Know your audience before you embrace PPC ads

If you promote a Web site, there’s a good chance you’ve come across the term PPC – Pay Per Click. It’s a simple concept – place an ad into a search-engine results page, and if anyone clicks on the ad you pay the search-engine company anywhere from 5 cents to several dollars.
This can be a good way to bring visitors to your Web site. It can also be a really bad way to bring visitors to your Web site.
Billions of dollars are spent on “clicks” each year, not just on the two big PPC systems – Google’s AdWords and Yahoo!’s Precision Match – but on many small PPC networks, on shopping directories (such as Yahoo! Shopping, Shopping.com, and BizRate), and on Yahoo!’s new Site Match and Site Match Xchange paid-inclusion and trusted-feed systems.
The PPC business reminds me of the boom in banner ads in the late 1990s. Banner ads were grossly overpriced, but people were willing to pay for two reasons. First, there was an assumption that “if all these companies are spending so much money on banner ads, it must be working.” And second, there was what seemed to be a limitless supply of new clients who basically didn’t know any better. What didn’t they know? They didn’t know that they were probably going to lose money.
I’ll bet most banner advertisers of the 1990s lost money. The entire business was based on the “another sucker will be along any minute” principle. Banner-ad companies were selling ads at completely ridiculous, inflated prices, but to hear the salespeople talk you’d think that banner ads were a marketing panacea, that finally an advertising medium had come along that always worked. Almost the opposite was true, it usually didn’t.
I’ll admit that even I got fooled once, in relation to X10. This company, perhaps you’ll recall, bought millions of ads all over the Web, in particular pop-up ads selling small “spy” cameras. (The ad always had a picture of an attractive woman, the clear yet unstated implication of the ad being that the product could be used for spying on, ahem, private activities.) In fact X10 claimed to be the world’s largest online advertiser.
“There’s an example,” I thought, “of a banner-ad campaign that must be working. Nobody’s going to keep buying so many ads, for so long, if it’s not working.”
Wrong. The people at X10 would. I have to assume that the X10 ad campaign was not working, based on two facts: first, X10 filed for bankruptcy about a year ago; and second, although they’re still in business, the banner ads stopped. You have to cut costs, but if an ad campaign actually brings in business you don’t cut that.
It’s true the bankruptcy was precipitated by a $4.3 million patent-suit judgment against X10 (in a dispute with the company that originally helped them deliver these ads). But X10’s financial statement made clear that the debt, even before the judgment, greatly exceeded their assets.
X10 wasn’t the only one. Food.com is a famous example of a company that blew money on advertising, apparently $50M before they realized it wasn’t working and ran out of money. Remarkably a bunch of investors threw in more money to keep them going … for a while (eventually the domain name was sold off to the Food Network, probably for fifty bucks and a can of Spam.)
My point, which I really am getting to, is that we’re seeing the same thing going on today, though perhaps not to the same crazy degree. Lots of people spending lots of money on PPC … and many of them losing money. I know this because my clients tell me so. Most clients I work with who have used PPC tell me that they lost money doing so. Some continued to use it, even when they realized they were losing money, based on the idea that “we have to bring in clients somehow.”
In one case a company I worked with last year was spending tens of thousands of dollars on PPC each month, yet getting very little business out of it.
However, there’s a flip side. I’ve also worked with companies doing very well using PPC advertising, including a 30-employee firm that likely wouldn’t be in business without it, and a one-man business that is bringing in new, long-term clients very affordably.
Can PPC work for your business? Maybe. To a great degree it depends on the price of your product. If the “life-time value” of a new customer is $15, there’s a good chance PPC won’t work for you. If it’s several thousand, there’s quite likely a way you can get it to work. But whatever you do, don’t assume that just because “everyone’s doing it” it has to work!

Peter Kent is a Lakewood-based consultant who specializes in computer and information technology. He can be reached at PKent@TopFloor.com or (303) 989-1869.