With a title as provocative as this, I’m sure that readers would prefer that I skip the formalities and just get down to the nitty-gritty of everyone’s favorite topic: pornography. But, seeing as this is my first post on the Search Insider, I decided that I should introduce myself first. Admit it, you’re savoring the anticipation!

My name is Michael Block and along with being a fellow Dartmouth alumnus of Michael Mothner’s, I am also the Vice President of Client Services for his wonderful company, Wpromote. As writing has always been something of a hobby of mine, I was grateful to be given the opportunity to post on the Search Insider. I hope to write as frequently as Mike will let me, so make sure that you Digg this post.

Alright, back to the good stuff.

Access to online pornography has been a divisive yet prevalent topic ever since Al Gore was good enough to invent the Internet in the early 90s. In the interest of brevity, though, I won’t get into the historical details. Suffice it to say, the adult industry, libertarian-minded individuals and a small, often overlooked demographic of Americans known as “males” generally find themselves on one side of the debate whereas religious groups, concerned parents and values-oriented politicians tend to end up on the other. Today, in Portugal, the latter group earned a big victory as ICANN again shot down the idea of the .xxx domain suffix yet again. Actually, since the adult industry lobbied heavily against the .xxx suffix as well, due to the added competition it could create, it could be said that both sides won.

Or did they?

For as straightforward as it seems (this isn’t the first time that the .xxx idea was rejected), this event raises many interesting issues. First of all, any time that Jenna Jameson and Jerry Falwell have coinciding interests, I have to laugh. I mean, can you imagine what a board meeting between the icons Vivid Entertainment and the Christian Evangelical Church would look like? I’m not sure but I’d probably want seconds.

Another, more salient question that must be brought up is, “Why was this considered a win?” Now, I’m not an executive in the adult industry (I wish!) and I’m certainly not a minister, but I would proffer that the .xxx domain suffix could and likely would have benefited both groups. For example, if at least a segment of online pornography were segregated to the .xxx suffix, it would make restricting access for those who wish to avoid adult sites (e.g. public and family computers) a cinch.

Like it or not, pornography is here to stay and its proliferation online will hardly be slowed by denying the .xxx suffix. I would argue that the amount of porn on the Internet would increase at a similar and constant pace whether the .xxx suffix were added or not. We know that the market is essentially limitless. The only thing actually slowing it down is the amount of people willing to tell their friends and family that they make their living as a pornographer; that is, the amount of people willing to start up new adult sites. If you take that as a given (and you certainly don’t have to), then there is a serious argument to be made that a .xxx suffix would simply funnel some of the inevitable adult sites to be created to a more easily controllable URL. Isn’t that good for those worried about the potentially warped minds of America’s youth? Isn’t there an argument to be made that, if created, the .xxx suffix could be the first step in eventually siphoning ALL adult sites into a single, controllable ubergroup of domains? With the unpredictable nature of American voters, I would argue that it is certainly a possibility that shouldn’t have been dismissed so quickly by interested parties such as parents and religious groups.

As with any intelligent discussion, though, the familiar question arises, “Well, what about the porn stars?” I will admit that the possibility for increased competition in the adult industry with the addition of .xxx is real, but I would also ask, which groups are in the most advantageous position to secure the best of the new domain names? The simple answer is that those with the most money and, therefore, the most power are in that position. If that is true, then we reach a paradox: aren’t the rich and powerful of the adult industry the ones lobbying the hardest against the .xxx suffix? To me, it seems like the growth of one’s industry as a whole can only be bad for business if one’s company isn’t well equipped to compete in a larger market. We know for a fact that the giants of the pornography industry are certainly ready to compete as they have made fortunes peddling a product that is heavily regulated by the government and despised by many, including many of its closet customers. In fact, if you were to ask me where to find some of America’s leanest, meanest, most efficient businesses, I would tell you to look no further than the adult industry. I find it hard to believe that they couldn’t capitalize on industry-wide expansion caused by the inclusion of the .xxx suffix.

