Pay-per-click ads pushing the right buttons

Lure of affordability, instant results has companies flocking to Internet search engine providers to show their wares

By PAUL LIMA
Special to The Globe and Mail
Thursday, Jan 27, 2005

Marc Levin makes a strong case for buying pay-per-click ads on Internet search engines.

His company, Toronto-based Mr. Case Inc., delivers brand name grocery items by the case to homes, offices and food service businesses in the Greater Toronto Area. It offers more than 10,000 items, ranging from Starbucks coffee to Voss artesian water, generates $3.5-million in annual sales and employs 12 people.

Mr. Case has been on-line (mrcase.com) since 1995, at which point on-line orders accounted for less than 1 per cent of sales. When website traffic analysis revealed many new clients found Mr. Case as a result of Google searches, Mr. Levin decided to see if he could increase traffic and sales by investing in pay-per-click (PPC) ads. Now, on-line sales account for about 25 per cent of Mr. Case's business, he says.

Traditional banner-ad customers pay on a cost-per-thousand basis. The fee is set based on how many people visit the Web page where the ad is displayed. Pay-per-click advertisers, on the other hand, only pay a fee when someone actually clicks on their ad.

PPC advertising space is sold by California-based Yahoo Inc. and Google Inc. and other Internet search engine providers.

Google's AdWords PPC program, for example, displays ads to the right of its free search results. The PPC ads are ranked based on the amount the advertiser is willing to pay for a click and the ad's relevance to the search term the visitor has typed in. Google's revenue stream is based almost entirely on PPC advertising, and the company says it plans to add another 400,000 advertisers in the next four years.

PPC is a relatively new on-line advertising model, but as Google's plans indicate, it's growing fast. Roughly 40 per cent of the $10-billion (U.S.) total on-line advertising market went to PPC in 2004, according to a report by the Interactive Advertising Bureau. Research firm Jupitermedia Corp. predicts search ads will grow to $5.5-billion by 2009, with the vast majority of that allotted to PPC, while brokerage firm U.S. Bancorp Piper Jaffray is more aggressive with its forecast of a $7-billion industry worldwide by 2007.

The predictions are based on the fact that many of those getting their feet wet with PPC are coming back for more. Market research firm Kelsey Group Inc. polled PPC advertisers last year for its TKG/WebAdvantage PPC survey and found 21 per cent planned to maintain their level of spending, while another 54 per cent expected to increase their PPC budgets.

"Local advertisers are not directly adopting PPC in large numbers," says Greg Sterling, program director for Kelsey Group. "Instead, they're getting into search/PPC indirectly through 'aggregators' such as Yellow Pages, Web hosts and other directories, and this will ultimately generate significant revenue."

But he adds that the market could shift in the coming months as a result of larger companies starting to adopt PPC advertising.

"What this means is that keyword price inflation will continue because [larger companies] have more money to spend and want to own certain categories and generic keywords," Mr. Sterling says. "Expect branding dollars to move into search in a significant way, too."

Mr. Levin is among those sold on PPC ads. Mr. Case launched an AdWords campaign last November, and he says website traffic has grown almost tenfold. The Mr. Case PPC ads on Google are seen about 35,000 times per month by visitors, and generate about 1,000 clicks.

While not everyone who clicks makes a purchase, Mr. Levin says his ad campaign costs less than $1,000 a month and is paying for itself.

"It's adding awareness and bringing sales," he says, noting that 98 per cent of his first-time customers become repeat clients.

When it comes to running an effective PPC campaign, testing and monitoring keywords, ad copy and sales are all crucial, says Andrew Goodman, principal and founder of Toronto-based Page Zero Media, a PPC management and optimization company.

Mr. Goodman says companies should determine which keywords they want to associate with their ads: Cast the net too wide, and ads show up for irrelevant searches and waste an ad budget; cast it to narrow, and a company misses opportunities. PPC campaign managers should test search terms and ad copy lines to see which generate the most clicks, he says.

The keyword phrases Mr. Levin pays for include his products, as well as the cities in the Toronto area where Mr. Case delivers. "If someone is looking for bottled water delivered by the case in the GTA, they will see our ad on Google," he says.

Companies should also monitor results during the campaign, Mr. Goodman says. Many clicks and no sales usually means ads are leading prospective clients to Web pages that do not tell a compelling sales story, he says. "When you put the right product in front of the right person, they'll buy it."

The PPC strategy is paying off for Mr. Levin and, as a result, he now "generally" spends less on print media and has scaled back banner ads on websites that attract his target market. He plans to launch a PPC campaign for Decadent Catering (decadentcatering.ca), a subsidiary of Mr. Case.

"When it comes to attracting new business . . . other types of advertising tend to be more expensive," Mr. Levin says. "[PPC] makes it easier to define who you are going after, and the results are instant. Keywords aren't working? Change them. It's that simple."