January 13, 2005, 12:00 AM

Hundreds of retailers spend $50K-plus a month on paid search, SEM firm says

How popular is paid search as a marketing tactic? SEM company Efficient Frontier manages about $100 million a year in PPC spending and estimates that 350 to 500 retailers are supporting keyword programs of up to 5,000 words.


Paid search just keeps getting more popular with online marketers. Approximately 350 to 500 U.S. retailers are now each spending $50,000 or more per month on pay-per-click, paid-search programs, in keyword campaigns that represent anywhere from 3,000 to 5,000 words each, estimates search engine marketing provider Efficient Frontier Inc.

The California-based company is managing a large chunk of search-engine spending, recently announcing that it closed 2004 having placed 7.5 million keyword bids on behalf of clients, representing more than $100 million in paid-search PPC. That makes it one of the largest managers of paid-search spending, something the 2-year-old company attributes to its different approach, which applies the kind of analytics used in stock portfolio management to manage keyword investment.

Rather than handling keywords individually, Efficient Frontier treats them as a portfolio, using an algorithmic formula to predict the expected return on different variations of keyword bids and automatically selecting the optimal mix for the highest rate of return, according to CEO Ellen Siminoff. The rules-based approach to automated keyword management at the base of many keyword management programs doesn’t scale effectively as keyword programs grow larger, Siminoff contends.

“You can look at a keyword, make a decision, execute on that and close the loop to see if you got the return on your bid you expected. If you did, you’d bid at that again; if you got better you might bid more; if you got worse, you might bid less or just eliminate the word,” she says. “That’s fine for one word but you need a formulaic method to do that with thousands or hundreds of thousands of words.”

By contrast, Siminoff says Efficient Frontier’s technology factors in real-time marketplace dynamics and a marketer’s designated return metric to adjust automated bidding accordingly. This approach has consistently delivered revenue or margin returns – the program can be optimized against either metric --- that are 20% to 50% higher than its customers have experienced using other automated bidding programs, the company says.

With a customer base that spans a variety of online companies, about 25% of Efficient Frontier’s clients are retailers. Currently the company manages about 5 million keywords on behalf of clients.


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