AdWords, this would have a very meaningfully negative impact on these companies’ ability to drive new customers to their sites. Food for thought.

How eBay is Responding

eBay has some really nice businesses with high margins – in particular eBay itself and PayPal. Both of these businesses are near monopolies, and both have withstood attacks from strong competitors in the past (Yahoo Auctions, Overstock, and even eBay’s version of PayPal before they just acquired PayPal itself). So eBay is used to the attention and has successfully responded in the past.

As far as I can tell, eBay is responding to Google in three ways today, with a fourth that I predict will occur in the next 1-2 years:

1. Block Google products wherever possible: eBay has made it clear that Google Checkout is not welcome on eBay. This is clearly a defensive strategy. At the end of the day, the only impact it has on Google is that Google can’t make money off eBay transactions through Google Checkout. Of course, considering the fact that Google Checkout will be mostly free for the majority of its users (most of whom already use AdWords), this strategy is mostly a way to protect PayPal revenue than it is to impact Google Checkout revenue.

It should be noted that there are two ways that banning Google Checkout could seriously backfire for eBay. First, it could anger eBay users who would like to save money by using Google Checkout instead of PayPal. Second, it could be grounds for allegations of anti-competitive behavior (read: an anti-trust lawsuit). This point is particularly relevant to my point #4 below.

2. Introduce competitive products to AdWords: eBay recently announced that it is launching a competitor to AdWords called “eBay AdText”. eBay may try to leverage its existing relationships with tens of thousands of loyal eBay sellers to get these folks to replace AdSense on their Web sites with AdText. Perhaps taking a page out of Google’s checkout scheme, I wouldn’t be surprised to see eBay basically give sellers some sort of discount or free listings on eBay in exchange for using AdText instead of AdSense.

Ultimately, for this strategy to work, the overall package eBay proposes to its sellers has to result in more revenue or eCPM than AdSense. Initially, this will be difficult, since eBay’s optimization algorithm will probably be much weaker than AdSense’s right out of the gate. Nonetheless, I do think that attacking AdSense is a viable strategy. In the end, Web site owners only care about the bottom line – if eBay can combine discounts on eBay with an algorithm close to on par with AdSense, the results might be better economics than Google and a big blow to the Google Machine.

3. Gang Up on Google: eBay recently announced a wide-ranging deal with Yahoo to provide co-branded toolbars (competitive with Google Toolbar), combined advertising strategies (competitive with AdWords), and potentially click-to-call functionality (competitive with GTalk). The deal also made PayPal Yahoo’s exclusive payment provider (competitive with Google Checkout). There’s no doubt that this is a smart move by both Yahoo and eBay.

At one point in time, you could argue that Yahoo and eBay were largely fighting over the same space – in particular, eBay’s “buy it now” functionality and Yahoo’s “stores” seemed destined to clash over dominance in the small business “marketplace” space. I think both of these companies now realize that the “enemy of my enemy is my friend” and trading blows doesn’t make much sense now. There is a far greater menace out there.

And there’s no reason to think that this is the last partnership eBay is pursuing. You would think that similar negotiations must be in the works with Microsoft (MSN) and AskJeeves (or all of IAC, for that matter). The fact that Google has been rattling cages in Redmond with ominous announcements of Excel-killers, support of FireFox (Internet Explorer killer), and potential online operating systems has probably only accelerated discussions.

4. Anti-Trust? If Google simply dominated search, I’m not sure that this would be much of an issue. Google, however, has made it clear that they are using their dominance in search to force their way into other lucrative areas, like comparison shopping, online classifieds, and online payment processing. At some point, Google is going to piss enough big companies off that the Department of Justice (DOJ) is going to start getting pressure to curb Google’s growth.

Considering the fact that eBay’s business lines are all in Google’s sights, it wouldn’t surprise me at all if eBay has already started some discussions with the DOJ on this point. There is, however, one problem that needs to be mentioned; in many ways, eBay is a monopoly in its own right. And in many ways, eBay using their own monopoly power to their advantage, as seen in their blockage of Google Checkout on eBay. Imagine if instead of Google Checkout it was “Blogation Checkout” – a small Mom and Pop company trying to compete with PayPal. I think eBay might be in trouble.

The bottom line, though, is that eBay does need to be careful about throwing stones at glass houses here. It’s hard to complain about anti-competitive behavior when you are exhibiting that very behavior.

