) sponsored links. The small company, which says it has seen better than 800% revenue growth over the past five years, was sold for $50 million in December, 2004, to Britain's Aegis.
That's just one indication of how the online advertising business is booming. The industry reached an estimated $9.4 billion in 2004, according to Kagan Research, with giants like Time Warner's (TWX
) America Online unit seeing online-ad revenues rise by 28% vs. last year.
What's driving this surge? Where will it level off? On Mar. 2, Fredrick Markini took a break from the Search Engine Strategies (SES) conference in New York to sit down with BusinessWeek Online's Burt Helm and answer those and other questions. Edited excerpts of their coversation follow:
Q: Online advertising has been booming. Do you think this can continue?
A: This is the year search advertising has become so hot, but I believe it hasn't scratched the surface of its potential. Traditional marketers are realizing that search isn't something they can compartmentalize and delegate to their online departments.
There was this study by [online marketing research firm] ComScore that came out on Dec. 15. It said that of all searches that led to a sale, 92% of those sales occurred offline -- at a bricks-and-mortar store. When you think about it, it's obvious: People research things on the Internet before going out and buying them.
But it was a stop-the-presses moment for us. Because that creates a couple of problems. One, right now [in most marketing departments], the online guy can only spend advertising money where it will lead to an online sale, [but] he's missing 92% of the conversions!
Two, if the online guy's campaign does have a big impact, the offline marketing guy will see a spike and wrongly take credit for it, and the resources will be assigned all wrong. It's really up to the chief marketing officer to make these two kids play together, and that's what's going to happen this year.
Q: You describe the solution to this as "search integration."
A: Our clients are beginning to notice that after they run a TV ad, there's a spike in searches. But the searches are for topics not linked directly to their brand, but rather to the type of product they are selling. And all too often, those avenues on the search pages are held by their competitors. These companies are literally waking up perspective customers, inspiring them to search, and driving them to their competitors.
Q: So how do you integrate the two?
A: The Internet is no good for creating awareness or getting attention -- media [like TV and radio] are. But people don't believe those commercials. Instead the TV ads spur people into "inquiry mode." The Internet is this self-service world where you are in control...you can read the vendor's Web site, you can read reviews of the vendors, and feel like you're really getting to the truth of what the best product is.
Companies need to make sure they're strongly positioned in that search, to be in the path of that inquiry behavior. Because when customers search, they find you -- or they find a competitor. There are no Google searches that show zero results.
Q: What are you seeing coming out of SES?
A: We're really beginning to see a heightened focus on search-engine optimization, where companies modify their sites so that they show up more often during natural searches. It's because simply pay-per-click search advertising is getting so expensive.
Within paid search, the market is getting so much more sophisticated. The average marketer is bidding on over a 1,000 keywords, and you have different conversion rates [the percentage of people who actually buy something, vs. the number who just click the ad] and return on investment for each keyword.
During the middle of the day, prices and conversion rates can become extremely volatile -- if you're not watching each word's performance every hour, it could be like a wave hits you and washes you up on shore. My prediction is that no one engaged in paid-per-click search will be without the assistance of a rather sophisticated computerized bidding agent in the very near future.
Q: Within paid search, there's also growing concern over "click fraud" -- where a competitor repeatedly clicks an ad to rack up charges.
A: Again, a computerized agent would take away any risk from click fraud, because it would witness the clicking, stop bidding for the ad, and let the manager know it's going on.
But really, click fraud is just a sexy story. It reeks of risk and danger and nefarious individuals, but in reality on the dozens of cases our company is managing, there's virtually no click fraud. I think it's a dramatically overblown problem. I mean, if you travel in Boston, for instance, you could get mugged -- but the risks in some areas are greater than others.