The obvious counterargument is that the church fears the possible expansion of the adult industry and the adult industry fears further regulation and potentially increased competition. It is to say that in the event of the passage of the .xxx suffix, both groups fear that the other’s success could spell disaster for their own greater goals. They both fear losing in a zero sum game and so the prudent course of action is inaction. If this is the case, then I say “shame on you” to them both. If the Internet has taught us anything since we unwrapped it in the early 90s and then thanked Mr. Gore for such a thoughtful gift, it is that things change, they change quickly and they tend to change by getting bigger rather than smaller, expanded rather than contracted.

The idea of hiding behind inaction seems not only out of character for two such proactive groups (i.e. the Church and adult industry), it seems like a missed opportunity and a lack of faith in their ability to control their own destiny. For the opportunistic adult industry and the single group that touts the merits of “faith” more so than any other–namely, the Church–the rejection of the .xxx domain seems less like a big win and a whole lot more like a gutless loss.  As both lose this battle–not their first and certianly not their last–they both make a major concession that neither group is ready to face the reality that the world is big enough for the both of them and that they are going to have to get used to that reality sooner rather than later.

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I wrote several weeks ago about the similarities between Google and Microsoft from a power and market share perspective, and this terrific business week article digs deeper into Google and the immense power they have over the Internet and the way that people ultimately find information. Reading it reminds me once again how amazing Google’s growth has been. A couple of highlights, all from this article:

• 400 million people per day search at Google
• Google generated $10.6 billion last year, virtually all from little text ads that are inserted alongside search results
• Google’s $144 billion market value tops that of Time Warner, Viacom, CBS, ad agency giant Publicis Groupe, and the New York Times Co. combined

This quote really drives home my point a few weeks ago:

“ If this talk of corporate dominance sounds vaguely familiar, it should. As firmly as IBM ruled mainframe computing and Microsoft the personal computer age, so Google has the potential to rule the Internet. To some people, Google’s position today, while clearly far from identical to Microsoft’s in its heyday, nonetheless shares some striking parallels. “Google feels a lot like Microsoft in the mid-Nineties,” says Silicon Valley startup adviser Dave McClure. “Right at the height of its power, getting a little arrogant, and challenged for the first time by some powerful people.”

Google is an amazing company, but I would be thrilled to see some healthy competition. If Yahoo, MSN, Ask, etc. were able to gain market share, improve their systems and better compete with Google, it would benefit advertisers and users alike. Sadly, I don’t anticipate this happening unless Google severely trips up, and their track record to date makes that look unlikely.

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So the search marketing blogosphere has been bubbling following Google’s March 20th announcement that they are launching a new pay-per-action beta test. After several days of internal debates, conversations with our friends at Google and some deep meditation, the time feels right to weigh in with my thoughts.

First, the quick summary to catch you up: Google announced that they are beginning a beta test of an advertising model where advertisers only pay when a specified action is complete, such as a sale of a product, a form filled out or a newsletter subscribed to, for example. The advertiser sets a price and only pays when said action is completed. For the beta, this test is not running on Google.com or the search network, only on the content/adsense network, and only for a limited number of publishers (website owners) and advertisers. Advertisers create their “offer” and publishers are selecting the offers that they want to run on their site, based on the payout, the demographic or topical connection. In other words, they are picking the advertiser’s offer that they think will help make them the most money on their site.

This limited test is not very exciting to us primarily due to the limitation of it contained to the content network, which we use for only a small percentage of our client’s budgets. However, it should be very scary to the affiliate networks such as Commission Junction and Linkshare, because Google is acting as the intermediary connecting advertisers and publishers. With their reach and technical prowess, I don’t think anybody doubts that they could become overnight players in the affiliate network marketplace if they make this a strategic push. Granted, there are some major issues to over come such as handling chargebacks and while click-fraud becomes a moot point, lead fraud and purchase-and-return fraud all become new beasts to tackle. But give Google credit: if Commission Junction has the resources to address these issues, Google certainly does as well.

Where things get abundantly more interesting is if and when Google starts running these CPA or PPA ads alongside their pay-per-click ads on Google.com and their search network. This sort of move would be very large for Google, and one that will need to be handled with extraordinary care, because the last thing Google wants to do is harm in any way the $10 billion in revenue per year they make from PPC advertising.

