Advertising Word by Word

Bidding on search words and phrases to earn a high page rank for your company's online ads is a confusing mix of art and science. We take a look at how one smallbusiness owner makes the most of his advertising dollars.

The Internet has turned traditional advertising on its ear, as successful e-tailers like Daniel Thralow, CEO of Thralow Inc., learned very quickly. With traditional advertising, you could never be sure if anyone saw or paid attention to your message. But services like Google AdWords, upon which small business owners, including Thralow, have built their businesses, target your message to qualified prospects and tell you exactly how well it's received.

"One of the biggest problems I had [before the Internet] was measuring my marketing return," Thralow says. "I would buy newspaper, radio and TV ads — even billboards. Sales might go up maybe five or 10 percent, but I didn't know why. Because I was a better sales person, because I had more inventory? Or was it because the ads were working? It always frustrated me not to know for sure if I should keep spending the tens of thousands I was spending on advertising."

He now spends well over $2 million on advertising and has no such qualms about its effectiveness.

When Dinosaurs Roamed the Internet
In 1994 when Thralow first began reading and getting excited about the potential of Internet retailing, he was selling sunglasses from a small chain of brick-and-mortar shops in northern Minnesota. He opened his first Web store, Sunglasses.com, in 1997. It was a qualified success. Because sunglasses are a fashion item and people like to try them on before they buy, the return rate was a profit-gobbling 10 percent. So he looked for something else that would "fit better with the Web and dovetail with what we were already doing."

His first pure Internet venture, launched in 2001, was Binoculars.com, which today grosses over $10 million a year. Telescopes.com launched in 2002 and generates revenues of about $8 million. He still has Sunglasses.com, and it's profitable but relatively small. One of the retail outlets remains. Basically a local showroom for what he sells online, it accounts for less than one half of one percent of sales. This year Thralow Inc., which employs 30 people, expects to post about $21 million in sales.

It's a long way from the debt-ridden brick-and-mortar business he was operating back in 1996.

He attributes much of that success to the effectiveness — and measurability — of Internet advertising, specifically search-engine advertising. AdWords, as with other such services, displays your ad and a link to your site on the search page whenever anyone performs a search that includes keywords or phrases for which you have agreed to pay. You pay the agreed fee each time anyone actually clicks on your ad.

I'd Like to buy a Vowel
Google and other such companies auction keywords because multiple vendors may want to use the same ones. Individual words and phrases draw bids ranging from a few cents to over $20. The company allows a limited number of ads per search and your position in the list of ads on a page is determined by how much you bid — highest bidders get the best position.

Thralow knows exactly what his return is on the investment in AdWords because he uses cookies to track where his customers go on the site after arriving from a Google search page. Even if they don't buy on that first visit, but come back 45 days later and complete a purchase, he knows that they came to the site originally by clicking on a Google ad. It means he can track the success rate — not just of AdWords in general but of individual keywords.

With Google AdWords, he knows that every dollar he spends returns on average $3 — of profit. Compare that to the 60 cents profit-per-dollar-spent he received for magazine advertising. Buying keywords at shopping search sites such as PriceGrabber.com and DealTime delivers an even better return, but not anywhere near as much traffic.

Google, largely because of the enormous traffic it generates, is the single biggest item in Thralow's advertising budget — about $750,000 this year, representing 35 percent of his total ad budget. It's a tribute to the importance of Google, but it makes Thralow a little uneasy. "To me that's a big egg in a single basket," he says. "You never want to be too dependent on any one form of marketing, anymore than you want to be too dependent on any one customer."

Thralow also spends a significant chunk on Yahoo Search Marketing and other search engine advertising services, as well as pay-per-click ads elsewhere on the Web, sponsorship of related sites such as Birderblog.com and Amazon-like affiliate programs that pay a commission to other sites that sell Thralow products.