And the Winner is?

Right now, I have to say that Google is winning this battle. The way I see it, eBay’s moves to date have been entirely defensive and are mostly directed at preserving its own revenue instead of biting into Google’s (I am withholding judgement on eBay’s AdSense killer and partnership with Yahoo. These moves do suggest an offensive is being mounted, but it is too early to say whether these will have any success). Google, on the other hand, has only seen its market share increase in its core business (search) and has launched a slew of products that leverage search to gain traction in eBay’s businesses. Based on what I have seen to date, Google’s efforts will bear some fruit. Google Checkout will be a success, Froogle already has some market share, and Google Base will someday attract a loyal following. All of this adds to Google’s bottom line at eBay’s expense. Do I think Google will destroy eBay and PayPal? Of course not. But if this war continues along its current trajectory, my guess is that eBay will be the company in the end that will cry uncle first.

Tags: ebay versus google, ebay adtext, google checkout, paypal, gtalk, skype, craigslist, google base, froogle, shopping.com, antitrust

Do AdWords Users Have Any Choice But to Use Google Checkout?

Any fashionistas out there may be surprised to learn that I have a famous fashion uncle – his name is Donald Pliner and he makes very cool shoes for both women and men (if you’re interested in checking out his shoes and supporting this blog, use this and buy some of his shoes!). In any event, I always check up on my Uncle Donald via Google News and simply Google searches. On a recent search of “Donald Pliner” I found these AdWords ads:

As you can see from the image on the right, the BlueFly.com advertisement looks a little different than all the other ads, due to the prominent red shopping cart to the left of the URL. This cart, of course, represents the Google Checkout feature – the rival product to PayPal.

I have no idea whether this works as good or better than PayPal. My guess is that it is probably a bit buggy at the moment (in line with most Google betas), and that over time it will become a pretty useful feature.

The actual functionality, however, is irrelevant to this post. What’s more important is that the shopping cart clearly helps BlueFly stand out from the crowd. Some searchers will probably conclude that a shopping cart means that you can buy online and therefore all other companies in the search results cannot process online orders. The end result is probably a windfall for BlueFly – higher click-throughs, lower CPCs, and a huge competitive advantage.

Now if you were a competitor of BlueFly, how would you react to this shopping cart? You’d probably get on the phone to your Google rep post haste and demand that you are immediately set up with a Google checkout. In other words, if just a few companies use Google Checkout, all of their competitors on AdWords will have no choice but to also sign up for Checkout.

If you thought that the viral marketing campaign Google used to promote GMail was brilliant, I assure you that this strategy around Google Checkout will be far, far more effective.

Loyal readers of Blogation would probably expect me to launch into one of my typical critiques of Google at this point. And I have to admit, I was about to. I was going to talk about how this was yet another blatant example of Google using its strangle-hold on Internet marketing to force a product or a world view (like Quality Score) on advertisers who have no choice but to accept Google’s will.

In this instance, however, I actually have a little compassion for Google. Google is battling PayPal here and PayPal is about an entrenched competitor as you could possibly ask for (other than, perhaps eBay’s dominance in online auctions). Given the choice between offering PayPal, Google Checkout, or PayPal and Google Checkout, I suspect that most merchants would rather just stick to PayPal, simply because its what 99.9% of users are used to, and there comes a point when too many payment options simply confusers potential purchasers. And just to rub a little bit more dirt in Google’s wounds, eBay has made it more than clear that Google Checkout is not welcome on eBay.

On top of that, I think that the novelty of Google product releases is starting to wear thin. Back in the day, people went bonkers over every little thing Google launched (let’s face it, Google Base really wasn’t the eBay/Craigslist killer it was portrayed to be).

So my guess is that Google Checkout could very easily have been met with a collective yawn from the online community unless Google gave businesses a really good reason to sign up. And getting a competitive advantage in AdWords is a really good reason for most ecommerce companies these days.

Of course, none of this eBay-Google battling is really good for ecommerce sites or for consumers. If you think that letting consumers know that a site accepts online payments is good for user experience, you should probably allow sites with either PayPal or Google Checkout to display a shopping cart logo (or something similar to that on eBay).