Google will not ever move to a purely CPA-based model, which means that they need a system capable of ranking PPC and CPA ads alongside each other to maximize each piece of ad real estate on their lucrative search results pages. The model would be something like this: Right now it might cost $1 per click for a given spot in the paid search results generating real estate leads. If a CPA ad comes along, and the conversion rate is 10% (1 in 10 visitors to the website fill out the form in question), the CPA advertiser would need to bid $10 per lead to come up in the same position as the $1 PPC link, so that there is parity in the estimated value per ad spot from Google’s perspective. At this point, while it is abundantly attractive to advertisers to just name a value per lead, in this particular example the advertiser ends up paying the same per lead whether they are on a PPC model or CPA model. I imagine that advertisers will have a bit of a rude awakening when they “name their price” but suddenly don’t see the positioning and therefore volume they used to.

I consider this somewhat analogous to Google’s long running — and from all appearances failing — attempt at integrating pay-per-call ads in their search results. To many advertisers, a call from a client *is* a conversion. And right now, I can go create an ad that instead of linking to my website, connects a phone call between the user on the search results page and myself. I bid on the call much the same way that we would bid on the CPA model. Google turns around and ranks the ads in a similar fashion to what I described above, where the cost bid per call and the call conversion rate is combined to rank PPC and pay per call ads according to the highest value per ad spot. What ends up happening is that the rosy idea of paying only for calls means that to come up high in the results, we needed to bid much larger amounts than we wanted to keep the high position ($50, $60 or more). At rates like that, we opt to just pay for the click and let our website sell the client and motivate them to pick up the phone.

Either way, I applaud the move on Google’s part, and I can’t wait to see what develops from it. However, I do not see an impending drastic change in the way that the majority of advertising dollars are spent. In other words, PPC is hear to stay.

Now one last piece of food for thought… Let’s assume that Google decides CPA model is the future, and it attacks all of the many problems that could plague a massive CPA marketplace. In theory, given the perfect system, Google in one swoop could replace every affiliate marketplace as well as the hundreds or thousands of performance or affiliate marketers (including Wpromote’s own performance marketing division) that make money by buying paid search ads on a PPC basis and making an arbitrage profit between that cost and the CPA or percentage of sales that they generate for their merchant partners. In theory, by running CPA ads directly on Google, they could increase their revenue by the aggregate amount of arbitrage profit and affiliate network cut currently being made in the marketplace. That is a big number, and that knowledge could serve as a pretty big motivation for a company like Google that will be looking at all possible revenue sources to keep up it’s torrid growth pace. Do I think this is on the horizon? No. But from what I’ve seen with Google’s massive development and growth in the past several years, I would not put it past them; if this has occurred to me, it certainly is being evaluated up in the Googleplex.

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On the side, I do some consulting to the financial services industry. Basically, investment firms want to talk to agencies and big advertisers “on the front lines” to find out the current state of the search industry to ultimately try to gauge when to buy and sell those stocks and related industry stocks.

Anyhow, aside from “What percent is your client spend up or down this quarter?”, the most common question that I get is this:

“We know that Google makes more money from search than Yahoo, but really, why is that?”

That, my friends, is a downright fantastic question, and the answer truly eludes (or is deemed too “nitty gritty”) the media that covers the search industry. So here goes my answer.

First off, the background of the question is important. Both Yahoo and Google have huge audiences, but even adjusting for their search engine market share something is amiss. By the most recent estimates by Comscore, Google has about a 47.4% market share to Yahoo’s 28.5%. So given a world where you only put dollars into Google and Yahoo, it would be fair to assume that of a $75 budget, we would spend somewhere around $47 in Google and $28 in Yahoo. Put differently, we would expect that for every dollar we put into Yahoo we would spend $1.68 in Google. However, these are far from reality.

Across a random sample of Wpromote’s clients in February 2007, we spent over $3.50 in Google for every $1 we spent in Yahoo. In some industries it can be far more or less pronounced, but just looking at this (admittedly unscientific) sampling what should jump out at you is that taking into account market share discrepancy, Google is making far more revenue per search than Yahoo is. While the exact ratio can be questioned, this monetization gap cannot, so let’s talk about why on earth that is.

