Management & Finance

Interview: The Future Of Online Advertising

Smaller ecommerce firms frequently spend heavily on various methods of online advertising. We asked an executive with Network Solutions, Jeff Zimmerman, his views on the development of online ads. Zimmerman is vice president of product management and marketing for Network Solutions, the prominent domain-name registrar and ecommerce solutions provider. He joined Network Solutions in 2006 after management roles at Intuit, a small-business software provider.

Jeff Zimmerman

PeC: How can an ecommerce business owner decide where to advertise online?

ZIMMERMAN: Before embarking on any ad campaign, business owners need to determine the value of a new customer, and how much they are willing to pay for a new customer while maintaining a healthy profit. You also must decide how much cash you are comfortable spending before the sales come in. If the cash flow on your business is very tight, your options will be more limited. These numbers will help you determine how much you can afford to spend on advertising, and the most appropriate vehicle for your situation.

Ultimately, you must find the most cost-effective way to find your target customers in a relevant context. If you sell products in a niche category, are there any websites or email newsletters that cater to your niche? If so, advertising placements in those vehicles may be a winning strategy. If your products have mass appeal, it may be challenging to find a way to reach your audience without a huge budget.

Because the majority of online shoppers turn to search engines first, marketing on search networks such as Google and Yahoo! should become a critical component of any online marketing strategy. Buying pay-per-click (PPC) advertising on the major search engines enables merchants to reach a large audience and target their specific customers based on their search phrases.

Each search engine has a different benefit. Google is known for its tremendous reach and easy-to-use customer interface. Yahoo! is known for having a shopping, consumer audience. MSN has quickly become known for driving conversions. When determining which search engine you should advertise on, first determine what your overall goals are, then choose the search engine that matches up the best.

PeC: The options for online advertising include banner ads, newsletter ads and pay-per-click ads from search engines, among other choices. Do you have a preference among these choices?

ZIMMERMAN: We recommend pay-per-click (PPC) advertising because it builds on the popularity of search engines to bring your message to consumers at exactly the time they’re looking for you.

Because of its flexibility and unique model, PPC can be extremely effective for small businesses. Advertisers only pay when someone takes an action — so you can buy as many or as few actions as you can afford. You aren’t competing for impressions with larger budgets and rarely are shut out by price restrictions. Additionally, the search engines are constantly coming out with exciting new ways to advertise — like Google’s foray into radio advertising — while keeping the measurement offered by advertising online.

PeC: The profit margin from Google’s pay-per-click ads exceeds 40 percent. Wal-Mart’s profit margin, by comparison, is roughly 3 percent. Many experts believe that Google’s margins cannot be sustained over the longer term, and the pay-per-click rates may decline. What are your thoughts on this?

ZIMMERMAN: This is the likely outcome in the long run, but not anytime soon. The demand for PPC advertising is growing rapidly as an increasing number of businesses are recognizing its value. Internet advertising is growing 15 percent in 2007, compared to 5 percent for TV, 4 percent for magazines, and 2 percent each for newspapers and radio. Despite this high demand, search marketing delivers the lowest customer acquisition cost compared to other vehicles. Those trends suggest to me that Google will be able to maintain its prices and margins for the foreseeable future.

PeC: Should an ecommerce site run a print ad in a targeted magazine?

ZIMMERMAN: It depends.

When utilizing traditional advertising vehicles such as print ads, business owners should take extra steps to measure the results of such advertising since it cannot be tracked in an automated fashion. Ecommerce sites can use creative ways to accomplish this. For example, you can add a question during the checkout process that asks, “Where did you hear about us?”

We recommend that business owners pursue a multi-pronged approach to marketing their business. Search engine marketing, including both PPC and search engine optimization, should be the focal point for most small businesses, accounting for the majority of the marketing budget. As I mentioned earlier, a targeted publication can be a very effective way to reach your ideal prospects, so we recommend that business owners dedicate some budget toward this type of advertising as well.

PeC: Other thoughts on the future of online advertising?

ZIMMERMAN: As I mentioned briefly above, business owners should focus on search engine marketing as a whole, not just advertising. Search engine optimization (SEO) will help ecommerce sites get higher rankings in the natural (or “organic”) results of search engines, which can be a very effective way to get more traffic to your online store. PPC advertising and SEO make a fantastic pair. We recommend that business owners focus SEO tactics on a few key phrases that are central to their business, and use PPC to get immediate results (SEO takes time to produce results) and to highlight any special offers or new products.

Within the advertising space in particular, online advertising will continue to expand into new mediums. We see pay-per-call advertising growing next year, especially for locally oriented businesses, and video ads will also gain traction in the near future.

PEC Staff

PEC Staff

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