The Third-Generation of Paid Search is Here  

Like many of you, I started my career in the dotcom era, when ecommerce was first becoming “a thing.” Retail sites were launching fast and furiously, and Wall Street couldn’t invest in them quickly enough. E-tailers had it easy back then. Customer acquisition costs were low, and paid search was like an ATM that kept dispensing money without ever requiring a deposit. Every one dollar spent on paid search delivered seven or ten dollars in sales. Those were the days!

Back then paid search meant buying text ads in Google, which, by default, was the place that all users began their purchasing journeys. Soon enough, all e-tailers learned that paid search was essentially a gravy train and so they jumped in, which of course, drove up customer acquisition costs and lowered ROI. It was the end of an era.

Then in 2007 Google acquired DoubleClick, along with a bunch of search and display networks, and ushered in the second generation of paid search, which centered on banner ads placed on relevant sites. The theory is that if I’m reading an article on Italian cooking, I would be open to seeing an ad for olive oil. These ads, purchased on a CPM basis, didn’t deliver great ROI, but in aggregate made money for the advertiser. Some retailers did extraordinarily well.

Second-generation paid search led to some important innovations in ad technology. First and foremost is retargeting, aka lead-back campaigns, which has been the gold standard in ecommerce for the past eight or so years. Here’s how it works: users visit your site, perhaps look at items, and you site drops cookies into their browsers. Once they leave your site, they see ads for your brand or the items they viewed wherever they go next, whether that’s the New York Times or Instagram.

It’s not an exaggeration to say that digitally native and D2C brands owe their success to this tactic. By spending a relatively small amount of money, tiny startups with no name recognition, — Hims and Hers, for example — can elevate their brands by simply being ubiquitous. Let that sink in: for consumers who visit a site once, Hims or Hers takes on the same prominence that brands like P&G spent decades and billions of dollars building. This marked the end of the second-generation of paid search, in my mind.

We’re now deep into the third-generation of paid search, which I think is rather unfortunate. Consumers no longer begin their journeys from a single place, but from many: Google, Bing, YouTube, Facebook, Instagram, Pinterest, Amazon, Alibabi, Walmart, among others. Now, in addition to the text and display ads, retailers need video for the highly visual channels, such YouTube pre-roll ads and Instagram interstitial stories. And, like banner ads, video placements come in all different sizes and placements; full screen for YouTube pre-rolls, landscape or square for Facebook feeds, and squished down to fit in a banner or side ad on a news site. Campaigns today need hundreds of creatives in multiple formats and sizes.

The real challenge to third generation paid search is that it requires a multitude of strategies, accommodations and budgets. For instance, Amazon has its own paid search, and Google now has Google Shopping, which means retailers must ensure that both Amazon and Google understand their product catalogs so that those platforms can serve up the right products. In other words, retailers need to format their product data in ways Google, Bing, Amazon, Facebook, etc. can understand it.

To be a marketer nowadays is incredibly difficult. Customer acquisition costs reach higher into the sky while ROI is on the decline. One can’t help but wonder if there is a fourth generation of paid search, and if so, will it lead to more or less fragmentation. If more, what will that mean for marketers?

Clearly, retailers, especially SMB companies can’t be everywhere, which means they need to make strategic decisions. Which channels make sense for your brand? Where on the web does your target audience congregate? Which ad formats work best in those channels.

These are questions Something Digital spends a lot of time talking about with clients, which is one of the many reasons why we developed BULLSEYE, an ecommerce business maturity quiz. We can help you assess the maturity of your business, which in turn helps you make strategic decisions around where you should invest.

At the moment a lot of our customers having good success on Google Shopping because its reach extends beyond Google. For instance, Google Shopping results appear in YouTube. For many retailers, that’s a perfectly fine near-term strategy.

If you have questions about paid search or need help with it, contact us.

Written by: Phillip Jackson, Ecommerce Evangelist