• Technology vs. Content. Google is foremost a technology and engineering company, where Yahoo is foremost a media and content company. Indeed, Google was born from a new algorithm (the now ubiquitous PageRank “vote counting” paradigm), where Yahoo was born as a manually administered directory of web sites. Much has changed since then, and Yahoo certainly sits on some excellent technology and smart engineers, but I have always detected a fundamental difference in thinking between the two companies. Google seems to develop new technologies pro-actively while Yahoo addresses technology needs reactively. For example, Google AdWords has been constantly evolving advertising platform, whereas Yahoo’s system remained virtually untouched aside from slapping a new logo on after purchasing Overture, until the recent launch of the new Panama platform. Instead of leapfrogging the constantly adapting AdWords system, Panama is merely playing catchup. I’m thrilled at the progress that Panama made, but it is impressive only when compared with the previous Yahoo system.
• Flexible Platform & Constant Testing - At any given point, Google is testing a whole slew of new features and extensions to the Adwords system. Off the top of my head: CPC site targeting, agency leads, click-to-call ads, print and radio ads, the Adwords Editor application, the website optimizer and more. Many of these fail, but one of these could end up being a major part of Google’s future. From what we’ve seen, this mentality of constantly testing new ideas does not exist within Yahoo’s walls. They seem to operate under the “major update” philosophy of rolling out a massive system upgrade every couple of years. Why doesn’t Yahoo operate like Google in this area? When I asked my engineering friends why this is in simplest possible terms, the answer was that Google is “using a much, much bigger computer”. In other words, with the world’s biggest network of servers at their disposal (nobody knows the number, but there are estimates of 500,000 or more worldwide), Google has the excess computing capacity that their engineers need to develop these new technologies.
• Advertising Platform User Interface - This one is simple, but only experienced by the actual advertisers working with the Adwords and Yahoo Search Marketing systems. Quite simply, Google Adwords works better. Navigating accounts is more intuitive, they have a Client Center for managing multiple accounts, pages load faster, there are tools that help you automate large changes. Man, the list just goes on. Spend one hour in Google and one hour in Yahoo building or making updates to an advertising account, and you will know what I mean. Don’t get me wrong, Google has their own basket of frustrations, from Quality Score updates, to dormant keywords and policies applied non-uniformly. But when it comes to making an interface that just works, Google did it. It’s such a dramatic difference it makes me think that the Yahoo higher-ups have never opened up a Google AdWords account just to see what their arch-rival is up to. Terry Semel, here is my CEO advice to you: spend an hour in your Panama system and an hour in Adwords doing nothing but basic tasks. I assume you have not done this, because otherwise you would not be raving about Panama on your earnings calls. You would have gone to your engineering teams and asked “Why, oh why, does our system not work as well as Google’s? What resources do you need to make it as good or better?”
• AdWords Broad Match Technology - Ultimately, making money off of search is about putting the most ads, and the most relevant ads, in front of the most eyeballs, and having users click on them. Google’s default keyword type (these are the keywords that users would enter to trigger an advertiser’s ad) is known as “broad match”, which means that Google will try to match lots of related search queries to a single keyword entered by an advertiser. For example, the keyword “miami hotels” might also be matched to keywords like “miami florida hotels”, “best miami hotel” and even “miami resort”. The net benefit here cannot be understated. It means that it is easier for advertisers to get more volume and ultimately Google places more ads in front of more eyeballs, which means more revenue for Google. Yahoo has a feature called “advanced match”, but it just doesn’t work as well in matching queries to keywords. Why is this, you ask? Why didn’t they include this major money making feature in the big Panama upgrade? Again, it is my belief that it boils down to technology. In engineering-speak, it is a “non-trivial” (read: very hard) task to match millions of ads to billions of keywords in a fraction of a second. I believe that Yahoo did not have the ability — either in engineering prowess or more likely, computing capacity — to build this functionality.

I could go on, but i fear this post is already running long, so if you want an encore, let me know. Also, my disclaimer: This post was in no way meant to pick on Yahoo. We have a terrific relationship with the folks at Yahoo and working with them is a big part of our business. However, I feel sometimes that there is a resistance to acknowledge any shortcomings and address them headlong. I was absolutely floored when a Yahoo exec told me that they developed the Panama system without looking closely at what Google was doing, as though there was nothing they could learn from them. That is an incredibly short-sighted business perspective, and if this is a perspective that is common among the Yahoo executive management, it could go a long way in explaining their perennial under performance in the search engine advertising market.

