X on Marketing

• In a down economy, the more direct forms of advertising are the last to get cut
• Only outsource if you fully understand the nuances of SEM
• SEM technology is more advanced than just Google keywords
• SEM companies are focused on SEM. You are not

Outsourcing your search engine marketing is how you will blow through your numbers and cut your expenses. SEM will be what saves you and why we all still have jobs in three years. SEM, the bane of the advertising business, the glorified version of classified ads, the medium that has removed creativity from advertising and replaced it with this –

– is going to keep you and your department employed.

It is your life-raft in an economy that wants to chew you up and spit you out. Why? Because SEM is precision-driven ROI: Money goes in, money comes out. In a down economy, the more direct forms of advertising are the last to get cut.

If you believe differently, imagine a world where all we have are banners, rich media, microsites, social media, and mobile. This would greatly decrease the perception that our medium is useful for business. SEM is what gives the entire internet advertising industry credibility. Every other online ad format is along for the ride.

First of all, stop patting yourself on the back with how great your SEM program is. By the time a consumer types in a keyword, they’ve already decided what they’re looking for. They see a television commercial, a print ad, billboard, and coffee sleeve, all with your company logo, then go online and type something into Google to find it. Was SEM the root cause of the conversion? Of course not, but you are sure going to take credit for it.

Let that sink in. You’re just not as good as you think you are, and more importantly, the rest of the formats online are just not as effective as we need. SEM is what gives most companies the freedom to experiment with other media online.

SEM is important to the entire online ad industry, and staffing — how you staff, what staff you have, and what their key competencies are — is the key determiner for outsourcing. If are not already outsourcing your SEM program, then you may believe:

• You don’t need to because you know your business better than everyone else (a routinely false assumption)
• You are really behind the curve (sadly common)
• Outsourcing would cut the power base of whoever is in charge of SEM at your company (strangely common)

There are several reasons why should almost always outsource SEM or “insource” the technology for it.

When should you outsource?
Outsourcing is a business decision about the relative benefits of outsourcing versus in-house. It’s not a black-and-white issue, but exists in that wonderful grey land of “It depends.” Whatever the case, you should never outsource anything you do not fully understand, particularly when it is a significant part of your expenses. If you do, you will never understand how to manage the outsource relationship. Outsourcing is not a replacement for intelligence. You are the scientist, the creator, the lab genius. Outsourcing is the staff you have to do your research, and it’s funded by the research itself. If you are in charge of SEM without truly understanding it, then you better hire someone with a visceral knowledge and you better be able to understand and learn from them. They are not a replacement for you — otherwise you’re just outsourcing to someone internal rather than external.

“It depends”
The type of outsourcing you engage in also depends on what type of company you are.

Large clients who spend millions of dollars a month across multiple domains often completely outsource some verticals. In other cases they lease technology and occasionally use services a-la-carte. They are smart enough to know when it makes sense to outsource. Even their fully outsourced business units are sufficiently staffed to communicate heavily with the outsourced team. They take advantage of the synergies among media types, the benefits of landing page testing, and the general-offer testing that results in higher conversions.

Outsourcing is intrinsically tied to staffing. Case in point: A travel-related website was dramatically increasing its paid search spend to drive inquiries to its advertisers. They had very focused needs and had been testing a system that had the same spend, but were seeing nothing particularly special in results. They were habitual tinkerers and thought they could improve the paid/natural inquiries.  
 
They were introduced to Marin Software, a do-it-yourself version where your in-house people use the platform. But Marin also brought relationships and expertise that smoothed the road into the usual search suspects.

Coincidently, the travel company experienced a cash flow problem and cut its budget pretty deeply for a while. As a necessity, the company started looking closer at the traffic it had and discovered that it could radically increase natural search functions with better optimization. As a result, they are spinning up the paid search campaign again, and with more attention to detail and talented technologists the company will get 100 percent of the traffic it needs for the model to work, at 25 percent of the cost. However, that comes at the expense of staffing internally.

Importing technology into an enterprise and having the staff to utilize it is “in-sourcing.” You get to control the technology more discretely and make more rapid changes, but at a cost — internal employees. This is still infinitely better than trying to build a system from scratch.

To accurately predict your savings, your SEM cost should always calculate the additional internal resources to run that technology. Unfortunately, most companies view employee costs as a “soft cost” that is not calculated into this figure. When you outsource something critical, you may find that the 10 to 15 percent (approximate outsource fees) actually costs more than you ever thought. Before you outsource, hire a consultant to guide you in this effort. It will likely be the best money you ever spend.

