SEM by startups - can they win the war!

Several startups use SEM for marketing. Is this really a good idea? The answer is yes and no.

It is a 'yes' because people get instant exposure to these sites based on the bid words. Traffic to relatively unknown websites (like startups) are very welcome because website visitors are always the revenue generators.

Can this 'yes' transform into a 'no'? The answer is 'yes'.

Let us go back and look at SEM on Google. A startup xyz.com bids on keyword(s) and gets itself to the top rank for those keyword(s). Similarly, a very well known company pqr.com, which also has a good SEM click history bids on the same keyword set. The bid value of xyz.com will be higher than pqr.com. When the user searches using the keyword, Google will show these first xyz.com and then pqr.com in the advertising box. Let us consider the following scenarios:

1. xyz.com has a better ad content. The user is impressed and clicks on the advertisement. xyz.com is charged for this click. Many sites have very high bounce rates. The cause for the bounce off could be because of the site content, the site organization and flow, and also because of the trust level of the user on that site (xyz.com). Majority of times this click results in a loss to xyz.com. However, the SEM optimization engine thinks this as a success for xyz.com and increases its credibility/trust factor. A good vote in favor of xyz.com. If b% of users convert then the effectiveness of the amount spend is b%


2. The user does not click on xyz.com even though it is at a higher rank but, this user clicks on pqr.com because pqr.com is a known website. There are publications that indicate the effectiveness of having ads positioning at positions 2 or 3. At these positions, statistics indicate higher click through rate. This click for pqr.com (and not for xyz.com) reduces the trust factor for xyz.com.

For a relatively unknown xyz.com the probability of 2 is much higher than 1. Thus, the SEM optimization engine is likely to penalize xyz.com because it did not receive the clicks even though it was positioned higher. Now, if xyz.com wants to maintain its ranking, it needs to bid higher. Further clicks not-in-favor of xyz.com will cause xyz.com to bid higher for the same set of keywords. The same is not true for pqr.com, which has already established its trust factor. Also, the b% effectiveness due to bounce rate also adds to the SEM expenses of xyz.com.  Thus, in SEM space, startups rarely win a war against well established companies.

What are the alternatives?

One alternative is to reduce the cost of SEM while keeping the effectiveness of keywords higher. This is something SEM experts are known to achieve. These experts are known to find keywords that are effective and cost low (mainly due to lack of competition). However, their search volume is also very low. A startup has to identify and dynamically modify its keyword set on which it bids to increase visitors through SEM program. This is a search through a long tail of rare search keywords, and user typography errors. Can this search go on for ever?

There is this other alternative some companies had adopted to get to their target user base. Instead of making users come to their website, these companies started to go to the users by identifying areas where the users are more likely to visit. One such approach is to create applications on social networking sites like Facebook, Orkut, and MySpace. Partially, this was a step in right direction. Users, who rarely visit sites like xyz.com, would visit/add the application on facebook/Orkut/... with some curiosity, and after some clever marketing strategies by the application developers. After spending considerable amount of time on this application, these users get used to the content of the xyz application, which establishes a trust factor. Now, getting these users on social networking sites to xyz.com is another big hurdle. Note: I did not see an application that had converted the entire user base to its independent website. Thus, this step is 'partially' in the right direction. It only established the brand of the application. It would have been a completely successful approach if it had made people come to xyz.com.

Disclaimer: xyz.com and pqr.com were used just for explanation. These pointers are not to the actual websites (I did not check  if real websites exist and what they do). Also, my thrust on the trust factor being one of the variables in computing the bid value/ranking for a site by Google is based on some discussions I've read over the internet about Google's way of optimizing its SEM systems.