Raiders Of The Lost ROI

by Zephrin Lasker

If Indiana Jones was an online marketer in our times, he would undoubtedly have been asked to embark on a quest for the medium that delivered the greatest return on investment.

The mission wouldn’t be an easy one. It would take him through the crumbling ruins of failed campaigns littered with the victims of ever falling click-through rates and increasingly expensive search keywords. Indy would find that when it comes to delivering returns, online advertising has largely failed to live up to its promise.

Take the poster child of online advertising– the banner ad. Over the last few years, click-through rates on banners have dropped from 0.50% to plumb the depths of the 0.05% – 0.10% range. Even if one factors in the so called “view-through” conversions, it is clear that this method is ridiculously cost inefficient.

It’s no wonder that so many advertisers find traditional banner-landing page campaigns to be wasteful.

Even publishers have suffered at the hands of the non-performing banner. A Pub-matic study published last month found that the prices paid for online ads bought through ad networks dropped 23 percent from March to April 2008.

These falling returns for both publishers and advertisers can help explain why a recent IBM research study found that two-thirds of senior marketers expect 20 percent of ad revenue to move away from impression-based sales, in favor of action-based models within three years.

It also helps explain why 2007 saw a paradigm shift for the industry, with spending on performance based pricing models exceed that on display (IAB PWC 2007 Internet Spending Report).

“So what’s the problem?”  Indy would have asked. “Surely advertisers can leverage these performance based models to increase their ROI?”

That’s what we all thought. By enabling advertisers to pay only for clicks and not impressions, search engine marketing would allow marketers to generate increased returns and make this economic downturn different from the last, banner-filled one.

Sadly, this has not happened. Sure, search engine marketing has been a definite step-up from online banner advertising in terms of increasing ROI, but the returns have not been nearly enough.

To put it simply, due to increased competition, search keywords have become very expensive. A 2007 Doubleclick Performics Search trends Report shows that there were nearly six times as many keywords with a cost per click (CPC) of more than $1 in January of 2007 than the prior year. The cost per keyword increased by 33% and the cost per click rose by as much as 55%.

And to really rub it in, a substantial portion of the clicks were the direct result of fraud. According to Click Forensics, the overall click fraud rate for the pay-per-click (PPC) industry was up 15% over 2006 levels.

With online banner advertising less responsive than the DMV on a bad day, and search engine marketing producing increasingly diminishing returns, what is the online marketer to do?

We should do what Indy would have done. Cut to the chase.

Marketers need quality leads to build responsive e-newsletter lists, member loyalty programs, direct-marketing efforts or for their sales force. This is why so many banner and search campaigns are deployed for the purpose of lead generation.

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2 Responses

  1. “Raiders Of The Lost ROI”. You definitely hit the nail on the head with this one. In the end it’s ALL about quality.

  2. couldn’t agree more. trasparency is super important to insuring quality.

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