Should You Pay for Clicks?
In September, the Interactive Advertising Bureau and PricewaterhouseCoopers released a startling figure. The groups said the first six months of 2006 brought $7.9 billion in Internet advertising revenues. This number, according to the trade website Internet Ad Sales, is the highest ever recorded. It is almost 40 percent more revenue than the same period in 2005.
Where is all that ad money going? Roughly one-third of the sales were related to click-through ads. Beyond the traditional flashing banner ads, click-through advertisements also include recommended products by search engines such as Google and Yahoo! Relevant ads are shown side-by-side next to searches. For instance, someone searching for “gym shoes” may get a highlighted link for a company selling the latest Nikes.
The revenue seems to be increasing, but would these click-through campaigns be effective for your business? Here are some points to consider before making the jump:
How much it costs
Unlike traditional advertisements, click-through campaigns are paid for, after the fact, by the number of clicks, not by a flat fee. In other words, if Google AdWords charges you $.10 per click and your business ad receives 10,000 clicks per month, your company owes $1,000 at the end of the month, regardless of whether you sold something or not.
The cost for clicks rises as the term becomes more popular. “By 2005, the average cost of popular keywords had risen to $1.75 a click, with some hot industries even higher,” says Joanna Krotz, co-author of the Microsoft Small Business Kit on Microsoft’s website. She says that the charges are $5.39 per click for mortgage/refinancing services and $1.85 for telecommunications/broadband. While some clicks might turn into valuable customers, when click fraud enters the picture those illegal clicks can end up hurting your bottom line. Krotz recommends checking for frequent IP addresses, reporting suspicious behavior to the search engine company and, perhaps most importantly, not putting your ad revenue all in one basket.
How it impacts customers
Catherine Seda, author of the book Search Engine Advertising: Buying Your Way to the Top to Increase Sales, says that the goal should be long-term brand recognition at an affordable rate.
“Increasing your clicks is a good sign, but businesses need to track down how many customers actually come from paying for placement on search engines,” Seda says. “The next question, then, is how much are you spending to attract each new paying customer? Measuring return on investment is nothing new, but it’s something small to medium size businesses often forget when blinded by the light of pay-per-click advertising.”
Be wary of click fraud
What spam is to e-mail, click fraud is to click-through advertising, though the latter can be a much costlier nuisance. Click fraud isn’t caused by the average Web user who clicks on an ad without intending to purchase. Click fraud is a more organized and orchestrated.
Some companies target competitors that use click-through advertising, particularly if the competitor has to pay money each time a Web user clicks on their ad. Either manually or by using “robot” software, the company perpetrating the fraud clicks on the competitors’ ads, running up their advertising tab. Often the pay-per-click contracts have a budget cap and, once the advertiser reaches that cap, the ad will no longer run online. The goal is often to get Internet traffic away from the company that advertises so that Web users buy at other sites. Outsell Inc., a market research firm in Burlingame, Calif., estimates that click fraud is a $1.3 billion annual problem for publishers, advertisers and some of the big search sites, like Google and Yahoo!
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