All Words are Not Created Equal
Thralow currently pays for thousands of search words and phrases, and the number is growing all the time. Two employees spend much of their time researching words that might bring customers to the company's sites, selecting new words and tracking their effectiveness. Much of the research involves mining data about how customers use the search function at the Thralow sites to look for products once they get there. There are also software tools available that help businesses select keywords.

Thralow learned early on to choose fairly specific words and phrases. For example, rather than bidding for the word 'Canon' — Canon being one of the best-selling brands of binoculars — he'll buy 'Canon binoculars' or even 'Canon 10X30 Image Stabilized.' "If you used just Canon," he points out, "you would also get camera buyers."

As long as a word or phrase at least breaks even, he'll keep it, on the assumption that many of the customers who come to the site via that word will return in the future and spend more.

It's not just that you can track the effectiveness of your marketing and advertising on the Internet, Thralow points out. You can also experiment with and test marketing initiatives and find out very quickly and cost effectively whether they'll work or not. "If it's working you keep doing it, if it's not, you stop and cut your losses," he says. "You can run a campaign in half an hour and know within a day if it's working or not."

His company will try almost any Internet marketing ploy — or keyword — once, he says, however silly it may seem. One of the things he has learned about search engine advertising and Internet advertising in general is that you must test before making any long-term or high-cost commitment, and you must have a budget for the test commensurate with the potential return.

The beauty of Internet advertising is that you can test quickly and precisely and twithout much risk. "As long as it fits the budget — as long as it can't put us out of business — and as long as it's measurable, we'll test anything," Thralow says. "If it works after we test, have at it! If it doesn't, well, we know we don't need to do that one again."

Bidder, Bidder, Bidder
He and his people have also learned some tactics around bidding for AdWords. For example, if one competitor buys the same keyword at $1.99 and another at $1.10, Thralow may see a better return on investment by bidding $1.11 to ensure second ranking rather than outbidding the top bidder. The company has even worked out some equations for calculating ROI at given bids. "We call it surfing the gaps," he says. "Sometimes there are big gaps in [bid] position." Some search engine ad services let bidders see what others are bidding. With others, like Google, Thralow has to deduce it by test bidding.

The company spends big bucks on Google AdWords but Thralow has reservations about the service — besides just the fact that he has so much of his ad budget committed to one supplier. He's not convinced that Google has the best mechanisms in place for detecting fraud, or that it spends enough resources on tracking fraud. On the other hand, as long as the ROI on AdWords remains high, it isn't a serious enough objection to keep him away, he concedes.

He's also annoyed about a Google rule that precludes him bidding twice on a single keyword so that he can have two ads on the same search page, one sending people to his main Telescopes.com page, for example, and another sending them to a niche marketing page such as Telescopes4Kids.com. Google wants to stop porn and gambling sites from buying up keywords so that no other ads appear on search pages. "I think they threw the baby out with the bath water," Thralow says.

However, he admits he'd be interested in any new advertising opportunity Google might offer in the future — including a rumored new classified ad offering. "We're always interested in anything they bring out," Thralow says.

Based in London, Canada, Gerry Blackwell has been writing about information technology and telecommunications for a variety of print and online publications since the 1980s. Just for fun, he also authors features and columns on digital photography for Here's How, a spiffy new Canadian consumer technology magazine.

This article originally appeared on SmallBusinessComputing.com.

Do you have a comment or question about this article or other small business topics in general? Speak out in the SmallBusinessComputing.com Forums. Join the discussion today!

Comment and Contribute
* Required Field
Your email address will not be published


Note: No advertising, no spam, no keyword in name/nickname field. Thank you!

Free Resources

  • eBook
    Easing the Burden of Healthcare Compliance Between contractors and employees, there is a great deal of risk surrounding the privacy and security of sensitive data in the healthcare industry....
  • eBook
    Case Study: NetApp A global data storage provider whose business is booming needed a best-in-class data center to serve as the backbone of its technical operations...

Subscribe To Our Daily Newsletter