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Google Adwords

By Vikas Malhotra
Posted Saturday, September 18, 2004


With the recent ‘Florida’ update on google & its impact on the SERPs, typically on the commercial search phrases, it has become imperative that we now examine paid advertising scenario at google. For scores of merchants, now paid advertising will be the only way to help them salvage their holiday sales, as also future revenues.

This will be a two parts article, with the first part focusing on the google paid advertising space & the second part on the best practices thereof.

However, before we start on googles adwords & adsense programs a word or two on online advertising industry performance in 2003.

Online Advertising Industry

According to the Interactive Advertising Bureau (IAB), the online advertising industry sales have been robust this year with three consecutive quarters of growth witnessed for the first time in last two years.

Lets first look at the yearly sales figures for last three years.

Online advertising climaxed in 2000 with $8 billion in revenue (dot com boom) before declining to $7.1 billion in 2001, and $6 billion in 2002.

This year in the first three quarters, the sales have been estimated at a healthy 5.07 billion (up 13% from the same period last year).

The break up of the quarterly sales figure is as under:

The first quarter sales have been at 1.63BUSD
Second quarter is pegged to have clocked 1.69 billion (up 14% from same quarter last year)
Third quarter is estimated to have done 1.75billion.( 20% growth from this quarter last year)
From figures the emerging pattern is towards keyword based text ads gaining popularity.

According to IAB, out of the 6bUSD figure of 2002, 15.4% (or roughly 1 billion) can be attributed to Search term related sales. This is up 200% from the figures of 2001.

The contribution of search term related ads has been estimated to 31% of the second quarter figures. No break up for third quarter figures is however available. Financial firm Salomon Smith Barney expects the estimated $1.4 billion market in 2003, to grow 30 percent to 35 percent per year, reaching $5 billion by 2008.

This Advertising space is dominated by two major players (obviously): Google & Overture.

Google Adwords

Google has two services for its paid advertisers. Adwords & Adsense. Lets start with Adwords.

This is a program run by Google in which it lets the advertisers bid for a chunk of the real estate on the search engine results page related to specific queries. The ads appear as "sponsored listings/premium listings" next to the organic search results.

Along with getting exposure at the googles own site, these ads are also syndicated at Googles’ partner sites like: America Online, Inc.,Ask Jeeves ,AT&T Worldnet ,CompuServe ,EarthLink, Inc. ,Netscape ,Sympatico Inc. etc.

Currently, Google is supposed to have approx 150,000 monthly advertisers for its paid placement services.

Adwords Account Statistics

Following are the statistics for every adword account google has; One can set up 25 campaigns in every account. Each campaign can have up to 100 adgroups in it; with each adgroup capable of having up to 750 Keywords in it. The overall limit on any account is 2000 keywords.

Adwords offers four kinds of Keyphrse matching namely: Broad, Phrase,Exact & Negative. Recently, Google has introduced expanded matching for its broad matches.

More on this later…

It lets you target your ads to specifically 14 languages, 250 countries or 200 states /regions in US. Google claims 99% accuracy for its IP tracking system to deliver the ad effectively to the target audience.

Recent Features on Adwords

Google has added three new features to its adwords campaign in October.

Those are:

Expanded Matching
Conversion Tracking
Increased Click Through Threshold
Conversion Tracking

Google has introduced a conversion tracking feature for its advertisers, wherein they can now track the conversions resulting from their advertisement traffic. This conversion tracking helps the advertisers by quantifying the ROI they are achieving with their campaigns.

This feature works by introducing a cookie on the user computer whenever someone clicks on an advertisement. This cookie is connected to the conversion page if the user reaches there. If it is matched, google records a successful conversion.

Expanded Matching

As a part of its broad matching of keywords, Google has introduced a ‘smart’ feature called expanded matching. With expanded matching, AdWords system automatically runs ads on highly relevant keywords, including synonyms, related phrases, misspellings and plurals, even if they aren't in the original list of keywords that you submitted with google.

