In September 2007 Google launched a new feature on its Adwords platform called Conversion Optimizer. This product was specifically intended to help advertisers manage their advertising spend on an increasingly complex maze of Google inventories. Google distributes its search engine and contextual advertising product (AdSense) to a very large number of partners. In fact, Google claims to reach 80% of all unique internet users globally. For most advertisers it is impossible to optimize their advertising campaign across different geographies, languages cultures and websites. The conversion optimizer throws a lifeline to advertisers that struggle to make sense of it all.
Up till now, advertisers didn’t seem to care too much about the return on their advertising dollars. Although PPC advertising has been touted as a truly ROI based channel, the reality is that (too) many advertisers and their agencies do not grasp the concept of performance based advertising. In the early days, the PPC industry was mainly shaped by affiliate marketers who understood the value of efficient marketing. But when the big corporate companies joined the online space they often distorted the auction based, ROI-driven model that the search engines were trying to promote. In the end the search engine probably didn’t care too much about this as the arrival of deep-pocketed, inefficient spenders generated even more revenue for them.
So why has Google been pushing its conversion optimizer so strongly in recent months? One reason could be that even Google realizes that it is not immune to an economic downturn. In these trying economic times, Google needs to demonstrate to cash-strapped advertisers that there is added value in its advertising platform. This is despite the fact that the conversion optimizer may well lower Google’s short-term revenue by reducing the inefficiencies in many PPC campaigns. In the long run however, the focus on the conversion optimizer might prevent a massive walkout of all the advertisers that are not seeing any value in search engine marketing. Both offline and online advertising rates are tumbling, the last thing a company like Google needs is for Paid Search to lose its cost-effective competitive edge.
So what does the conversion optimizer actually do?
Picture the following situation: An advertiser is bidding on the keyword ‘shoes’ (broad) in the US market. Google will display an advert next to a user in California who is searching for the query ‘cheap sandals’, yet at the same time the advert is eligible to be shown to a user in Washington searching for ‘luxury winter boots’. It needs no explanation that although the user intent in both cases is similar, the potential value of both users to the advertiser is vastly different. In the one case the product being searched is low value and low margin, whereas the luxury boots are probably sold at a premium price. Experienced marketers who have the resources to manage complex campaigns would tackle this issue by running multiple geo-targeted campaigns that avoid broadly matched keywords, but instead use as many exact matches as possible.
These exact matches would then be priced differently based on the expected return on the click.
Many advertisers, however, cannot afford this luxury of very hands-on PPC management, and should really consider giving the conversion optimizer a try.
The conversion optimizer differentiates each click based on additional information available to Google. This includes (but is not limited to) the location of the user, the exact query he or she typed in, and many other variables, such as the website the user is visiting when they click the advert.
This means that an advertiser can get away with bidding on a smaller number of more generic keywords, as Google will automatically try to adjust the bids at runtime to ensure that the campaign reaches a predetermined Cost-Per-Action (CPA) target. Google’s only prerequisite is that you have Google conversion tracking code installed on your website, and that your campaign has generated at least 30 conversions in the 30 days prior to switching the conversion optimizer on.
By any means, 30 conversions is a small sample, and it shows that Google has a lot of faith in the accuracy of its predictions. Yet at the same time, the quality of the output is dependent on the quality of the input. The conversion optimizer only performs well if you have structured your campaigns in such a way that all the groups and adverts have a similar conversion rate. If not, the variability within your campaign will be too great to accurately predict the correct price of a click, and you may well end up with a CPA which is way above target. Alternatively, you may find that the conversion optimizer is pricing so conservatively that it reduces your traffic to a trickle.
Usage of the conversion optimizer implies that an advertiser knows the optimal CPA target for his business. In reality it is surprising to discover how many companies – even successful ones – do not have an answer to this question. Is the optimal CPA the one that gives you the highest margin, the most revenue, or the most profit? This may seem a trivial question to some, but the answer will really depend on the current goals of your business. Looking closer, you will even realize that different parts of your business have different cost structures and should benefit from setting different CPA targets. So don’t just jump in and think that the conversion optimizer will magically know what is best for you. Do your homework first, and then tell it what to do.
It is right for me?
Simply put: having an automated conversion optimizer is in most cases better than not having any conversion optimization at all. Even if you decide not to use it in the end, you will benefit from having thought about the cost-efficiency of your PPC campaign. But the conversion optimizer seems to work really well for those advertisers who have fairly straightforward CPA targets and whose business is not subject to rapid (seasonal) change. You should not rely on the conversion optimizer to respond rapidly or appropriately if your business is very seasonal.
If for instance you are selling flowers online, the conversion optimizer will not be able to optimize for events such as Mother’s Day or Valentine’s Day and your business will suffer a massive opportunity cost.
Some advertisers might prefer not to use the conversion optimizer because it means surrendering too much control to Google. Experienced marketers are able to manage the complexity of Paid Search and fine tune campaigns to their business needs. In the current economic climate, one could argue that an automated tool that makes predictions based on historical data is only providing a false sense of security.
Finally, there is also the issue of privacy, which is a real concern for advertisers that see Google as a potential future rival or those that are simply concerned about the information Google gathers about their business. Google is in a unique position to assess the state of the (online) economy. It can monitor consumer demands through its search engine, spot new trends through its other properties such as YouTube and Gmail, and make inferences about the state of your company by looking at your advertising budgets and the resulting conversions. Some advertisers are uncomfortable providing any third party, even the non-evil Google, with such a close look into their private affairs.