Industrial Strength Search Marketing (SEM, SEO)

OK, so normally when I write columns, it takes me about 4 drafts to get something I really like, and each draft takes me about an hour. Not this time. I got home on a Wednesday, put the kids to bed, and realized I had a deadline. That night. So, I poured a tall scotch, sat down at the computer, and banged out 800 words in about 45 minutes. Funny thing is, I’ve gotten more positive feedback on this column than any of the others. Maybe I’m onto something?

My New Year’s Search Marketing Resolutions

I was in a meeting this week and someone was talking about her New Year’s resolution to eat healthy, and how it was already making her miserable. I think her exact words were “I’m ready to eat my desk”. I don’t know about you, but I don’t do New Year’s resolutions. Never have. Always seemed to me that New Year’s resolutions just represent things that people know they should do, but don’t want to do, so on New Year’s they say they’ll do them and they try for a while, knowing deep down that by February or March they will be back to their old habits. Which got me thinking about search marketing, of course. I mean, how many things do you routinely ignore, that you know you should really be doing with your search marketing efforts? So I decided that even if I don’t do New Year’s resolutions, perhaps I should start making New Year’s search marketing resolutions. That way it wouldn’t be so personal, and maybe I could keep the momentum going past Valentine’s Day.

Resolution #1: This year I’m going to set and standardize an SEO-friendly URL strategy for my company. I don’t know about you, but the thought of standardizing URLs across a jillion pages on dozens of web properties makes me want to run screaming for the exits. So many different conventions in play, redirects, different product groups and platforms, I mean what a nightmare! On the other hand, URLs are probably our biggest Achilles’ heel where SEO is concerned, so if I’m going to do something meaningful, this would be it. Yes, indeed. I’ll set up standards about depth of directories, naming conventions, and server-side rewrite technologies. Then I’ll get the CTO to back me on it and mandate it at the next all-hands meeting, and at his next staff meeting. I’ll insist that he ties his product managers’ bonuses to the successful implementation of SEO-friendly URLs. I’ll get started on this right away. Should be a snap.

Resolution #2: I will establish a single source of truth for web analytics and marketing metrics for the whole company. This one is going to be great. I will be able to create beautiful dashboards for upper management from a single interface, rather than cobbling together excel sheets from 5 different data sources that couldn’t possibly agree. That way I won’t be double-counting conversions, and I will be measuring each property’s success accurately and easily. First I’ll interview 3 major vendors, pick one based on at least 10 evaluation criteria, sell the idea to all the Marketing VPs in the company, negotiate a contract (with favorable terms, of course), and get my boss’ boss’ boss to mandate that everyone in the organization adopt this single standard for SEO and SEM analytics and implement it immediately. I should be able to get this done sometime in Q2.

Resolution #3: I will update my SEM creatives at least once a quarter for all campaigns. This one is a no-brainer, and I have no excuses for not doing it. Come on, though, who really likes to bang out like a thousand creatives a quarter just so you can say you adhere to industry best practices? What’s up with SEM creative anyway? It’s like writing freaking Haiku, for Pete’s sake. Only harder. I mean, who decided that 25-35-35 was the magic number, anyway? On the other hand, if I just do a little every week it won’t be such a big deal. If I get rolling next week and keep at it, maybe I can keep up on this and make sure my CTRs are somewhere north of 1%. 

Resolution #4: I will de-dupe my SEM keyword lists across groups. I really have to start doing this. I know multiple properties are bidding on the same keywords, and I can pass it off in meetings that it’s no big deal because different properties inherently derive different value from the same keyword (blah, blah, blah), but last Sunday at 3:06 a.m. I woke up in a cold sweat from a dream where Yahoo! Shopping was outbidding Yahoo! Personals on the keyword ‘Yahoo Personals’, so if for no other reason than I need my beauty rest, I just have to get this done. Pencil it in for Q3.

Resolution #5: I will make myseld the foremost expert in my field. I will be sure to stay on the cutting edge of my industry by speaking at every conference I can find, schmoozing with all my competitors, exchanging best practices and industry developments, attending all the breakfast seminars, webinars, and insider summits I can find to sharpen my skills so I will be the best search marketer on the planet. I will be an expert on optimization strategies for AJAX and Flash, an SEM quality score ninja, and a targeting Guru. This will likely take all year, but I’ll do it in my spare time, so it won’t impact my daily responsibility.

See why I don’t do New Years’ Resolutions?

This was a follow-up to a November column on using different SEM tactics to support changing business goals. This one looks a different ways to look at the value of a customer, and which views might suit different business goals. Dry stuff, but instructive. Here you go….

Getting The Most From Paid Search In A Difficult Economy – Part II – Valuation Models

How much revenue does a new customer drive to your business? How long, on average, does a customer last, and how much do they spend as a customer? Do customers acquired through one marketing channel generate more revenue than those from another channel? The answers to these questions collectively make up the foundation of any direct marketing effort, and are especially important in paid search, where every click costs you money. These days you need to know the answers or you may quickly find yourself without a marketing budget.