Why don’t you build your own system?
Companies that specialize in SEM spend money — a lot of money — on technology that they can distribute over a wide variety of clients. Unless you are an eBay or an Amazon, both of which have a slew of technologists with a fundamental understanding of online, it’s a fools’ errand.

Companies build so little of their other key software (ERP, CRM, accounting, ecommerce, etc.) and instead customize the data flow in and out of these applications. Why they think APIs into the search engines require that they build the whole campaign management suite is beyond me. Most likely you’ll have what you need for one millisecond, and then your technology will slowly fade into techno-archaic land. Or worse, you create a system that requires so much ongoing upkeep and modification that detaching it from your internal process becomes next to impossible. I’ve yet to see an in-house technology solution that comes close to even the least effective, slowest, and least exciting competition.

Often it happens because someone runs a test with a limited number of keywords and generates a profit. The mistake they make is then scaling that test based on estimates of what they could make if they built their system internally.

I have watched countless agencies and clients go down the same road. Internal arrogance makes them say, “No one knows our business like us!” That statement is true, but often it turns into a land grabbing war. SEM is so profitable, with such minimal effort compared to other marketing programs, that the person handling SEM gets lionized. Even a highly trained monkey can make a select group of keywords profitable, but it’s not about that. It’s about scalability and going from a handful of keywords to thousands.

Why should I outsource?
Strong technology. SEM has stretched far beyond just the technology of bidding systems in Google. External resources continue to invest in technology that will improve their efficiency so they can be more profitable. Their continual investment in technology is spread over a wide range of clients, and thus is a more efficient use of those dollars. Your company will never invest what is necessary to continually upgrade the technology; it’s just not efficient to. If you are spending and continually sinking money into technology in an internal SEM program, you are wasting resources. The only reason you are probably getting away with it is that SEM is so profitable on the whole that you still make money.

However, you are eating into your own profitability pie. Your company is not in business to make SEM. Your company makes products or has a service. That is your expertise; stick with it.

The algorithms in use by the major players are rapidly becoming more and more intelligent. When Google makes a change, they rapidly adjust their systems to compensate. They employ more people who actually call themselves “scientists,” with more pocket protectors than you have. How many scientists are on your staff? Remember that kid in the back of class who was a social leper but went to CalTech or MIT on a full scholarship? They work at these big search players.

Their systems are designed to make their companies more efficient, automating as much as possible. That allows the systems to scale your programs efficiently. The problem I outlined earlier, of linearly scaling value of a non-linear system? Strong technology solves that problem. The real competitive value in SEM is the long-tail. There are keyword combinations that are not searched often, but, if you have enough of them, create real value. It’s where your competition is least likely to play, and thus where you can get the most value.

But what their technology really provides is a different business model for you. Most clients, unfortunately, concentrate on the bid price for each keyword. This is both inefficient and does nothing for your business. Think about it. It is not the bid price that it is important to you, it is the conversion price. Buying 10,000 keywords at 5 cents apiece is irrelevant if no one buys your product. These systems dynamically adjust your bid pricing based on conversions.

What does that mean?
It’s simple. When a consumer buys a product at your site or goes to any page you consider a conversion, the SEM company places a pixel on that landing page. These are often called “thank you” pages and display something along the lines of “thank you for your purchase.” The company knows which keyword landed at that page and caused the conversion. You can attach a value to that conversion, so the system dynamically adjusts the bid pricing for that keyword. That keyword, in essence, is more valuable. If, for example, that keyword cost $1, and the value you set for that conversion is less, it will adjust your bid pricing to get more customers, maximizing its effect. It’s the conversion that matters, because that is what impacts your business. You could be getting lots of clicks on 10-cent keywords, but it does not matter that they cost less if none of them covert. They actually cost your business more.

Even more unique is that some of these systems look at your keywords at a portfolio level and adjust the price to maximize customers across a whole range of keywords. It does all of this, and continually gets customers for you at the most efficient level. A human is just not able to make those decisions in a timely manner, nor is it efficient for them to do so.

An ability to use that technology
SEM outsourcing companies are in business for one reason: SEM. You are not. You are distracted by whatever is the latest priority of resources. I have watched several clients take their SEM in-house, and the technologists assigned to SEM are stretched thin with countless other internal projects. In addition, SEM is often falls under a marketer’s purview, and you and your staff just do not have the time or the resources to follow every little nuance in the search business. That is exactly what SEM firms do, and that is all they do. They manipulate algorithms and Google campaigns at a much more efficient clip than you can.

