May 31, 2011, 5:28 PM

Feed the Panda

Whether outsourcing or handling search in-house, retailers must know the rules to win the game.

Retail chain J.C. Penney Co. Inc. learned a harsh lesson in the perils of outsourcing search marketing this year when Google Inc. penalized Penney for paying for inbound links to JCP.com, a violation of Google rules. Penney disappeared from natural search results for terms, such as "curtains," where it previously held the top spot. Penney said it had not been aware of the pay-for-links program and fired the search engine optimization vendor responsible for it.

But there are also risks in managing search in-house. Web-only discount retailer Overstock.com Inc. learned as much after Google penalized Overstock for an internally managed program that offered incentives to student bloggers and professors that linked to Overstock.com from university domains, conveying more of the coveted link juice from .edu sites that search engines typically view as highly reputable. Google buried Overstock's pages in natural search results for 60 days, resulting in a 5% decrease in revenue for that period, Overstock says.

Whether they manage search in-house or engage search marketing vendors, e-retailers have to pay close attention to their traffic and revenue from natural search results and paid search ads. Mitch Lieberman, founder and CEO of OneWayFurniture.com, closely studied his natural search results earlier this year when Google announced a change to the way it ranks web sites in organic search results, moving to what's commonly called the Panda algorithm update. It wasn't hard to see the Panda update's impact, as traffic to OneWayFurniture.com fell by two-thirds, Lieberman says.

Lieberman discovered that OneWayFurniture.com was running afoul of Google's new algorithm in two ways. The Panda update put more emphasis on the quality of a web page—and that applies both to the quality of pages linking to a retailer's web site and the retailer's own pages. Reports Lieberman received from his link-building vendor showed that the Google algorithm had readjusted the e-retailer's rankings because Google gave low ratings to the sites that linked to the e-retailer, and also downgraded OneWayFurniture.com product pages that used manufacturer-supplied descriptions and featured little original content.

Lieberman fired the firm he was using to acquire inbound links, and replaced it with another one, though he declines to name either company. Although the firm he dismissed had not violated Google's rules, Lieberman felt they could have done a better job, and he holds vendors closely accountable for their performance. "In order to get more business, they have to earn it," he says. "We measure each service provider on a monthly or, for some, weekly basis."

These examples illustrate both the importance of search marketing and the perils of failing to keep up with the latest search engine tactics. Is it better to manage search marketing in-house, outsource it or use a combination of in-house personnel and specialist agencies? There's no consensus. But there is general agreement that online retailers have to set goals, keep in close touch with any vendors they engage, and keep a close watch on analytics to measure performance.

Higher stakes

Effectively managing search is becoming more important as online retailers invest more in attracting traffic from natural search results and paid search ads. 75% of e-retailers say they are spending more on search engine optimization to improve natural search results this year than in 2010, and 61% are spending more on paid search, according to a survey by Forrester Research Inc. and e-retail trade group Shop.org.

And more organizations are outsourcing search marketing. In 2011, fewer than half of companies, 44%, report managing search engine optimization on their own, down from 51% in 2011, and 38% handle their own search marketing this year, down from 47% last year, according to the State of Search Marketing Report 2011 from the Search Engine Marketing Professional Organization, or SEMPO.

Search marketing has become too complex to manage in-house, says Lieberman of OneWayFurniture.com. "There are so many areas you have to know well to do it right that even if you could bring it in-house you would need different experts for each area like link-building, coding and copywriting," he says. He declines to reveal his spending or name the vendors he uses in three areas—paid search, link-building and feeding data to comparison shopping sites—but says by outsourcing he's saving five to 10 times the cost of handling search marketing in-house.

As an example of the kind of expertise a search specialist can bring, Leslie Belt Parsenios, director of business development at online retailer Country Curtains Inc., recalls how her site used to identify as "roman/roller shades" a popular window treatment that rolls up horizontally. When the e-retailer began working with its e-commerce technology vendor, MarketLive Inc., on search marketing, the vendor's marketing team pointed out that Google was not recognizing that the retailer sold roman shades because the term "shade" did not follow "roman." "You have to put the word 'shade' after the word 'roman' for SEO purposes," Parsenios says.

What it costs

Whether retailers engage vendors to handle search or hire their own search specialists, there are significant costs. For paid search, some search firms charge a monthly fee plus a percentage of ad spend; others charge a fee and take a percentage of revenue generated from paid search ads. For ongoing natural search work, such as building links and writing web site copy likely to move a retailer up in search results, there's commonly a monthly retainer or hourly charge.

Search marketing firm Apogee Results offers clients a choice in how to pay, says CEO Bill Leake. The firm will charge a flat monthly fee for paid search management that starts at $3,000, or bill 10% of paid search spending, or take an agreed-on percentage of profitable revenue generated through paid search. For ongoing natural or organic search, monthly retainers start at $3,500, Leake says.

But it's hardly free to manage search in-house, and salaries for search specialists are on the rise. Two years ago search engine specialists earned in the range of $55,000 to $80,250, and this year that range is $57,750 to $88,500, says marketing staffing firm The Creative Group. In-house management also means buying and maintaining search technology.

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