For example if you keyword is ‘software development’, google system will try & guess alternate searches to display your ads on. Some examples are ‘software solutions’ or ‘software services’ or ‘technical solutions’. Over time, it will monitor the click through rates (CTR) for these searches & ‘learn’ the relevance of these searches for you. This will help it make expanded searches more specific. Also, based on its mining the search queries, it will be able to develop fresh combination of search terms which will be relevant to the business.

This theme based adwords tuning, is in sync with googles trend of trying to understand ‘available content’ & ‘user queries’ & make ‘intelligent matching’ of the two.

In an effort to let you know what are the keywords it will look to broaden your exposure to, google has for the first time put out a Adwords keyword suggestion tool:


This tool highlights the googles view of what other terms, it ‘understands’ to be relating to your business. (Tip :This tool works well for broad searches.)

Increased Click Through Threshold.

The increased click-through threshold is designed to help ads that may have struggled for traffic due to poor search relevance. These include those related to contextual ads as well.

Now for evaluating the Account performance evaluates each account after every 1,000 ad impressions. If the CTR for the account falls below a minimum required CTR (which varies by ad position, geography etc but is 0.5% for the top spot and slightly reduced for each subsequent position) the ads will only be displayed occasionally for under performing keywords.

Google Adsense

Google AdSense is an offshoot of the Google Content-Targeted Advertising program that was launched in early March 2003. This early program let large websites integrate Google AdWords into their websites.

Each deal was independently negotiated with Google, and sites with less than 20 million page views couldn't participate. The Google AdSense program democratizes the content based text ad display process. Even small merchants,bloggers with only a few thousand page views per month, can now apply to the AdSense program. The AdSense program allows Web publishers to apply for the program online. After Google vets a site for popularity and quality -- a process the company estimate will take two to three days -- accepted applicants download a string of HTML code to insert on Web pages on which they wish to carry text-link ads.

Google draws the listings from its base of 150,000 advertisers, using its algorithmic search technology to scan the content page and match it up with relevant links that are displayed as either skyscraper ads on the right side of the page or banners at the top.

Some of the large Googles partner networks are :HowStuffWorks ,Mac Publishing (includes, MacCentral, JavaWorld, LinuxWorld ,New York Post Online Edition ,Reed Business Information (includes and,U.S.News & World Report online All the rules that apply to adwords listings also apply to Adsense in respect of CTR, Positioning etc. In this, the second part of the article on Google Adwords, I’ll offer some basic advice about bidding and keyword selection to help you run a smart PPC campaign.. Though for explaining the concepts in this section we will be utilizing some of the tools of Googles archrival Overture also. For running an effective Adwords campaign there are two components or areas that one has to focus on.

Target Keyword selection
Optimizing Bidding strategies

Target Keyword selection
Lets begin with a note on proper keyword selection & organizing. First of all, there are a few basic characteristics of search queries/keywords that are important to note. The first is that only the most popular search queries are alike. For many sites, the targeted search keyword mix on a particular page will be quite broad. This is important as those pages will serve as the landing pages.

The second most important point is that studies suggest that between 40% and 55% of all search queries are three terms or longer. This indicates that people are starting to use the power of search to better target their requests . Hence keeping these factors in mind it is incumbent upon the site owner or agency to develop a comprehensive keyword list that fits their site and marketing objectives. These lists can be generated using any of the search term term sugestion tool like Wordtracker or Overture inventory search term tool. However, the Google has minimum CTR threshold that must be met for keyword listings. Pending that Google automatically penalizes for poor click through. So it has to be made sure that sure that the keyword selections meets that minimum requirement of click thorough.

Some general keyword selection & organizing tips are:

# Use specific keywords, rather than general ones.

# Avoid single-word keywords (or at least be suspicious of them, as they aren't usually very successful). Instead, start out with 2 or 3 word keyword phrases.

# Use keywords that precisely describe the products and/or services that you actually have to offer.

# Collect all keywords that are highly related to a particular product or service into a single Ad Group, and then show an ad about that exact product or service. Use the 2500 Ad Groups available to you in your account to your advantage - to advertise each product or service that you offer in a very targeted way.