But that’s not what’s behind this. This is just one salvo in the big fight that’s already brewing between eBay and Google. One of these days, Google is going to find a way (other than Google Base) to create a true online auction competitor to eBay. And if you think that the shopping cart being used to promote Google Checkout is brash, just imagine how they’ll incent AdWords users to add auctions to their sites. It may be a great opportunity for some of us to fly with Larry and Sergei in their pimped out plane! Hey, maybe all of this competition isn’t so bad after all . . .

Google’s Mixed Messages: Eric Schmidt Says We Are Rational, But the AdWords Team Objects; or Eric Schmidt is a Liar and Google is Playing God!

In my constant effort to get the widest distribution possible for my blog, I figured a controversial headline might just help. Hope it got you interested.

Seriously though, the headline does have some relevance. Let me explain. First, Eric Schmidt gave a speech recently in which he poo-pooed the significance of click fraud. As reported in Search Engine Journal, Mr. Schmidt gave a speech at Stanford in which he noted: “Eventually, the price that the advertiser is willing to pay for the conversion will decline, because the advertiser will realize that these are bad clicks, in other words, the value of the ad declines, so over some amount of time, the system is in-fact, self-correcting. In fact, there is a perfect economic solution which is to let it happen.”

It sounds so mathematical and smart, doesn’t it. Eric (I’m on a first-name basis with him, since I once talked to him at a Google lunch for five minutes) is arguing that search is an efficient market – over time, rational actors will pay exactly what they can afford for a click – no more and no less (assuming there are other bidders below them). A similar analogy would be the stock market. A stock is priced at what the market thinks the stock is worth. Click fraud is to search what an SEC investigation is to a stock – marketers or investors simply bundle the negative impact into the value they are willing to pay.

Sadly for Eric’s theory, in this instance there is quite a chasm between theory and reality. You see, search engine marketing is currently practiced by a combination of rational and irrational actors. The rational actors are the folks that track their keywords, analyze ROI, and adjust bids accordingly. For these folks, the amount they are willing to pay for a click truly is an efficient value.

There are hundreds of thousands of irrational actors who don’t really know whether a click is converting or not. For these folks, many of their clicks may be fraudulent, but as long as the overall result seems to be profitability, ignorance is bliss.

And speaking of ignorance, should we assume that Eric is ignorant to this truth, or rather that he is doing a little political grandstanding? I think you know the answer. Incidentally, I wrote about this “inefficient market” several months ago. Here’s the link.

In other news, Google announced its new “Quality Score” algorithm, apparently designed to stop “MFA” or “Made for AdSense” arbitrage sites. As stated in the official release: “Following that change, advertisers who are not providing useful landing pages to our users will have lower Quality Scores that in turn result in higher minimum bid requirements for their keywords. We realize that some minimum bids may be too high to be cost-effective — indeed, these high minimum bids are our way of motivating advertisers to either improve their landing pages or to simply stop using AdWords for those pages.”

This is one of those things that you can definitely look at as glass half-full or half-empty. From the half-full perspective, you could argue that it makes sense that Google is trying to stop AdSense arbitrage. After all, sending someone to Google to a page full of Google ads certainly does not satisfy user expectations. And since Google’s entire brand is based on relevancy, poor ad relevancy can lead to some serious problems for Google.

The half-empty perspective argues that this is an example of Google playing God. In essence, Google can decide to adjust the algorithm to exclude whoever they want from their advertising network. Right now, they are using that power to exclude AdWords arbitrageurs. And for most SEMers, that’s not a big deal, because it doesn’t impact us.

But what if Google decided that lead generation sites weren’t providing good user experiences, or comparison shopping engines (which are often nothing more than AdWords arbitrage companies if you think about it), or eBay, famous for sending users to totally useless results?

Ultimately, the beauty of PPC marketing is – or rather was – the fact that it was a level playing field. If you could pay more per click, or had a better click-through-rate, or had a better combination of the two, you would show up ahead of your competitors. That could be changing. In Google’s new Quality Score world (which is incidentally being adopted by Yahoo as well), an advertiser that Google deems as ‘low quality’ has no chance of showing up at the top of the listings, irregardless of the amount he is willing to pay or even the frequency in which users click on his ads!

And here’s the most ironic part: a model based on CPC and CTR is – guess what – an efficient model. It assumes that bidders are rational actors and that over time the bid someone is willing to pay will be directly correlated to the ROI that bidder receives from his ad. You would think that an advertisement with “low quality score” would result in low CTR and low conversions, and thus low ROI. In other words, if I am marketing my “blue widgets” on the keyword “red widgets,” few people should click on my ad and even fewer should buy blue widgets from me. This means that over time, I will simply run out of money and stop bidding on the keyword.

