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The San Jose Mercury News has an interesting article today about cost-per-action advertising, and the relaunch of search engine Snap by serial entrepreneur and paid search luminary Bill Gross.

Interestingly, cost-per-action could begin to receive more attention and use among advertisers, given that paid search overall has received diminishing returns over the past few years.

From the article:

"Web users, [said Bob Dashtizad, director of online marketing at the Intermix agency] have gotten more savvy and they really use search engines just to find out information, to research a product. … They very rarely go to the search engine to purchase.”

Dashtizad said the conversion rate — how often a person who clicks on an ad and either buys a product, makes a donation or signs up for a service — has gone from one new customer per every 20 or 30 clicks to one new customer per every 50 clicks.

This supports claims we have made in the past that clickthrough rates are higher in vertical search sites where intent to buy (rather than research) is generally greater. The growth of many vertical search sites and shopping engines over the past few years has fed into the trend Dashtizad describes above.

It will be a sizable challenge for Snap to launch a search engine and compete on scale with the likes of Google, Yahoo! and Microsoft. It could be the right time to win over advertisers that are interested in a cost-per-action model, but winning over users (traffic) in the search space — a highly habitual medium — is a different story. This could be especially true for Snap given that its delineation between organic and sponsored results will be less aparent (described in this AP article).

A differentiated approach (see Windows Live strategy), however, is the right way to win over users in the highly competetive search space, and this indeed seems to be part of Snap’s product strategy. We’ll have to wait and see how it does.

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