JP Werlin wrote this up as a comment on my Product Level Bidding post, but I thought it warranted a bit more exposure. I also wanted to fill you in on JP’s background in ecommerce and internet marketing…

Prior to starting downtown Ecommerce Partners, JP worked as the Director of Online Marketing at GSI Commerce responsible for the online marketing efforts for GSI’s Partners. Prior to GSI, JP enjoyed 3 years at Overstock building the drop ship vendor “Partner Program” and managing all customer acquisition focused online marketing efforts including Paid and Natural Search, Portal, Comparison Shopping Engine, Affiliate and New Business.

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It is time to air the dirty laundry and thank you for providing the forum to do so. All of us who advertise on the CEs justify the CEs past decisions and current behavior by continuing to pay the CPCs and stomach the fee increases. I am sure I am not the only one who has calculated the effective increase in minimum bids at the cateogory level over the last 18 months - we are talking triple digit increases in some cases. Please keep in mind, that I am not hung up on rates - the acutal cost of a click is not important - it is the efficiency and the return on that ad spend that is the primary focus.

I have tackled this topic with the Comparison Engines for years. The CEs will not budge and keep saying a solution “is in development”. I have come to the conlcusion that the CEs are scared - they are scared to provide transparency to their business model because their business is built on a shaky foundation. I think the cornerstone of this questionable foundation is search arbitrage. As is the case with arbitrage whether online or in hedge funds (I am admittedly getting a little out of my league here) the arbitrageur usually relies upon information and pricing disparities. The CEs are some of the most prolific and savvy paid search marketers on the web. The CEs, including Yahoo!, are regular violators of buying their “customers” trademarked terms (another whole topic in and of itself worthy of a post) and compete time and time again on Google and Yahoo search venues for the “juiciest” paid search terms. I find it a curious marketing tactic to compete head on with your customers, yet this goes on everyday.

The CEs don’t want you to know (a) where they are getting their traffic and (b) how much they are paying for their traffic. CEs are also buying search at an advantage over their “customers” as their business model is based on the buying and selling of clicks. Retailers have a tougher road to hoe - retailers do not get paid until someone converts - not a click but a good ol’ plunking down of the credit card and a purchase. Oh by the way, CEs can also take one click from their Google ad and monetize the same traffic multiple times - either to the same merchant many times (some CE contracts permit charging for the same user to click up to 25 times in a 24-hour period) and/or to many different and competing merchants.

CEs like to say customer experience is the reason for their existence and everything they do is for the customer. How is the customer experience improved if retailers can’t display their entire catalog, can’t bid products up or down to coincide with promotions, price drops or rebates or ultimately not afford to be on the CE at all? I am worried that the “savvy marketer” you portray in your post does not exist and that some marketers don’t know (or perhaps have different objectives like “branding”) and just take the sale for the sales sake. This strategy is not sustainable in the long term for a retailer if taken on a transaction basis - however I don’t think a lot of retailers are analyzing the lifetime value of their customers by marketing source yet either which could justify paying higher rates if the analysis supported the decision.

The CE online marketing landscape is asymmetrical and tipped in favor of the CEs. Until such a time that transparency is provided, the true value and impact of the CEs to retailers is in question in my mind. Product level bidding is one piece of the pie. I think in the end the CEs will have to evolve or die - that is the way of the internet. An inefficient marketplace due to a lack of transparency (manifested in this case with product level bidding) is still an inefficient marketplace. Over time retailers can only continue to participate in this one-sided equation until they wise up or are enabled to spend their dollars more effectively.

JP Werlin
Downtown Ecommerce Partners