Google says this should lead to more conversions while reducing the overall CPA. Take a look at this video:
 

Google points to the following as examples of what Enhanced CPC can do:

• Adjust your bid depending on how well a particular search or display network partner site in the Google network has converted for you in the past
• Recognize when specific words within a keyword (e.g. ‘kits‘) convert well and adjust your bid when users search on variations of these terms (e.g. ‘model airplane kits for children‘)
• Detect attributes such as the user’s location, language settings, browser, and operating system and analyze how these attributes may impact the likelihood of your ad converting

Conversion tracking must be enabled on you campaigns if you want to use Enhanced CPC. The feature can be found in the "Bidding and Budgeting" section of the settings tab.

For more examples and information on Enhanced CPC, check out this post.

Essentially, the program will now run on a cost-per-click basis, as opposed to a cost-per-action one. Affiliates can get paid for sending quality traffic to eBay, even if that traffic isn’t making purchases.

"The price paid per click will still depend on the short-term and long-term revenue of the traffic that the publisher drives to eBay, but will now also take into account the incremental value of that traffic to eBay, i.e., whether a sale happened as a direct result of the publisher’s actions," explains Steve Hartman of the eBay Partner Network. "The greater the incremental revenue and the higher the expected lifetime value of the customers an affiliate sends, the higher the EPC and total earnings the affiliate will receive.  Earnings Per Click (EPC) will be set daily for the previous day’s traffic."

eBay says Quality Click Pricing will simplify the commission structure, and that the payout will be more closely aligned with traffic quality. In addition, the company says publishers will be rewarded for "multiple sources of value in addition to sales." This includes revenue from advertising on eBay pages and PayPal transaction revenue.

eBay’s new model for its affiliate program will take effect for new members beginning September 1st, and for existing members October 1st. There is an FAQ (pdf) document available on the subject.

Advertisers may have cut back spending, but ROI for search engine marketing is proving strong. In Q1 2009, ROI has improved by 10% from the previous quarter. ROI jumped 30% from January to February. In fact, advertising spending even improved by 6% from Febrary to March.

"Advertisers will continue to demand greater ROI from their search campaigns, as a buffer against economic uncertainty," says Dr. Siddarth Shah, senior business analyst at Efficient Frontier. "We are at an interesting crossroads. On one hand, advertisers are slicing budgets. On the other, more users are searching online, and clicks are cheap. This provides the perfect opportunity for advertisers with deep pockets to embrace the downturn, to consolidate market share and continue growing their businesses."

Meanwhile, display and video advertising spending have been on the rise. comScore showed that banner ads increased by 8% in a year’s time, and videos grew by 74%.

Efficient Frontier’s research is based on an analysis of 84 billion impressions and 785 million clicks across a portion of their clients, which according to them, includes some of the world’s largest brands. You can get more details and statistics from their report here.

Among the organizations participating in the project to come up with the guidelines were Google, Yahoo, Microsoft, Advertising.com, AOL, Business.com, Click Forensics, CBS Ineractive, Compete, Disney Interaactive Media, Looksmart, Omniture, PricewaterhouseCoopers, SEMPO, WebTrends, and many more. The guidelines are designed to:

- Provide a detailed definition of a “click” and outline standard methodologies by which clicks should be measured and counted, including the identification of invalid and/or fraudulent clicks.

- Define standard terms to aid in the streamlining of buying and selling of click-based media.

- Increase transparency and consistency in click measurements for media companies, ad-serving organizations, advertisers, and third-party click auditors.

"Helping the interactive industry define a click and the standard for measuring one has been an extraordinary effort on the part of the IAB and its members," said Shuman Ghosemajumder, Business Product Manager for Trust & Safety for Google. "It is an important step that continues to reinforce interactive media’s role as the most accountable and measurable form of advertising."

The document (pdf) is lengthy, but one that advertisers should take the time to read. They are offering a chance for ad agencies, advertisers, publishers, and vendors to provide feedback on the guidelines, so you might be able to get your two cents included too if something of value has not been referenced.

While there is a ton of great info related to the different AdWords keyword options, Microsoft AdCenter offers some options of their own, that aren’t really discussed as often as those of AdWords. A post today from Tina Kelleher at the Microsoft AdCenter blog talks about some ways to reduce your CPC (cost-per-click) with some of their own options. A couple of ways to do so include:

- Bidding across Match Types, and
– Using negative keywords to qualify traffic

When it comes to bidding across Match Types, Kelleher says:

If you’re unsure of what the differences are between Exact, Phrase and Broad match types, I would recommend reading through Lauren Taft-McPhee’s post on the topic before continuing on as I am going to assume these concepts are familiar to you.

