Saturday, May 9, 2009

Why would Google and Yahoo offer free online advertising?

Here are the reasons:
  1. They want you to try their services so are prepared to give you an inducement to give it a go.
  2. Advertising revenue is falling worldwide so they are keen to bolster their revenues from new users.
  3. They believe once you have tried the service you will see the value; while it has some short term pain for them they are hoping it has a long term return.
  4. There is very little real cost.
Let's dwell on point 4 in more detail. 

What is the cost of running these campaigns?

Let's look at Google first. So you get a special advertising code that you enter into the Google Adwords site and hey presto you don't have to pay for the first $75 of Adwords ads you place. Google give up $75 and off you go happy. Not quite. 

What are they really giving up for $75? The chance to bill you for the equivalent of $75 of ads you place through Google Adwords. They don't even pay for the ads. But they may well recoup this from others as by your advertising you have increased competition for the keywords you bid on. (Remember they effectively run an auction system where the highest bidder wins). Effectively all they have done is make it nearly $75 more expensive for existing advertisers on those keywords - particularly if you choose high bids because you are inexperienced and want to immediately appear on page 1 for some obvious keywords.

There was an interesting article in the Australian which discusses this concept in more detail.

$75 doesn't last long on Adwords particularly if you could be a serious advertiser.

In the case of Yahoo there seem to be some real costs involved as the process is not automated. The cost of supporting a separate lead gathering process, a phone call to the new advertiser, time and effort on the part of a 3rd party who will construct a campaign. Someone is paying these bills. 

On top of this the apparent value is higher ($150) meaning the campaign may indeed take longer so the costs are likely incurred over more than one month. 

Of course in both offers the real value is determined by unit prices you pay for clicks. If the "cost" of an ad on Yahoo is twice as high as Google for the same work then the actual value will be the same despite the apparent $75/$150 difference. 

PS. I've taken the first step and signed up for the Yahoo Search Marketing deal. It turns out that the company doing all the work is Advantate a joint venture between Melbourne IT and Fairfax Digital that focuses on search engine optimisation and search engine marketing (including both Yahoo and Google). As part of their deal you get a monthly/3 monthly report (it wasn't clear) but you don't seem to get direct access to the Yahoo search marketing interface.

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