In a rational market with rational actors, this is exactly what happens. Thus, if the #1 bidder for a keyword happens to be an AdSense Arbitrage company, this simply means that this company is better able to monetize a keyword than any other company (or is losing a lot of money). Similarly, when you see eBay advertising on “Buy Nuclear Weapons”, you have to conclude that even though that is an irrelevant ad, enough people must be clicking and buying as a result of the ad to make it worth eBay’s while to buy gazillions of keywords.

Quality score doesn’t enable a truly efficient market, and it puts too much power in Google’s hands. And with Eric Schmidt arguing that click fraud isn’t a problem because the market is efficient and rational, to me this seems like Google having its cake and eating it too.

Tags: click fraud, mfa, adwords arbitrage, eric schmidt, quality score

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How Many Perfect 10s Are There For Page Rank?

My Google Toolbar tells me that most sites I visit are 4s or 5s in the world of Page Rank. I noticed, however, that when you land on the Google home page, Google gets a 10 out of 10. I guess that’s not surprising – I’m sure Saddam Hussein would have won “Ms. Iraq” if he had wanted to in his day.

But this got me to thinking: what other sites get a perfect 10? I thought I’d start with Google’s competitors. Sure enough, none of the big search engines qualified for the honor. Here are the scores:

Yahoo: 9/10
MSN: 9/10
AOL: 9/10
Ask: 8/10

So my next idea was to look at the leading search engine optimization companies. Surely one of these companies has found the secret sauce to achieve a 10 out 10 ranking, right? Upon further review, however:

iCrossing: 7/10
iProspect: 6/10
SEO-inc: 8/10
BruceClay: 6/10

OK, how about the pure content Web sites – the places filled with oodles of helpful articles or user-generated content?

FindLaw: 8/10
Craigslist: no ranking reported (I think this is because Craigslist recently changed their URL structure.
MySpace: 0/10 (this could be a toolbar issue)

For good measure, I also checked out some Web sites that often claim to have perfect 10s, but in a different sense of the meaning. The results:

Playboy: 0/10
Playgirl: 3/10
Penthouse: 0/10
Perfect 10: 4/10

In the end, I had to actually type in “page rank top 10″ into Google, for which I did find a Web site with a list of sites which had received 10s. Among the winners were six for-profit sites:

• Adobe
• Macromedia
• Apple
• The New York Times
• Real Media
• The Stat Counter

Why these sites are the chosen few, I have no idea. I suppose it is a combination of good content, good SEO, and maybe a little luck.

I will say that the last site – Stat Counter – did surprise me. This is a company that apparently gives you free tracking software for your Web site (up to a certain number of visitors, after which they charge you). The site layout is clean and the content seems reasonably good.

Here’s the nut though: on the left frame navigation, it’s pretty clear that Stat Counter is selling links a la Text Link Ads. In other words, folks aren’t paying for a link because they expect a lot of traffic from Stat Counter, but rather because they know the value of a PR 10 link to their own ability to show up highly in the search results. This is pretty surprising, simply because you would think that Google wouldn’t want one of the few PR 10 sites selling off links. And not just any links, mind you, but links to SEO firms (INeedHits, ProBoostGold, WorldSubmit, Axandra, etc).

So what does it take to be a 10? Good content? Software sales? Dumb luck? Aside from simply being Google (that one I get), I’m a little miffed. I do know this: if anyone at Stat Counter wants to link up Blogation on the home page, I’ve got some leftover champagne from my wedding with your name on it . . .

Google’s Foray Into Cost Per Action (CPA)

Enough people have asked me about Google’s beta test in CPA marketing that I guess I have to write something about it, so here goes.

First, a little background – it was announced last week that Google is testing cost-per-action distribution on part of their network. In other words, instead of paying a publisher for every click on their site, they instead paid them on actual conversions that result from these ads (i.e., every person that fills out a mortgage form from an ad on a publisher site would result in a $10 flat fee to the publisher, irregardless of how many clicks it took to get that one conversion).

Upon hearing the news that Google was dipping its feet into the CPA waters, many affiliate marketing and lead generation companies (like Commission Junction, Linkshare, Adteractive, Azoogle, or Quinstreet) etc must have been quite worried (it reminded me of a great Onion article – “Dolphins Evolve Opposable Thumbs; ‘Oh, Shit,’ Says Humanity“). After all, when Google enters your market – especially if it online advertising-related – you’ve got to be a little worried.