Bidding aggressively on Exact match only is a great strategy for keeping your traffic highly targeted and relevant.  If, however, you’re finding that your impressions aren’t as high as you’d like them to be, you should expand your bidding to Phrase match, Broad match, or both.  Doing so can help lower your overall average CPC as competitive pricing can sometimes be lower on different match types. 

As far as negative keywords, it is basically the same concept as that talked about by Google here. Kelleher gives an example about a travel agency. A travel agency might bid on "holiday travel", but use negative keywords to eliminate searches for "Billie Holiday" or lyrics to the Madonna song "Holiday."

The lesson here is that when using search engine advertising, you’ve got options available to you that you would do well to utilize. This is especially true as marketing budgets tighten as a result of the economy, and marketers are looking to reallocate their budgets to make sure their dollars are being spent in the wisest possible strategies. Utilizing the right match options whether you’re using AdWords or AdCenter (or both) can help you reduce that amount of dollars that are being spent. Microsoft has another good article on Match Types here.

- Targeted reach – you can narrow your campaign to a specific audience of MySpace users, including gender, age range or geographic area based on the info that users provide on their profiles.

– Ease of use – You can get your campaign online in just a few simple steps using tools provided by MySpace.

– Spending Control – You can determine how much you want to spend on a campaign, anywhere between $25 and $10,000. You’re only charged when users click on your ads (CPC rates start at $0.25).

– Measurable Performance – you can track the performance of your ads and edit them, as well as adjust your spending.

The service initially seemed targeted toward musicians, as it surfaced near the launch of MySpace Music, and seemed a perfect way for bands to promote themselves even further with MySpace. While this is still true, MySpace has stressed that the service is really for everybody including "filmmakers, musicians, politicians, authors, video bloggers, non-profit orgs, realtors, restauranters, comedians, radio stations, and doctors," according to Mashable’s  Mark ‘Rizzn’ Hopkins, and backing up my suggestion for small businesses to take advantage of the program.

MyAds is similar to Facebook’s advertising offering, but Facebook only offers text ads whereas MySpace offers display ads only. Are these the answers the social network "big boys" have been looking for? Michael Arrington at TechCrunch writes:

The big social networks are still trying to find their “Google Moment” – the point when (and if) they find a way to monetize these massive audiences they’ve attracted. Google was just a great search engine until they matched it with contextual advertising. MySpace and Facebook need to find their own revenue engine.

Facebook will probably only generate $300 million or so in revenue this year. MySpace is ahead of them, with $850 million or so in revenue last year and a projected $1 billion in fiscal 2008 (which ends next June for them). But it’s still a far cry from what Google generates per unique monthly visitor.

I’m not going to say it’s the next AdSense, but I think MyAds will be pretty big for MySpace, and even bigger for its users. The ease-of-use that will allow "Joe MySpace-User" to design their own ads and target them at cheap rates is going to appeal to a whole lot of people, particularly those who have had trouble getting Social Media Marketing to work for them.

The recent launch of MySpace Music should only help the social network grow as well, and that means potential target audiences for ads will grow right along with it, and with the sheer catalog MySpace Music offers, there will be no genre left out, leaving plenty of room for every demographic as long as they like music in any form. Let’s just hope advertisers can avoid the kind of insulting ads that Facebook members have been seeing based on that network’s ad personalization capabilities.

At least Harvard’s Ben Edelman is thorough in his analysis of three different kinds of cost-per-action fraud, all of which involve a different form of cookie stuffing—making it appear links have been followed when they haven’t. Detecting the practice isn’t exactly rewarding though, and Edelman’s analysis is a bit anticlimactic.

Previously on the Internet, the big topic was PPC fraud, also known as click fraud, where bots or teams of clickers would go out and click on ads in order to obliterate a competitor’s search ad budget and move up their own ads. A couple of settled lawsuits and some tweaks to the system later, cost-per-action became the new wave of referral commerce. Instead of just following one link to a webpage, users had to actually do something—like browse the site, click a specific link on the site, or buy something—in order for referrers and affiliates to grab commissions.

What seems like a simple and readily adoptable solution, though, was an invitation to craftier gamers to make it only appear to retailers users had completed desired actions. This is where cookie stuffing comes in. When consumers visit a specific affiliate site, or load an affiliate banner, just as examples, the affiliate sends also a small iframe of 0 height and width (so the user doesn’t see it at all) which embeds a cookie onto the consumer’s browser that will make the affiliate appear to be the direct referral if and when the user actually visits the target site, usually a larger retailer, like Amazon.

This works because most retailers have an agreement with affiliates that if the desired action occurs within a certain time frame (called a “return-days period), then the retailer sends along the commission. This allows affiliates to cash in on an eventuality without being the direct referral.