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This article cites some very funny backhanded complements by Microsoft CEO Steve Ballmer, essentially equating Google’s present growth with Microsoft in the 1980’s and 1990’s during the meteoric success of their operating system and desktop applications market.

“They are trying to double in a year,” Ballmer told a crowd of Stanford Graduate School of Business students on Thursday. “That’s insane in my opinion.”

This really reinforces what I have seen developing in the last several years in the search engine industry: Google goes from post-dot-com-bubble darling to profit powerhouse to the 800 pound gorilla leveraging it’s industry monopoly in increasingly scary ways. We aren’t there yet, and I hope that I am proven wrong, but you can’t deny the comparison between the present Google and the past Microsoft.

Read this analysis as well to see some healthy debate on the Google-becoming-Microsoft topic.

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It seems that each year in early March, I come across the same piece of “news” regarding a new study calculating the domestic productivity loss of the American worker due to time spent during work on the NCAA March Madness tournament.

This year I found it here, here and here (and this is just day 1 of the tournament), with the venerable firm of Challenger, Grey & Christmas providing us with the inconceivably large amount of $1.4 Billion of lost productivity. Looking at this impossibly large number, employers — like us! — should be up in arms, banning visits to sports web sites, ripping down the office pool and making sure that Wpromote is not losing it’s fraction of that $1.4 Billion!

Alas, when I manage to calm myself down, rational thought prevails. Specifically, a few of my gripes about these somewhat sensationalist journalistic techniques (throw out a big, easily quoted number into a headline and hope it is swallowed whole):

• The calculation itself is a bit absurd. It goes something like this: Minutes Spent Per Day on basketball websites * pay per minute * days of the tournament * the working population = A huge number. However, this implies that all other factors remain untouched. In other words, it assumes that nobody stays later or cuts lunch short to make up for lost time and that people aren’t simply rearranging other periods of time that were otherwise “lost” on other time-wasting online endeavors.
• The implication of putting an actual dollar value out there, in this case a whopping $1.4 Billion, is that this amount was somehow recoverable if there was no NCAA tournament or an employer took effective action in curbing the time wasted. I am sure if I think hard I can come up with a particular industry where time is at a fixed productivity level, and a worker is either 0% or 100% valuable for a fixed number of hours (a factory assembly line perhaps?) but I would argue these circumstances are few and far between. For most of America’s workplace, productivity is not an on-or-off switch but a sliding scale, one whose size varies drastically among employees of different abilities and ambition.

Happy, motivated employees produce far more than employees with all distractions eliminated. And after all, who is happier than the guy who just won the office pool!

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Well, it all has to begin somewhere I suppose…

I admit, The Search Insider is late to the blogging game. It’s the third month in 2007! Maybe I have been scared to begin blogging because I have an addictive personality and have been afraid of losing myself in it. Maybe I have just been too busy in this crazy game of search marketing. Maybe I was just lazy. Maybe a little bit of everything.

However, there is a beginning for everything, and this is the uneventful beginning to The Search Insider.

A little about me. My name is Mike Mothner, and way back before Google was a household name (in fact, back when they had no idea how to make any money off of their little upstart search engine), before PPC, before blogging and YouTube and MySpace, I began Wpromote providing a service to help new websites get listed in the search engines from a little dorm room desk at Dartmouth. Seven years later, Wpromote is now a leading search engine marketing firm serving thousands of clients worldwide, and one of the foremost authorities on paid search.

The purpose of this blog is to open up a bit, share our industry insights and thoughts, changes in technology, online advertising and all things search. I hope to begin an exciting interaction with our clients, industry peers and anyone who wants to learn more about the crazy world of search.

So let me know what you think! I have more ideas for topics than I know what to do with, so help guide me. Leave a comment, suggest a topic that you want to hear about, and I promise I will cover it.

Signing off for the first time,

Mike

The Search Insider

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