Search marketing: Search wars get serious

Concern over its power has been brewing for some time (Revolution, May
2005, p53) and Google's announcement in October that it was dropping
agency commissions from the start of 2006 demonstrated the extent of its
influence while doing little to improve its standing in the search
marketing community.

The simple fact is that advertisers cannot ignore Google. Implementing a
search marketing strategy that doesn't include Google's AdWords
programme means excluding a big potential audience as, according to
Hitwise, more than half of all UK web searches are via through Google.
It can afford to drop agency commissions because it knows agencies,
which manage a huge chunk of UK search marketing spend, will still have
to spend money with it, regardless.

Of course, advertisers do have other options: Yahoo!, with its soon to
be renamed Overture division, is formidable, while smaller networks such
as Miva and Mirago offer a good ROI on paid-search campaigns. However,
Microsoft's entrance is being seen as a turning point in terms of
stirring up competition and giving advertisers a wider choice; ironic,
given Microsoft's track record regarding monopolies.

"Advertisers are looking for an alternative to the existing players.
That always happens when you get a dominant player," says Matt
Whittingham, head of information services at MSN UK. "But they are also
looking for a better quality service and for smarter ways of managing
search campaigns."

Many in the industry believe both Microsoft and Yahoo! have a real
opportunity to take on Google this year, and quality of service is one
area in which they could make headway. "The loss of commission will have
search agencies looking to alternative networks," predicts Tino Nombro,
managing director at search agency Ambergreen. Overture and Miva still
offer agency commissions, making them more attractive to search
agencies. MSN has not made an official announcement on whether it will
offer commission, but it is widely expected to.

"A large market share is held by the intermediaries in Europe and if you
can get a great quality service and, I'm not going to beat around the
bush, great commission, from Microsoft, Miva and Overture, you are going
to want to spend money with them," says Daniel Mohacek, sales director,
customised services, at agency The Search Works.

"Budgets are going up, the number of searches is going up, and our job
is getting harder, particularly with the addition of a new engine. So,
from our perspective, quality of account management is going to be
crucial."

Miva and Overture have both built up good reputations for providing a
quality service, but Google has faced criticism that its service is not
up to scratch. Google's vertical markets director, Jeff Levick, says: "I
don't agree necessarily that there is an issue with service. In any
industry you can always do more. I can't speak for the sector, but I can
speak for Google and service is a priority for us. We have a huge
emphasis on hiring, so much so that we've moved to a bigger office just
to accommodate that, and the reason for the hiring is to focus on
servicing our customers."

Mohacek adds: "I think all engines are going to be working harder on
improving customer service. It's going to be one of the key pushes in
2006; certainly for MSN and Yahoo! in trying to get one step ahead of
Google."

Staffing up

MSN has a good reputation for service on the display side, which it will
be looking to replicate when it launches adCenter. Last year it doubled
its UK sales and support team and expects to do the same again when
adCenter launches. "We will be staffing up to make sure we offer a
quality service that matches what we offer on the display side. We're
committed to providing the best possible service to clients and making
sure they can always get hold of people," says MSN's UK search business
manager, David Graham.

Martin Child, UK managing director of Overture, which is rebranding as
Yahoo! Search Marketing, says quality service has always been a key
focus. However, he adds: "As the market becomes more competitive with
MSN's entrance, I do think (service) will become more important." Yahoo!
is also creating a new interface for its paid-search service, scheduled
for launch this year, which has been designed to be easier to use.

In terms of product, there isn't a huge difference between the current
players. Hannah Evershed, director of paid search at digital media
agency Diffiniti, points out: "It seems that, with every new launch, the
alternate engines seem to be ready to match those launches and attempt
to better them."

But, Microsoft is taking a different approach and using personal data
from its Hotmail and Messenger services to enable advertisers to target
users by demographic. For instance, a female-only car insurer would be
able to target paid-search links at women of a certain age group who
live in a particular region. "I think it's one of the biggest
differences that we have seen in a long time," says Mohacek.

While this may increase complexity, Mohacek thinks it could offer much
better conversion rates. The MSN audience tends to convert well already,
he says: "With our BidBuddy system, we can track which users coming
through the Overture network are from MSN, and you tend to find they
have good amounts of disposable income and are inclined to buy
online."

If MSN can convert more traffic, this could be another way of taking on
Google and wooing more advertisers, because, ultimately, it is all about
conversion. That said, reach and distribution are also vital, and this
is where Google wins hands down. Not only does it attract a large number
of searches to its own site, but it also provides paid links to a number
of distribution partners, most significantly Ask Jeeves and AOL.

