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Paying for Position: Worth It?

What is pay for position and what's the best way to use it?

Overture, formerly known as GoTo, has scored a big marketing success with their pay for performance approach. They take bids for what a site will pay per clickthrough; then the bids are used to rank the sites when a term that's beeen bid on is used in a query.

Then Overture figured out that, since they had sites paying per clickthrough, these same sites would pay for clickthroughs from other search engines, too, so why not make deals with other search engines, so that the other search engines would show Overtures top listings, and share the fee? And so they did, even with Yahoo. So now if you're in the top three on Overture you will show up as one of the top three in many other search engines.

Overture's financials show the impact. They're trading at a 27 price-earnings ratio, healthy for today's market. They generate over $1 million in gross revenue and $200,000 in profit per employee! They have no debt. As an aside, given that they have so many search engines signed up, there are now significant barriers to entry, so Overture might be one of the few ebusinesses worth investing in, even at current valuations. I'd put it in a class with eBay because they created a business--theirs in an auction market for search engine positions rather than stuff--and once the auction is going at full throttle it's very hard for a startup competitor to draw either buyers or sellers. Of course, eBay has astronomical price to earnings, and Overture is more reasonable.

You may not like pay per clickthrough. I, too, preferred the day when we would jockey for search engine position, and once we had it we were home free. It was possible to advertise very inexpensively on the Internet in those days. But in the days of the .com post-bust, the search engines must find ways to generate revenue, and this is one of the ways they are doing it. Increasingly, IMHO the Internet is becoming a place where we pay for advertising, and I think the best approach is to accept that and work intelligently with it. I believe the Internet is still the least expensive advertising method if your business is one that is effectively promoted on the Internet.

Which businesses are best promoted on the Internet can be the subject of another note, if you're interested.

OK, now back to Web marketing, what does this mean to me and my site? Is Overture a good thing, and what's the best way to use it?

Many businesses are characterized by a single key phrase that describes the business best. In fact, some businesses have just this one single key phrase and that's it. If you're one of those businesses, then Overture may not be for you, since those key phrases tend to get bid up to an extraordinarily high price. I've seen Expedia decide they want to own a phrase, and when they do they just outbid everyone else, all the time, paying up to $3 per clickthrough! So if you're one of those businesses, and you know if you are, then Overture won't do much for you other than consume your whole advertising budget bringing you a small number of visitors. For you, promoting agressively with other search engines is the solution.

However, even if your business has one killer search phrase, if there are others that are relevant, then look carefully at the others. You may find that there are all sorts of "secondary" phrases that will are used in queries from time to time, that will bring you some visitors, that have much lower prices. You may even find some that are so infrequently used that you can get a #1 position with a five cent bid, which is Overture's minimum.

Find all of these "little" terms that you can, and purchase high positions for them. In the aggregate, they can bring you a significant amount of traffic, at a reasonable price. You can even put in a bid for some of the higher-priced "killer" terms, too, but at a lower position. Even at #20 or #30, you'll get some hits, and at a much more reasonable price.

Unless you're in one of those businesses that has just one key phrase, it's often possible to run an Overture campaign, by managing the bids and continuously looking for new terms, at a reasonable cost per click. For example, I've been able to achieve an average of 15 cents per clickthrough or less for a substantial number of clickthroughs. It's quite important to research for terms that are used on the Internet, so that you find those nickel terms, that in the aggregate sustain this sort of campaign.


Dave Roberts provides expert Web marketing services to help you meet your business goals. Visit his Web site at: DaveDoesItAll.com

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