Edelman does provide specific examples, and things get a little exciting when he posts actual names and addresses of people who appear to be engaging in these sneaky practices. But there doesn’t seem to be much incentive to nip it, though. In addition to the highly technical and difficult process of identifying the practice of cookie-stuffing, Edelman notes there is little affiliate incentive to do anything about it.

“For some merchants and networks, mixed incentives further hinder efforts to prevent these fraudulent practices. In the short run, affiliate networks and merchants’ in-house affiliate marketing staff stand to lose from rigorous enforcement — reducing their commissionable base, reducing the size of their marketing programs, and distracting their attention from activities that more directly increase their respective short-run compensation. Thus, in the short run, both groups may perceive that they can increase their profits by deemphasizing fraud prevention.”

That is of course, unless merchants start making a stink about paying extra and legitimate affiliates begin caring about affiliate reputations.
 

Efficient Frontier Logo
(Photo Credit: Efficient Frontier)

Though paid clicks were down by 5% from last year among EF’s clients, advertiser spend on Google was actually up about 7%. Click-through rates, though, improved by 10%.

As a consequence, fewer, better-converting clicks are high-priced, meaning that cost-per-click rose by 13%.

"This data suggests, as Comscore posited, that Google is becoming more efficient at serving ads by delivering more relevant clicks to advertisers," writes Prescott. "Thus it is able to charge a higher premium for those ads, hence the increase in CPCs."

Prescott’s assessment matches the newest leading theory about what Google is doing with their ads. What’s lost in quantity is made up for in quality. Moreover, it’s a seemingly renewed focus on the company’s core competency, which should make investors less jittery about the company’s future.
 

Remember that? I’m sure you do. Our readers had lots and lots to say about it, and posed lots and lots of theories, again with the economy as the prime culprit. But what if I told you that revenues were flat and Google appears to think that’s a good thing? It’s all about the quality of search ad real estate, baby.

A leading theory is that Google decreased the clickable area of AdSense ads in order to cut down on accidental clicks. They did that about mid-November, just before some publishers noticed a drop in earnings, which was just weeks before comScore released a report saying AdSense revenues had flattened.

If decreasing the clickable area of an Adsense ad is the direct cause, why would a smart company like Google do such a thing? The answer posed for that question is that Google plans to make it up by creating a higher value on the clicks that do not happen accidentally. This could be a win win win for Google, Adwords buyers and Adsense partners, as referrals cost more, but are more likely to convert.
 

ComScore also believes that the flattening in January revenues is due to a new Google strategy to raise the value of clicks, i.e., fewer clicks for more money.
 

In lieu of economic causes, comScore’s Magid Abraham and James Lamberti write, "The evidence suggests that the softness in Google’s paid click metrics is primarily a result of Google’s own quality initiatives that result in a reduction in the number of paid listings and, therefore, the opportunity for paid clicks to occur.

"In addition, the reduction in the incidence of paid listings existed progressively throughout 2007 and was successfully offset by improved revenue per click. It is entirely possible, if not likely, that the improved revenue yield will continue to deliver strong revenue growth in the first quarter. Separately, there is no evidence of a slowdown in consumers clicking on paid search ads for rest of the US search market, which comprises 40% of all searches."

So even though there were fewer clicks in 2007, Google made more money. It looks like they’re trying to repeat that in 2008.

Bill Tancer at Hitwise similarly found that if declines in revenues were economic-based, or an indicator of recession, then Google traffic to retail sites might be among the first hit. However, Google traffic to shopping and classified sites was actually up year over year.
 

No slowdown among RimmKaufman clients, either, says Alan RimmKaufman. "Across our clients, comparing February 2008 to February 2007, we did not observe evidence of an advertising or sales slow-down: median same-client Google ad-spend was up 22% year-over-year, and corresponding same-client resulting PPC sales were up 26%."
 

In fact, measured by their share of RimmKaufman’s clients, Google is 5½ times bigger than Yahoo, and 750 times larger than Ask.com.

EfficientFrontier also presents unfathomable numbers from among its clients. Among them, Google pulled in 76.6% of total search spend, and, get this, 97% of the extra money advertisers allocated for search last year.

That’s interesting considering other numbers show that MSN shows the highest return on investment, while Google’s is the lowest. If so, why is Google grabbing so much of that share? Well, you’ve probably already answered: Sheer numbers. Google runs 2/3 of the search market.

And that gives them the leverage to inflate one area while deflating another. Investors are already nervous about Google getting away from its core competency—search advertising. Ensuring as much revenue in that area as possible is a good business move. While Google’s chief economist Hal Varian contends that "there are very small costs of switching to an alternative search engine for users, advertisers, and publishers," the reality is that switching could cost a lot in lost traffic. But it was a nice try at convincing us.

And so it becomes relatively clear why Google leads the other search engines in CPC inflation (22% versus less than 3% from Yahoo and MSN): because they can.

