In case you had any doubt that purchasing keyword search terms is a constant practice among Internet retailers, take a gander at this fact: in the last quarter of 2004, Google, the powerhouse seller of keyword search terms, topped $1 billion in ad revenue - the first time it had broken the $1 billion mark in a single quarter.

And Google is just part of the pie, with Yahoo and MSN, as well as a bevy of smaller engines also selling keyword search terms. According to Merrill Lynch, the total market for keyword search in 2004 was $3.8 billion, or more than 40 percent of the total $8.7 billion Internet ad budget.

The increasing revenue of these keyword sellers demonstrates a key fact: many online merchants see paid search as a critical sales driver. In other words, if you want to grow your customer base, you've got to buy keyword terms on search engines.

Yet the question remains: what is the best way to do this? In Part One of this series E-Commerce Guide detailed the leading strategies used by many merchants. In this part, we talk with Fredrick Marckini, the CEO of iProspect, an industry expert who advises myriad e-tailers about paid search techniques. Also contributing advice is Ben Perry, iProspect's manager of paid search programs.

Helping Small Fry

Although many of Marckini's clients are deep-pocketed, he recently took on a very special customer: his father. Marckini Sr. is an e-commerce newbie, and his site, Boston Environmental is a relative newcomer to the Net. The paid search strategy Marckini recommended to his father is typical of how he might advise an SMB e-tailer.

To get started, Marckini first asked his father for a list of keywords, then he expanded the list. The finished list totals some 20-30 phrases - not single keywords. (Some 8 of these terms got no clicks at all.)

"We put him into Google AdWords because it has a regional capability," Marckini says.

This geo-targeting capability enables merchants to restrict their ads to display in select areas of the country, in this case, only Massachusetts. Geo-targeting allows the keyword buy to cost much less but still be effective.

The strategy worked.

"My dad has all these ads running in the Yellow Pages, and last year at this time his business was dead, and here he is, with the phone ringing off the hook from [paid] search," says Marckini.

Remarkably, the budget for this keyword buy was minimal, about $100 a month over the first two months.

Part of his father's success, Marckini notes, is that many search engine users do not distinguish between paid and free search. They call Boston Environmental and say, "you were first in the search results," apparently unaware that the company paid to be listed on top of the page.

Cross Media

Marckini suggested a media-savvy technique to his dad.

"Any time he's talking to the media, he can think about words that are causing his phone to ring, and put those into his interviews so they get into the articles and result in more searches," he says.

The point is for merchants to use consistent language across all their marketing efforts, from e-mail newsletters to print advertising.

This multiplies the effectiveness of their keyword buy, Marckini notes.

"Your marketing has to acknowledge that people search, and you have to recognize that the keywords that are successful in search have to be integrated into all of your other marketing activities," he says.

Marckini sees it all too often: a company's PR department puts out a press release that introduces a new product, with a set of catch phrases built around that launch, but no one tells the search group. "The biggest waste in search engine marketing these days is the lack of integration in the broader marketing mix."

The "Ah Ha" Moments

Even as Boston Environmental succeeded with its new paid search campaign, it learned a shocking fact: the keyword that is driving search does not appear on its web site.

"You're not going to get a ranking on natural [unpaid] search if you don't have content around a keyword," Marckini notes.

Companies often ask Marckini to evaluate their search marketing prospects.

"There are two questions that always trip them up. I say to them, 'What's your most important keyword?' They tell me, and I [search their site] and the word doesn't appear in their site," says Marckini.

That's the first "ah-ah" moment, yet there's another one. Marckini then brings up the Overture Keyword Selector tool and enters in that merchant's favored word. Often, "no one searched for that word - so they want to get a high ranking for a word that no one is looking for."

Moral of the story: always make sure that there is indeed interest in the keyword phrase you're buying.

On the other hand, he notes, "When you can, own a unique word. If you can, name your products after words that are easy to spell and don't have English language equivalents."

Therefore, there will be a small body of documents - probably leading only to your site - if someone searches for them.

Bid Management

Getting the most from a search budget requires constant measuring of that campaign's results.

"A lot of people aren't doing that or aren't doing that well enough," says Ben Perry, iProspect's manager of paid search.

Paid search is unique in the world of advertising in that buyers bid on terms, unlike in radio or TV advertising, where ads prices are (mostly) set.

"There are efficiencies that can be wrung out of the auction process that most people don't take advantage of," Perry says. "Research shows that about two thirds of people are using unsophisticated strategies to manage their bidding."

A sophisticated bidding strategy, Perry explains, uses a formula for computing return on investment to determine bid level. That formula can be called "Return on Ad Spend," which is the amount of revenue divided by the cost that it took to create that revenue.

Simply put, a merchant computes, based on their conversion rate, the maximum amount they can spend on paid search, per click, and still make a profit. And once maximum bid level is reached - based on the formula - the bid should go no higher. Of course a merchant's conversion rate is key here, he notes.

"If your conversion rate is twice that of your competitor's, you'll be able to bid twice as high as them and be equally as profitable," says Perry.

Some merchants bid so high "that there's no number of conversions that could justify that - they'd be better to buy their own product," Perry says.

Indeed, a surprisingly common mistake many merchants make is "bidding with their heart instead of their head," Marckini says. This happens when keyword buyers decide they have to be top-ranked on a given term, even when it's not making money for them.

Some merchants do this for branding purposes, and this can make sense, Perry says. He's aware of a company that spends lavishly on a given term, just to keep their competitor away from it.

"It's not an ROI issue, it's a brand issue," he notes, "and that's a fine reason - if your company has the money to spend on it, that's fine."

However, aside from that one exception, "Letting your ego dictate your bids is usually a bad idea for people," adds Perry.

Bidding Tools

Many merchants use software tools to help them manage their bids. At the most basic level, a merchant can set up an Excel spreadsheet that lists all their search terms, with amounts paid for each over time, and the corresponding profit and loss.

At a higher level, many vendors sell software tools that aid keyword bid management by allowing merchant to plug in all their own variables. For example, Avenue A offers one called GoToast. Overture offers a tool exclusively for use on Overture.

(Continued...)