From the InternetStockBlog, a note about Blue Nile’s earnings, an echo of the FTD call last year.
Blue Nile reported a surprisingly weak 4Q05, in our view, blaming both weak jewelry industry fundamentals and what CEO Mark Vadon called irrational pricing in the pay per click advertising market (although we will continue to believe he said “eRational”). On the conference call, Mr. Vadon stated, “We saw extremely aggressive increases in the cost of online advertising. Our cost per click on Google for example, rose by over 50% from a year earlier. While the cost of online marketing grew significantly in Q4, we remain disciplined in our spending, in order to maintain profitability on new customers rather than to chase unprofitable growth, as some of our competitors have done.”
I think the entire market has under estimated the effect that Google’s introduction of minimum bids per keyword have had on advertisers. There is definately more competition now but that competition now often starts at much much higher levels.
Lame. They must not have reacted to the Google AdWords system changes. I bet they’ve got loads of keywords per ad group. A 50% rise in CPC costs is not due to competition. That’s a poorly implemented PPC campaign. I wonder if they manage PPC buys in-house. Wouldn’t want to be their SEM firm. 😉
plenty insight on this from jmatt…
http://jeffmatthewsisnotmakingthisup.blogspot.com/2006/02/google-thesis-schmesis.html
Tagman is right – I would not want to be there SEM firm. My question for BlueNile would be whether or not they were doing any ongoing analysis of bid prices and conversions. Most markets tend to be irrational “If you can keep your head when all about you Are losing theirs…” – thanks Mr. Kipling.
I have several clients for whom PPC does not perform well. As more and more businesses get involved with PPC there simply is not enough Search Inventory to go around (and keep the prices low) and the CPC goes up – to the point that there’s no profit in running the campaigns (and even a loss).
One of my clients, a well known Architectual Design firm, is losing 70 cents of every dollar they spend to advertise their products. It turns out that…so are their competitors. At the end of the day..what businesses are paying for is branding and being part of the Buying Cycle – getting in early in the process.
Search itself, is like a Roulette Wheel – it’s anyone’s guess where your going to end up (unless the game is rigged). Businesses are paying to be “in the game”…and they get that. But profit? Not that often.
WebMetricsGuru
After having dinner with a Yahoo! Search Marketing rep a couple of weeks ago, I found out that Yahoo! is not particularly worried about rising CPC rates reducing advertiser’s ability to be profitable. I say this because I found out Yahoo! is trying to focus on getting clients who want to be a part of the “buying cycle” without direct ROI from their PPC.
The conversation confirmed that Yahoo! is looking to get into the branding business with big companies that are comfortable with the hazy ROI metrics of traditional advertising channels such as TV and print advertisements. Yahoo!, and their commission based sales reps, see big dollar potential when they look at traditional advertisers who convert with offline sales (no direct ROI metrics). Basically, Yahoo! knows if they can sell companies with the “closing the buying cycle” argument, they can tap into the big marketing budgets – especially from companies that are shifting their ad spends from offline channels to online.
So with this in mind, when looking at the future of your PPC spend, you need to ask yourself how many big players in your vertical are accustomed to marketing without direct ROI. The more of these advertisers you are up against, the higher you CPC metrics will go over time.
Not a great prospect for smaller advertisers who demand a return on their PPC spend.