Attending SMX West this week brought quite a number of enlightening experiences: opportunities to get feedback from customers, catching up with people in the industry, learning something new and building new connections. The ability to reach out and connect to people within the same industry is priceless -as it opens up new doors into sometimes, – surprising interests.
From the attendee perspective, my favorite session was “The Economics of Search” – where all presenters shared solid expertise and insights on how the search engines business is being progressing and what economic fundamentals apply to make search marketers (advertisers and publishers) more successful.
Michael Schwarz from Yahoo! Research shared his fundamentals – that he believes hold true:
A) in order to be successful as a search engine, there should be no tradeoffs between revenue and satisfying users and advertisers
B) in order to be successful as an advertiser, one should be able to discriminate well between the values of search and display ads:
- Search is for direct revenue and display ads for branding
- Search is about current intent and display is about demographics
- Search is spot market, display contracts
- Search is more mature and available for small advertisers as rates start from 5 cents, display is older and very expensive, but holds opportunities when technology will make it more cost effective and audience effective (better targeting)
Hal Varian, Chief Economist from Google shared his advice on estimating the value of the click from the marginal cost perspective in order to make economic sense in the bidding race. An advertiser’s profit directly depends on the value of the click, its number and cost. At the same time, what matters most is the marginal cost for every additional click you buy. If you do a simple formula that distributes those values, you will be able to actually see what makes sense -since all three variables will be depicted “in action”. Also, on average, incremental cost per click (ICC) is always at least 15-20 % higher than a CPC (cost per click) – thus it makes a difference to pay attention to it to win the bidding game.
Peter Coles, Assistant Professor at Harvard Business School revealed his predictions on mobile search growth – even with 1 search per mobile device per month in 2010 means you could generate $2.3 billion in mobile search revenue worldwide. 10 monthly searches means mobile search will be greater than PC search.
Thinking of search marketing in the above mentioned terms – from the economics standpoint – makes it so exciting! See more excitement on the similar impressions at SEOmoz blog.