You may find it strange that someone who’s been a practitioner of pay-per-click (PPC) ever since GoTo.com launched in 1998, and someone whose team manages hundreds of millions in PPC search spend annually, would pen a column on the topic of giving up on PPC search. The reality, however, is that in the hyper-competitive world of Google AdWords and Bing Ads, not everyone can survive. It’s actually beyond survival of the fittest, because there are scenarios where even a fit company can’t survive here.
PPC search advertising is auctioned off in close to real time and, as in any auction, there are winners and losers. The winners get the click and the losers don’t, or so it would seem. In auctions, there is a concept called the Winner’s Curse. In a nutshell, the Winner’s Curse happens when either the click profit profile has been miscalculated and the click is actually unprofitable to the advertiser, or the high bidder (or bidders) have insufficient information to make an accurate bidding decision but have low tolerance for losing the click and so bids high. If you have less information or less accurate information than your competition, you may find yourself in a Winner’s Curse situation, which is just one of the signs you should give up on paid search (or fix the problem).
Auctioned digital (and traditional) media has placed marketers into unfamiliar territory, and search is just the tip of the auction media iceberg. If you’ve ever had an opportunity to buy traditional media (other than in the TV “Upfronts,” which are animals unto themselves), most of the time when you buy more media from a particular seller, the cost per unit drops. In PPC search — and in all the other new forms of digital media being auctioned off — the more you buy, the more you pay for the new units (clicks or impressions). It’s the opposite of a volume discount. Therein lies one of the primary factors that is driving many marketers out of paid search and has them evaluating other options.
Without the pressure of the auction, everyone could happily buy paid search clicks. Instead, you may find yourself wondering if you should give up on PPC search altogether.
Five factors you should consider when deciding to invest your time and budget elsewhere than paid search advertising are:
1. Too many competitors: Pizza in New York City, lawyers in San Francisco, accountants in Chicago, stores selling cameras — these are all situations where there are far more competitors than there are available ad slots. Plus, the top positions get such an overwhelming percentage of the clicks that the rest of the advertisers must live on the crumbs.
2. Irrational competitors or ones with metrics you are unwilling to use: When a competitor consistently out-ranks you for position, they likely have a great Quality Score and therefore are bidding less than you, particularly if they are a well-known brand and you aren’t. They get a natural “brand discount” on PPC because their click-through rate (CTR) is higher, all other things being equal. Often it’s a matter of making a higher bid due to a different way of measuring profitability or return on investment (ROI). It may also be an irrational bidder.
3. Inability to match Quality Score: If you can’t match the competition’s Quality Score due to their brand recognition, or the simple fact that consumers perceive their ads and/or domain names to be more relevant, then you’ll be paying a surcharge on clicks.
4. Cherry-picking high-value clicks doesn’t deliver scale: Using day-parting and geo-targeting to cherry-pick the very highest value clicks out of the clickstream is a great strategy to increase volume on important keywords when the competition is bidding aggressively. However, in some cases there simply aren’t enough super-profitable clicks to cherry-pick, and so you may find yourself stuck with a high-profit, low-scale campaign.
5. Lopsided keyword distribution: After 15 years of PPC, most keyword lists range quite far into the tail. When the keyword tail is short, and consumers disproportionately tend to favor a small number of keywords, you may end up fighting the same exact competition for nearly every one of your keywords. There may be room for keyword creativity in a few cases, but often you will be out of luck.
In addition to the above factors, there are some rare situations where, for example in the lead-gen business, your competitors are actually lead-generation partners. They will sell you non-excusive leads and, because they sell leads to more than one of your competitors, they can afford to bid more than any one of the final lead buyers.
If the PPC markets make it impossible for you to profit at scale, you may find it necessary to resort to innovative SEO strategies. SEO algorithms are much different than PPC, and in SEO (particularly when combined with a great social strategy), there is room for creativity that can deliver results. The days of building a huge profitable business exclusively on PPC are dwindling for many industry sectors. Best of luck.