I can imagine a scenario where a Google CPA network could result in the destruction of the CPA industry as we know it. With a team of dozens of engineers developing cool algorithms to optimize CPA conversions, an existing massive distribution network, and Google’s good name, it would be fairly easy for Google to grab a large chunk of the CPA market. Heck, Google could even combine AdSense with a CPA network and test the two products interchangeably until they have a clear winner from a monetization perspective.
Put yourself in the shoes of an online publisher that currently relies on affiliate marketing and AdSense for revenue. Given the choice between guessing which offers from Commission Junction will work for your business and letting Google optimize the entire process for you (assumedly with superior results), this seems like a slam dunk for any publisher.

Frankly, I’ve felt for years now that – when it comes to online marketing- Google has the resources necessary to conquer whatever vertical or distribution-type they want to. And CPA seems to fall into that bucket.

The real question, then, is not whether Google could bite into CPA, but whether it is actually beneficial for them to do so. After a few pensive walks around my 1000 square foot condo (short walks!), right now I believe the cons outweigh the pros. Here’s why.

First, let’s start with the advantages of a CPA network:

1. Even More Market Share: So Google already owns the CPC market, and with increasing competition from MSN, Yahoo, and Ask, I doubt there is a lot more room for additional market share. It makes sense, then, to try to dominate other marketing channels. Google has already demonstrated an interest in this with the acquisition of dMarc (radio ads), the Google print beta, Google site inclusion (CPM), and the new Google Video Ads. A CPC network is yet another extension of Google’s overall strategy – use CPC as a base and work on expanding into other marketing channels.
2. It Benefits Google’s CPC Product: As noted earlier, if you can create a hybrid distribution network that combines CPC and CPA, you are likely to end up being able to offer higher payouts than a CPC or CPA only network (assuming you can optimize the results accordingly). This means that the existing AdSense network could be even stronger with a CPA component.
3. Every Google Wants to Rule the World: As Jay Weintraub speculates in his blog, a CPA product may be part of Google’s overall strategy to combine its “GPay” online payment system with online advertising services. In other words, end-to-end ownership of the entire transaction between consumer and merchant (but see below: this smells of anti-trust issues . . .).
4. Capitalizing on a Trend: There’s no question that CPA marketing is hot right now (recall that I predicted in my 2006 predictions post that this would be the “year of CPA”). Google may think it needs to start developing a CPA product to be ready when CPA really takes off.
5. A Hedge Against Click Fraud: Jay Weintraub also gets credit for this one – it is much more difficult to “game” CPA offers as compared to gaming CPC offers (through pretty simply click fraud techniques). Google is under increasing pressure to address click fraud and perhaps a transition to CPA will reduce the click fraud heat over time.
6. More Control of AdWords/AdSense: If a world someday existed where Google was the dominate affiliate marketing distribution network (replacing Commission Junction and Linkshare), this could give Google a lot more leverage over the dreaded “arbitrage” affiliates that create multiple stealth Web sites to promote online casinos, or credit card offers, and so on. If Google was the biggest CPA network, it would be much easier to restrict affiliates from gaming the AdWords/AdSense system. In other words: if you want to participate in the Google CPA network, you have to police your affiliates on AdWords. A very nice carrot and stick in my opinion!

OK, OK, that’s a lot of very plausible reasons for Google to create a full-on CPA network. Now let’s look at some of the downsides:

1. It Ain’t As Easy As It Looks: Replicating Commission Junction is probably not that difficult – it’s a pretty basic user interface with limited technology (at least by Google’s standards) and a critical mass of customers that already probably do business with Google anyway. Replicating a LowerMyBills for mortgage offers or a Quinstreet for education offers, on the other hand, takes a lot of work. For Google to achieve the eCPMs that these folks have achieved after years of focus, wrong-turns, development of expertise, and aggregation of business relationships, is going to be difficult. An algorithm can’t call 2000 mortgage brokers and create a high-paying mortgage offer. And Google wants to do everything with computers so it seems unlikely that they could really compete against the niche players in CPA (niche in focus only, not in revenue and profit).
2. CPA May Cut Into Google Profits: Right now, there are a lot of dumb advertisers buying CPC ads on Google. By dumb, I mean that there are advertisers that don’t track conversions, engage in vanity-based bidding battles for top position (irregardless of ROI), and in general have no idea whether Google is really making them money or not. For these advertisers, Google really has no incentive to eliminate click fraud or create a product that provides a greater likelihood of positive ROI. My sense is that Google actually makes a lot of money from ignorant advertisers – switching to a model that increases profit transparency could actually have a negative impact on Google’s revenue.
3. CPA is a Slippery Slope: Give someone an inch and they’ll take a mile. If Google starts offering some placements on a CPA-basis, I have no doubt that advertisers will slowly start to ask for more and more CPA and less and less CPC. And why stop at CPA placements? Savvy advertisers will begin to push Google for revenue share deals as well (as is essentially happening in the CPA industry at the moment). As you go closer to rev-share and farther away from CPC, you increase risk for the publisher (Google) while decreasing risk for the advertiser. That’s something that Google probably wants to avoid.
4. Do What You Do Well: As noted, Google is seeing a lot of competition these days in the CPC space, in particular from the new and impressive MSN AdCenter, the upcoming release of “Project Panama” from Yahoo, and Ask’s major marketing push. I think Google would be better off focusing on making AdWords as good as it can be at the moment, rather than going off in a million different monetization directions at once.
5. Too Much Power in Google’s Hands?: I’ve mentioned this before – I really believe Google has become a big enough force in a big enough industry that they have to start being carefully about wantonly taking over new industries, simply because too much power may eventually put them under the scrutiny of the DOJ’s anti-trust unit.

In the end, it’s way too early to tell what Google plans to do with this CPA test. I do believe that CPA is something that all online distribution networks are going to have to confront in the coming years, especially if the market tightens up again like it did after the dot com bubble burst around 2001. Right now, though, Google is on top of the world, thanks almost entirely to its CPC products. With a lot of risks associated with any entree into CPA, my bet is that this is nothing more than a fun beta that won’t see any legs for some time to come!

Google Video Ads – Ahead of Its Time, Or At Least Its Advertisers

Today I got an invitation to attend a training session for Google video ads. Internet video is the latest “new, new thing” to sweep through Silicon Valley – not unlike mobile commerce, local search, procurement, etc, etc. For about six months, you’ll see dozens of start-ups getting funding, ridiculous projections of market size from inane news sources like ClickZ, and probably two or three conferences dedicated to Internet video. So it only makes sense that Google jumps on the bandwagon and prepares a product around video, right?

Well, yes and no. The problem is this: Internet video is exactly the kind of product that Google’s advertiser won’t use, simply because it is too technical, requires too much effort, and won’t be sold on a CPC basis. But that doesn’t mean it won’t eventually be a good idea. Read on.

Let’s start with Google’s advertisers. Last I heard, Google had over 600,000 of them. The vast majority are “mom and pop” companies like a local dentist or a mail order helmet company. The big players tend to be “direct marketing” companies like eBay, Nextag, or Amazon.

Obviously, small advertisers aren’t the target audience for this product. The beauty of Google AdWords is that it enables small advertiser with no marketing resources or graphic design skills to effectively compete in online advertising. All you need to do is buy a few keywords, create a text ad, send people to a reasonably good Web site and voila, you’re an online marketing expert!
Compare that process to hiring a video production company to film your video ad, finding a voice-over artist, and generally paying tens of thousands of dollars just to produce your video (prior to getting any traffic whatsoever) and its pretty clear that Google Video Ads is the polar opposite of what the majority of Google’s advertisers need or could possibly use.

So, then, I guess Google Video is intended for the eBays and Amazons of the world? Well, maybe. It’s true that eBay is spending a lot of money on TV ads these days, and there is certainly a lot of TV and radio advertising by travel companies like Orbitz or Travelocity.

I think, however, that Google is going to have an uphill battle getting these companies to invest a lot of resources in Video Ads. First, these big players are slow-movers. They generally have bloated bureaucracies and new marketing products get lost in the shuffle. Moreover, Google is in their “CPC” budget not their “branding” budget, which means that either the CPC team is going to have to buy branding ads (which will upset the branding team), or the branding team will have to buy branding ads on Google (which will definitely upset the CPC team!).

A comparable product failure Google just endured (you’d think that they’d learn . . .) is Google Print Ads – the ‘auction’ for space in Ziff Davis magazines. Buying print ads through Google doesn’t appeal to the small guys (who don’t have the resources or knowledge) and the big players will just go directly through the magazines or their agencies.