# Avoid 'what if' keywords. An example of a 'what if' keyword: an advertiser selling greeting cards running on the keyword 'Christmas gifts'. Well the logic is, because cards normally go with gifts, 'what if' someone searching on 'gifts' might also need cards? Better to run on the keyword ‘Christmas cards’.

Thoroughly understand how each of the keyword matching options functions. Then make an informed decision, and don't hesitate to experiment. Full details on the matching options are available in the AdWords FAQ. If you are using broad or phrase matching, then use negative keywords to your advantage. Info on this is also in the FAQ.

Bidding Strategy
For arriving at a optimum bidding strategy the first important step is to calculate the value of every visitor on your site. This is necessary so that you are able to calculate the bid amount or the amount you are rationally willing to pay to get each customer.

The unique value of each visitor can be calculated in a three step process.

Step I
A) Conversion Rate: Figure out how many unique visitors you need, to close one sale.
Unique Visitors / Total Number of Sales = Conversion Rate
Example: If over the month of November, you calculate that your web site received 10,000 unique visitors, and you sold 200 footballs, your equation would look like this:
10,000 Unique Visitors / 200 Sales = 50 Unique Visitors Per Sale So in this case, your conversion rate would equal 50, which means that you typically close 1 sale for every 50 visitors to your site.

B) Net Profit Per Sale: Figure out how much profit you earn on a single sale.
Gross Revenue - Total Expenses / Total Number of Sales = Net Profit Per Sale
Example: If over the month of November, you sold 200 footballs for $100 each, your gross revenue would be $20,000 (200 X $100). And if you calculated your total expenses (production, packaging, shipping, admin etc...) for the month of November to be $15,000.
This means that:
$20,000 Gross Revenue - $15,000 Total Expenses / 200 Sales = $25 Net Profit Per Sale
In this example, your Net Profit Per Sale would be $25. This is "in your pocket, after expenses, you can bank it" profits.

C) Visitor Worth: Figure out how much a single visitor is worth to you.
Net Profit Per Sale / Conversion Rate = Visitor Worth
Example: This is the easy part. Just take the Net Profit Per Sale that we calculated in part b ($25) and divide it by the Conversion Rate that we calculated in part a. $25 Net Profit Per Sale / 50 Conversion Rate = $0.50
So in this example, each visitor to your web site is worth $0.50. (Not to be confused with the value of a customer, which is $25!) This means that you can afford to pay as much as $0.50 to attract one new visitor to your web site without losing money. However you would obviously want to pay less so that you can take home a profit as well. To better manage this math it should be done at a level of Adwords groups for some keywords can be more valuable than other in driving visitors to your site.
However as long as you know unique value of each visitor to your site, you can not go too haywire with your bidding. Now once this exercise is over,lets look to optimize the Adwords campaign by trying to find the best prices & best keywords to bid on.

Place strategic bids for cheap but popular keywords. Once you’ve done the preliminary homework, you’re ready to start combing through your list of keywords one by one, looking for those that are frequently searched by your target market, but that aren't highly competitive (i.e. expensive!).

A really useful tool at this stage in your research is, a free site that will take any keyword or phrase you type in and produce a comparison chart of the top bids in 9 of the PPC search engines including Overture, FindWhat, Sprinks, Bay9, and more.

Overture offers a similar Get Current Bid Tool, though it obviously doesn’t offer bidding comparisons for the other PPC search engines. (I guess we can forgive them… it’s their competition after all.)
Simply type your keyword into either of these tools, and you’ll be presented with a list of the top bids for that particular search term. For example, when I type "mortgage home loans" into the Overture Bid Tool, here’s the list (out of 40 total) I am presented with:

Oak Street - Home Mortgage Loans Online
(Advertiser's Max Bid: $8.50)

Home Mortgage Loan
(Advertiser's Max Bid: $8.49)

Home Mortgage Refinancing Loans
(Advertiser's Max Bid: $5.51)

Compare Home Mortgage Loans
(Advertiser's Max Bid: $5.50)

Homelink Mortgages - Wholesale Lender
(Advertiser's Max Bid: $5.01)

The mortgage industry is very competitive, so it shouldn't be too surprising that bids for visitors are heading up towards $8 per click. However, let me draw your attention to a couple of missed opportunities in bidding strategies that exist here.