Have you ever launched a program on your computer that you have not used in awhile, and it takes time to get back up to speed? The people that work at these companies use their software repeatedly — they connect to their contacts at Google and the other engines regularly. They tinker, tweak, and manipulate their systems and your campaigns for success. They constantly test and control their systems and algorithms to perform. Being better is what keeps them in business. It’s a rare occurrence when a major company in the SEM spaces does not outperform, over time, the 10 to 15 percent it costs.

Wide knowledge of multiple industries
The company you decide to outsource to deals with many clients in many different industries, each with slightly different business models. Techniques emerge that work for one client and can be applied to others. Knowing more about your business does not translate into being able to run a more profitable SEM program. You know your company — too well in fact — making it almost impossible for you to understand what everyone else does not. An external view is often the best reality check you can get if you are willing to “begin as a beginner” and put yourself in the position of your customer.

You focus on your business and thus become myopic about it. Without continual infusion of external ideas and techniques, your program will often stagnate. The only real infusion of new ideas is usually the turnover of employees.

This is the landscape of the U.S. search market. The values are just approximations, but external systems can work with a wide array of search engines — and your campaigns on them — to maximize your overall business impact.

This is the only formula that matters in search: Value = (quantity * quality) / price. Outsourcing companies understand this formula. They do not focus on a single source of the search universe, but will counsel you on how your strategy with one search engine can be leveraged across many. Too often clients ignore this formula and concentrate solely on quality. This leads to ignoring the bottom-tier search networks, like LookSmart, as viable sources to increase dollars. Search is not television, and SEM companies understand it’s a mass long-tail play, where the value is not the customer, but the balance between quality and cost.

The “arrogance blip”
Of the many reasons to outsource, this is probably the one that will hit home the most. I call it the “arrogance blip.” You may not know the term, but you probably know the effect. So what is an arrogance blip? It’s the effect of hiring an entry-level person who works for one year in SEM, and then either leaves for a job that pays three times as much for their limited experience, or holds the SEM program hostage while they continue to work in discontent.

Understand that you are training someone to leave when they get trained in SEM. The field is too competitive and the need too great. If your program is all in-house, the arrogance blip is often a single point of failure. Don’t let your intellectual capital walk out the door when your employee does, safe-port it by outsourcing.

Who should you outsource to?
There are a number of different ways to run your SEM, and there are numerous companies in each category that can service that need. I have worked with many other companies beyond this in the SEM space, some good, some horrendous, and some even worse than that. Since I prefer to deal with real-world examples instead of ivory tower postulations, here are the ones I’d have no problem recommending if my job was on the line.

Marin Software makes the best application you can take internally to run your search program. They continually refine their system and provide the support you need to keep the system in-house. If you’re an online or traditional agency and your clients have not already abandoned you for an SEM agency, this is the application I would bring in-house. It saves you the development costs of the technology, it ensures your system is top-notch, and keeps the control and client dollars flowing through your door.

DidIt provides industrial-grade software, proprietary algorithms that enable dynamic bid pricing, and a full service staff. What more could you ask for?  Didit lets you outsource just a portion, or your entire SEM program. They are so confident about their technology and service that they offer “performance trust accounts” whose values range up to $1,000,000. If the success metrics that are agreed upon are not met, funds from the PTA are distributed to you. Are your traditional or online agencies offering you that kind of guarantee? I didn’t think so. There is no such thing as a perfect agency, but put the right person from your company managing your campaign with them and you’ll be the better for it.

Efficient Frontier takes a slightly different take with their algorithm, basing it on a portfolio theory and applying predictive modeling similar to that of Wall Street hedge funds. Needless to say, it’s a lot smarter making SEM decisions than you or I will ever be. If you already have that rock star who understands the nuances of SEM, they’ll be able to direct EF to success.

Conclusion
Whatever you do, remember that the technology is the star in SEM. You may want to — and often should — keep employees internally to run the overall program. You need someone that knows how to leverage that technology. Remember, you should neveroutsource anything you do not fully understand, particularly when it is a significant part of your expenses.

What that means is that the best technology in the world will not solve your problem if you do not have the right people internally to leverage that technology from a strategic level, to a functional level.

Look, you can continue to convince yourself that designing your own internal system is the best way to go, and while there are exceptions, it’s just that you’re not likely one of them. Unless you plan on doing it by in-sourcing technology like Marin’s, you’re just being arrogant. Some may get defensive about how profitable their internally-run system is, and it may be, but given the right internal intelligence, it would be more profitable with the companies I recommend.