Google has also decreased the number of ads that appear on search results, making that real estate that much more valuable. Google is killing two birds with one stone: increase the quality of search advertising while increasing revenue. All that said, we’re betting Google’s Q1 report will have some surprisingly positive numbers—and if their stock price still goes down it might be safe to say BUY, BUY, BUY!

More Stats:

ClickForensics (which makes its money from fighting click fraud, mind you, reports that the overall industry click fraud rate rose to 16.6%, up from 14.2% the year before.

Click fraud on AdSense and Yahoo Publishers was 28.3% in Q4 2007, up from 19.2 percent the year before.

ComScore reports the percentage of Google pages with at least one ad on them dropped from 52% to 48%. Paid click rate declined by 8% from .24 to .22.

Google’s worldwide revenue increased 68% in 2007. Revenue per paid click increased 21%.

EfficientFrontier says its clients enjoyed a 12.5% increase in click-through rates in Q4 2007.

MSN brought in 27% higher ROI than the other two big search engines last year.

One advertiser reports Google AdWords ads crush Facebook content ads. Google: 15,386 impressions; 688 clicks; 4.47% CTR. Facebook: 225,875 impressions; 178 clicks; CTR 0.08%.

EfficientFrontier’s LeeAnn Prescott submits: In December 2007, CTR on Google search was 31 times greater than on Google’s content network (AdSense), at 2.14% for search and 0.07% for content… CTR on AdSense has dropped by 75% over the past year, even while content spend grew 39% among the same group of clients.

PlentyOfFish’s Marcus Frind submits: The CTR on text [AdSense] ads declined about 60% in the last 2 months with Google’s changes. Image ads on the other hand stayed the same.  If you take a screen shot of a text ad and then run it as an image ad it will get 2 times the click thru rate.
 

Sources:

http://www.comscore.com/blog/2008/02/why_googles_surprising_paid_click_data_are_less_surprising.html

http://googleblog.blogspot.com/2008/02/our-secret-sauce.html

http://weblogs.hitwise.com/bill-tancer/2008/02/google_does_search_data_indica.html

http://efrontier.com/efficient-frontier/resources/research/docs/SearchEnginePerformanceQ407.pdf

http://blog.efrontier.com/insights/2008/02/google-becoming.html

http://blog.efrontier.com/insights/2008/01/click-through-r.html

http://blog.auinteractive.com/facebook-ads-dont-work-heres-proof

http://www.rimmkaufman.com/rkgblog/2008/03/03/feb-2008-ppc-share/

http://plentyoffish.wordpress.com/2008/01/04/how-to-advertise-on-adsenseplentyoffish/

I had just had the conversation this morning that I felt bad for the folks that bought in at $747, GOOG’s high for the year, only to see it drop nearly $300 after a couple of bad reports. By “bad” I mean their 4Q report was great, just not as great as analysts had hoped, and comScore dropped a bomb earlier this week showing that CPC revenue was (gasp!) flat. Not in decline, just didn’t grow in January.

Cue Google’s stock plummeting to $467. Cue me being interested in an explanation of what is now great foresight. So I clicked.

And was immediately blocked with a free registration screen. Vestopia’s pretty slick. Luckily I was determined to get out of registering and finally found the X in the lower left corner. You almost got me Vestopia! Nice move. I cost you a referral but I’m writing about you in a widely-read publication, so we’ll call it even, okay?

Once I got to the post, sans-registration thank you, I found out that Hines makes some pretty darn good sense in an article written November 15, just after the avalanche was beginning. He cites an economic principle, known as “regression toward the mean,” for his good foresight.   This principle relays a phenomenon that occurs with people with extreme test scores: they often don’t score as high the next time, and gradually work their way back to average.

(This was news to me since I, ahem, have remained excellent throughout my schooling—Is there really a world below 99th percentile? I wouldn’t know. Please send future attaboys to jmiller at webpronews.com.)

The point is, until now Google has had “freakishly high growth rates,” which could not be sustained forever. On top of being overdue for a market correction, Hines notes his discomfort with a company that invests more and more in areas away from its core competencies. In Google’s case, that core competency is paid search advertising. 

“Google has openly demonstrated fear of flattening paid search advertising revenues via corporate strategy,” he writes. “Their VP of Business Operations wrote a book in 1998 which essentially outlines the "spaghetti against the wall" approach Google has taken to acquisition and development, and is clearly seen in the company’s most recent initiatives. Google’s OpenSocial and Open Handset Alliance initiatives have nothing to do with search and are very far from the company’s core competencies….I would rather see Google chasing opportunities closer to home.”

That “fear of flattening paid search advertising revenues” part was especially prescient, given that that very flattening sent stock spiraling this week. Of course, we may be singing a different tune once Google officially branches out and begins profiting (somehow) from its investments in fiber and wireless.