In sum, then, Google Video is basically a product without existing customers. So why is Google launching this product?

Well, Google has not made a secret of its desire to capture the “G1000″ – the top 1000 advertisers in the US. These are the Fords, McDonalds, and Mastercards of the world, the companies that love clever ads from clever advertising agencies. Google Video – along with Google Print, Google Radio, and Google Site Targeting (CPM) – is the carrot to get these big (and dare I say, dumb) advertisers into the fold.

CPC advertising is about as familiar to General Motors as branding is to an affiliate marketer. So if a Google ad rep walks into GM’s ad agency’s cushy offices and proposes a 10 million click campaign, they’ll get a lot of dumb looks. But start talking about “video” and “lift” and “branding” and suddenly the ad agency wakes up! Video is an opportunity to be creative, to be clever, and best of all, to measure success based on “lift” and not on “ROI.”

GM isn’t going to drive up Google’s stock price by purchasing millions of dollars of video ads (or site targeting). But hey, maybe you get GM in the door with video, and then once you’ve established a rapport with the marketing folks, you slowly introduce some CPC ads into the mix. And maybe a little later on, you start showing some metrics to GM – about how CPC is far more impactful on the bottom line than those one million dollar Super Bowl ads the ad agency keeps pushing.

Suddenly, GM realizes that those Google Video Ads are pretty silly, and so is the hundreds of millions of dollars they’re spending on ad agency and big TV ads. One GM can spend as much on CPC as 10,000 small advertisers, and it’s a lot easier to manage one company versus 10,000.

So will Google Video take off in the next six months? Of course not. But is it an entree into a pool of new clients Google has been desperately seeking for over year? Possibly, we’ll have to wait and see.

How Much is $60 Million Worth? About 25 Cents . . .

Right now I’m sitting at home watching game five of the NBA finals. Mind you, it’s not because I like the NBA or have watched any of the prior playoff games, I’m just bored and there’s no World Cup games on at the moment (other than the replays on the Spanish channels).

According to Ad Age, the marketing story of the NBA Finals is the fact that both the Dallas and Miami arenas are sponsored by American Airlines. As the story notes: “American Airlines could reap more than $60 million in brand exposure as a result of the National Basketball Association Finals between the Miami Heat and Dallas Mavericks that begin tomorrow night.” This is apparently quite a windfall, because American Airlines “only” paid something like $20 million for the naming rights for these areas over the course of something like 10 years.

So $60 million minus $20 million – that’s a $40 million profit, and 200% margins. Surely some vice president of branding is getting upgraded to a corner office at American Airlines’ headquarters.

Ah, if only it was that easy. Let’s think about this for a minute. American Airlines sells air travel. Most people I know base their air travel on three factors: 1) price; 2) schedule; 3) frequent flyer membership. In other words, in the event of equal price and schedule, people will opt for the airline where they can get the most frequent flyer benefits, but for the most part, air travel is a commodity, like table salt, electricity, or paper napkins.

That begs the question: what exactly is the “benefit” American Airlines receives from all of this branding? Will travelers opt to pay higher fares to fly on American Airlines (instead of a competitor) as a result of seeing their name emblazened on NBA Arenas? Will viewers flock to American Airlines’ Web site to learn more about the company products and offerings? Will frequent travelers switch to the American Airlines frequent flyer program as a way of supporting their favorite NBA team?

Of course not. In short, I doubt that American Airlines will reap any financial benefit from the increased exposure from the NBA Finals. I suppose branding works when you are marketing a car, or perfume, or something that people make an emotional connection to prior to a purchase. But no one cares what airline they use. Assuming the seats are about the same width, the safety record is fine, the schedule works, and the price is right, it just doesn’t matter.

So let’s revisit that $60 million of branding exposure. If that’s how much it would cost to buy advertising during the finals, I guess that’s a good deal if you really wanted to buy that much advertising for your commodity-product (can you imagine Morton’s Salt paying $60 million for branding? I can’t). But you aren’t going to see an additional $60 million of profit or even revenue on the American Airlines quarterly earnings report.

Which would you rather have: a) exclusive branding rights to two arenas, or b)120,000,000 clicks on Google and Yahoo? If you answer “a”, I’ve got a bridge to sell you in New York . . .