Opportunity #1 - Save Money By Closing The Gaps!
First of all, remember that we're looking at bids in Overture ( for trends to bid at Google) but also cant overlook the fact that Overture is a giant of the PPC search engines, where ranking among the top three bids means that you also get exposure under your particular keyword or phrase in Yahoo!, AOL, Lycos, AltaVista, Netscape, Hotbot, and Cnet. So it obviously makes sense to try and rank among the top three listings in Overture whenever you can afford it .

However, do you notice a problem with #2 – They're bidding 2.98 USD more than necessary to keep their ranking in the top three! They could easily save themselves money by dropping their bid to $5.52! & still ranking at 2.

What's more, if #4 - can't afford to compete with the top 3 bidders, then they should drop their bid by a whopping 48 cents to $5.02. They'd keep their #4 ranking, but avoid wasting an unnecessary 48 cents per visitor!

When you're looking to place your bids, watch for gaps like these and take advantage of them! Never bid more than necessary... and monitor your bids once you've placed them to remove any gaps like these that may appear. You'll save yourself a lot of money in the long run - money that you can use to bid on more keywords to drive even more traffic to your site!

Opportunity #2 - Go For The Traffic Your Competitors Are Neglecting!
Grab the low-hanging fruit first. Why get sucked into an expensive bidding war for one common search term when you can bid pennies for multiple keywords and phrases to generate similar volumes of traffic for a lot less cost!

Just to give you a simple example, I searched the keyword " mortgage home loans " in Overture's Search Term Suggestion Tool and was provided with a list of approximately 100 related keywords that included " home mortgage loan rate," "second mortgage home loan," and "home loan mortgage company."

Then I did a traffic and bid comparison on the keywords I randomly selected from this list using information from both Overture's Search Term Suggestion Tool and Current Bid Tool, and here's what I discovered...
Keyword: Traffic #1
home mortgage loan 16,289 $8.51 $8.49 $5.51 $5.49
home loan mortgage company 5,328 $6.12 $5.00 $4.88 $4.87
second mortgage home loan 3,974 $7.01 $4.47 4.47 $4,47
home mortgage loan rate 6,258 $3.31 $3.30 $3.21 $2.52

Obviously, "home mortgage loan" is the phrase more frequently searched - that's why it's sooooo competitive at $8.51 per visitor for the #1 spot. However, who says you have to bid on the most frequently searched term when you can go after smaller traffic streams... like the bargain find "home mortgage loan rate" at just $3.32 cents per visitor for the #1 spot.. It attracts decent amount of searches & will get you the maximum exposure at half the price of the home mortgage loan searches..
Of course all this research can be carried over to Google for normally this kind of gaps exist there as well. To validate these at google one can compare the Bid prices that googles system automatically suggests for different terms. This will give youa fair amount of idea of the competitive positions at google.?The PPC search engines are one of the few low-risk paid advertising opportunities that allow you a LOT of control over your success. If you follow these few simple rules that I’ve laid out here, keep your bids lower than your maximum bid at all times, and choose keywords targeted to your market, it's actually quite easy to funnel targeted traffic into your web site.Plus, you can really give yourself an extra edge by looking for keywords that your competitors are neglecting and scooping up these untouched traffic streams, while taking advantage of bidding gaps.

In fact many businesses also use a software package like Bid Rank or GoToast to manage their listings. These software packages track your listings, and can adjust your bid if you drop in the rankings. Now of course you can use Googles Ad word tracking to monitor your conversions as well. Many companies also outsource the management of their PPC campaigns. Most SEOs now offer PPC management services. These options cost money, but they usually pay for themselves by running your campaigns more efficiently. Keep in mind that you don’t have to use a software package or a consultant to start your PPC campaign. But you do need to know what sort of cost per click you can afford. If you decide that $2.00 per click is your maximum bid, then stick with it. Don’t get into an emotional bidding war if you lose a top ranking. It’s much smarter to look for new and cheaper keywords. Remember any marketing campaigns’ final benchmark is a good ROI & at the end of the day. money in your pocket.

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