In my last column I wrote about paid search management tactics and the different business goals they can support. We looked at a few ways to think about profitability, depending on whether you are in growth mode or you are looking to be ultra-profitable on your last dollar spent. My point was that paid search advertising is unique in its flexibility, its ability to ‘turn the dial’ up or down depending on what your business goals are at any given time. Today I’m going to take a look at another dimension that greatly affects advertisers’ paid search tactics – customer valuation. When I speak at industry conferences, I often talk about – and get lots of questions about – valuation. I preach about the fact that this is where all good direct marketing starts – understanding the value of your customer or user. I also wrote about it in a previous column on SEO valuation, but it holds true for SEM as well. Valuation is important, not only because it is the foundation for any sound marketing campaign, but also because, like profitability, it is just another dial you can tweak to better support your business goals, even as the business climate shifts.

As I often talk about, at Yahoo! we have a concept of ‘lifetime value’ (LTV). We get LTV by modeling the net present value of the revenue stream a user creates on our site. (Note: Someone asked me about how to generate an LTV recently and I was delighted to find out that Excel has a net present value formula that makes it really easy – it’s ‘NPV’ – check it out!) At Yahoo! we have different LTVs for different products and services we promote, as well as different LTVs for different marketing channels we use to promote these products and services. For example, for Yahoo! Personals subscriptions, we might use an LTV of $100 for SEM, but for our Affiliate channel it could be $89, it just depends on how the subscribers’ revenue streams differ (how long they stay subscribers, which package they buy, etc). This means that, all other things being equal, in this example we would have a slightly different target cost per acquisition (CPA) for SEM than Affiliates when promoting Yahoo! Personals subscriptions.

I like the notion of LTV because it helps level the playing field for all marketers. It gives us a common language to speak and a universal set of metrics by which we can evaluate our success. We need this type of tool because we have many different businesses with very divergent business models. In our example above, Yahoo! Personals is trying to generate subscriptions. Yahoo! Small Business, on the other hand, sells domains.  Yahoo! Autos captures leads for automobile dealers, Yahoo! Shopping supplies links to merchants with great deals on products, and Yahoo! News serves ads to its readers. Tools like LTV help us measure the value of marketing programs across all these properties and across all marketing channels.

Before we dive into other valuation models, I want to point out that valuation is one of those things that we do at Yahoo! because our scale and complexity demands it. At the same time, it’s something all marketers should do, even if it means sacrificing sophistication for simplicity. As noted above, there’s even an excel formula to help you get there, so there’s really no excuse not to take a swing at it. And, as I always say, if you don’t know what the revenue model looks look like, take your best guess. Just remember to go back and challenge your assumptions later.

LTV works great for marketers and businesses that want to be aggressive with their marketing tactics. It allows you to leverage the full value your customer brings to you in your marketing efforts. Much like we talked about startups using a portfolio approach to managing paid search, a company with a similar risk profile would want to market to the full value of the revenue stream their users create.

But what if your company is not in an aggressive growth mode? What if, due to macroeconomic conditions, you need to be more conservative? What if you need to focus on being profitable in a shorter timeframe than the full lifetime of a customer? In my last column I mentioned that a conservative way to manage paid search was to manage to incremental ROI rather than average ROI. Similarly, a conservative strategy here would lend itself to a valuation model more conservative than LTV.

At Yahoo! we have a number of revenue metrics that are based off the same valuation models that bring us LTV. LTV, for example, has a finite horizon of several years. From there, we can dial back the horizon to suit our business needs. One metric that we find very useful these days is called rolling twelve-month (RTM) value. RTM helps us understand what a customer is worth to us in the next year, regardless of when the user is acquired. RTM works well because, while it is a more conservative valuation than LTV, it takes into account a full year’s cycle, so seasonality is not an issue. From RTM, the next conservative step is in-year value. In-year looks at the revenue stream from customer acquisition to the end of the business year (so it changes dramatically based on when in the calendar year you acquire the customer). This helps advertisers focus on how much value is driven within the fiscal year. Although somewhat shortsighted, it makes sense for public companies to look at this valuation, because such companies are accountable to Wall Street for earnings goals.

For an even more conservative view we can look at rolling 3-month and in-quarter valuations. These short time horizons don’t allow much flexibility in direct marketing goals, but they do give a very finite view of how much value a customer will bring in the immediate future. Direct marketers may not like this model much, but finance and business folks like to hold marketing programs up against these valuations to make sure they’re doing the right thing for the company, no matter what valuation they’re using as an ultimate measure of their success.

Finally, in some businesses, the very nature of the revenue stream is very short-lived. Examples of this are where users come into a site, consume content, and click out on a link to go to another site. In cases like these, we will sometimes throw the above models to the wind, and even look at direct in-session revenue. While this is clearly the most conservative valuation of a customer, it brings with it several key advantages. First, it’s easy to model if you can track it on a very basic level. Second, as the economy fluctuates and businesses are wondering whether to use LTV, RTM, in-year or in-quarter valuation, the direct revenue model is already so conservative that advertisers using this method are relatively unaffected by the macroeconomic climate.

So, just as profitability metrics provides one set of controls that affect how we manage SEM campaigns, valuation methods provide a whole other set of dials advertisers can tweak to excel in a rapidly changing economic climate. As the business climate continues to shift, you will want to use all of your options to create the most appropriate marketing programs relative to your business goals, whatever they may be.