Yahoo!, meanwhile, will see its reach drop when its current contract
with MSN ends, although it still has significant distribution deals
through partners such as Wanadoo and, of course, its own Yahoo! Search
product.

But, you can be sure that Microsoft will go after distribution partners
aggressively, particularly after losing out to Google in the battle over
AOL (see box). MSN's Graham points out that the company has already won
several small distribution deals for its web search product, most
notably to provide search capabilities to Times Online late last year.
"Distribution deals are certainly an area that we'll be looking at, as
well as trying to drive the number of search queries to MSN directly and
grow our market share," he says.

Google may have AOL sewn up as a partner in the long-term, but there are
plenty of other partners up for grabs.

Tony Macklin, VP of European product management at Ask Jeeves, says that
while he is happy with its paid-search agreement with Google, he
welcomes a more competitive marketplace from a partner perspective. "We
are certainly keeping watch on the market and, as the contract with
Google comes up for renewal, we will look carefully at both MSN and
Yahoo!, and I'm sure we will have discussions with all the key players,"
he says.

There's always the chance that Ask Jeeves will launch its own
paid-search service, enabling it to keep all its paid-search revenue
rather than having to share a cut with Google, which is a competitor. In
the US, Ask Jeeves has already launched its own paid-search product,
which runs alongside the Google paid links. Macklin says there are no
immediate plans to extend this to the UK, though it is expected at some
point.

Partner issues

Seb Bishop, chief marketing officer at Miva, predicts that Ask Jeeves
won't be the only company reassessing its paid-search partner. He says
other sites, particularly newspaper publishers, which are seeing
traditional revenues fall, will consider launching their own service or
partnering an independent. "Would The Sun ever allow The Mirror to sell
its ad space? Of course it wouldn't", he says, referring to the fact
that Google owns a stake in AOL, and Yahoo! and MSN are big content
providers, meaning they're effectively competing with their own
partners.

"We did some research in the US, where marketers were asked where they
would spend less in 2006, and 30 to 40 per cent said they would spend
less on print," says Bishop. He argues that this means magazines and
newspapers are not only losing revenue to online media owners like
Google and Yahoo!, but are also helping to make even more money for them
by partnering them for paid search.

One option is for them to launch their own service, which, as Google's
Levick says, would be costly as it involves building their own network
of paid advertisers, not to mention developing the technology. "I don't
think most newspaper publishers think of us as a competitor. I think a
lot of them are really happy that they can work with Google and
overnight have an instant revenue stream, without having to increase
their head count."

Another option is to go white-label, enabling media owners to launch
their own-branded paid-search service, but using a partner's
infrastructure. It has always been a delicate balance for paid-search
networks between pleasing users, advertisers and distribution
partners.

Bishop says that Miva's number one focus is partners, but believes
Google, in comparison, puts users first. It will be interesting to see
where MSN's priorities lie. "It's a catch-22 for MSN. It needs the
audience to win the advertisers to drive its systems forward," says Andy
Atkins-Kruger, president of the UK Search Marketing Association.

Advertising is, after all, about the audience. Google first lured its
audience with simple, fast and effective search technology. For many
users, Google has now become a habit, regardless of whether it actually
provides the best search results. That said, the company has made some
exciting developments over the past few months, including Google Earth,
which keep users coming back. This year, search technology developments
are going to be more about personalisation and localisation, and the
battle for audience share is guaranteed to step up a gear.

"What we've seen so far are but a few mild skirmishes and it's going to
get bloody," predicts Atkins-Kruger. This can only be good news for
advertisers as clients always benefit most from a competitive
market.

- See Leader, p25

MICROSOFT VS GOOGLE: THE BATTLE FOR AOL

Microsoft is keen to boost its share of the search market quickly.

As well as trying to attract users to its search engine, it is looking
into distribution deals with other web sites.

Google currently provides paid search to AOL and Ask Jeeves, the two
biggest search services without their own paid-for offer.

Last summer, news emerged that several firms, notably Google, Microsoft
and Yahoo!, were bidding for a stake in AOL. Yahoo! reportedly pulled
out, leaving Google and Microsoft in a head-to-head battle. The winner
would be able to provide paid-search results to users that search via
AOL.

Microsoft was reportedly interested in luring AOL into its camp to boost
the new MSN adCenter network, which it's rolling out. AOL's traffic is
still substantial, so distributing MSN adCenter ads on AOL sites would
be attractive to advertisers.

In the end, AOL decided to stick with Google and sealed a deal in
December. The search giant agreed to pay $1 billion (£566
million) for a five per cent stake in AOL; a pretty expensive way of
keeping a distribution partner, according to some observers.

This means Google will continue to supply paid search links to AOL's
audience, leaving Microsoft to scout the market for other potential
partners.