Magazine Interview with Andreas Ramos

Milan Lukic is the senior reporter for Biznis i Finansije (Business & Finance), a monthly magazine based in the Republic of Serbia. Biznis i Finansije is a monthly magazine for the business community - top and middle management - and various other readers interested in the economic aspects of culture, art, marketing, IT and science. Biznis i Finansije regularly publishes at least ten issues of the magazine per year, and four major business editions. The 80+ pages of the magazine are devoted to articles written by professional journalists, leading economists and industry analysts in Serbia and from abroad. They cover macroeconomic, business and financial topics as well as, for example, topics in the global and Serbian IT industry, marketing, culture, architecture and various other fields. Our IT sector is pretty strong and magazine is recognized as influential - B&F is on the table of an educated audience, decision makers, and business people.

Andreas, my questions to you:

1. Search Engine Marketing is a complex field that comprises many different approaches to marketing such as Adwords, pay per call, Pay per click advertising, Search Engine Optimization and Search Retargeting and Social Media Marketing Some of the latest theoretical advances include Search Engine Marketing Management which seems to be of a great importance, after a lot of big advertisers became frustrated with lot of empty "liking" and "clicking".

Big advertisers are right: clicks and likes have little value. The CFO and investors only look at revenues. If the VP of marketing can't answer that with a positive number, he'll be fired.

I talk with many large companies. Quite a few have figured out how to combine SEO, pay-per-click (PPC), social, and so on together and use KPIs (key performance indicators) such as LTV (lifetime value) and CPA (cost-per-action). For them, multichannel digital marketing is quite profitable.

But most companies haven't learned how to do this. SEO and PPC are handled by different teams and they don't talk with each other. Many companies still don't use social. Most marketing directors don't know how to use CPA and LVT. They just collect impressions, clicks, and likes.

The technology is not really that difficult. The problem is the complex collection of tools and strategies. There is also the business aspect: you have to understand ROI, CPA, LTV, and a few other numbers. Again, it's not really hard. It's basically high school mathematics. The challenge is to tie all of this together.

A cool thing about multichannel marketing is the group effect. The channels influence each other and this builds up into a stronger result. You carry out a strong campaign in Facebook and Youtube and you'll get lots of traffic. Google uses social traffic in its algorithm, so your Adwords ranking goes up and people recognize your company name more. Your SEO ranking also increases. With more activity, your PPC cost-per-click goes down and you get more clicks and sales for the same budget. By carrying out a unified campaign across all of these channels together, everything works better.

2. As an expert in helping various companies to target their consumers, how would you explain what the most important tools in searching for consumers are and effectively turn investment in marketing into profit?

Put a hammer and saw in the hands of a beginner and a craftsman. A craftsman can make nice things, even with simple tools, because he knows what the final result should look like.

It's not the tools. For a long time, we kept looking for the best tools and trying to develop better tools. The best tool is the ability to do basic business. Who are your best customers? Where do you find them? How do you get them interested in your product? How do you set your advertising budgets to be profitable? How do you track the activity? How do you align your campaign with your company's goals?

We use Google Adwords Editor (a free tool at Google), because it allows us to edit thousands of bids quickly. It can also handle bulk upload, which allows us to make and upload 5,000 ads. But it's just the tool. It's more important to understand the business strategy.

3. In your book "SEARCH ENGINE MARKETING". You explain strategies, tactics, techniques and insider tips on how to set up and manage a digital marketing campaign. Would you share some of the most successful examples with us?

I'll give you two recent examples.

The company in Chicago had a good financial package for mid-size companies. When people saw it, they bought it. But the company had few customers. We looked at their analytics and found the company's name was practically the only word that people used to get to the website. That meant the only people who came there were people who already knew about the company. So we improved their brand recognition. First we found out who their buyers were. We built ad campaigns to reach those buyers. We tested over a dozen messages to find the message that got the most response. We placed ads where the buyers were looking. We used keywords that described the product, the market, and the kinds of problems that were common in that field. We placed several million ads per month across multiple channels. By calculating the lifetime value (LTV) and other KPIs, we developed a budget. In the first month, the campaign generated more sales than the entire previous year. People in their industry simply did not know about the company. By making the company visible to its industry, people could visit the website and buy.
A Texas company sells helicopter transportation services. They have over 100 helicopters and $20 million in revenues. But their digital marketing had problems. Their ad agency did not know the LTV and CPA, so the ads were losing money. The CPA should be $90, but the conversions were $298, which meant they were losing three times what they earned. The Google Adwords account was a mess. It was poorly configured, few keywords, few ads, and no management. We tested several hundred keywords and more than 50 ads. Although the company was in Texas, the ads were showing across the entire USA and Canada. We changed the ad target to Texas. By testing, we deleted ineffective keywords and ads. We increased the bids for successful keywords, based on their cost-per-conversion. By the end of the first month, the CPL dropped from $298 to $110.

4. Online ad spending in Denmark, a country with near universal broadband penetration, overtook TV spending in 2008, and is forecast to be almost a third of the ad market by 2012. In US (and Serbia) television advertising still dominates, though advertisers are moving from newspapers to the internet. Would you say that the end of TV domination is near, or it depends of the type of public culture etc, or the TV ads will evolve in line with pay per click advertising?

It's like a horror movie where Google, Microsoft, Apple, and others are the serial killers. These companies have killed dozens of companies. They've even killed entire industries. That's how they make money and they're good at it.

There are several potential victims. The business models and technology for cell phones, cable TV, and credit cards haven't changed much in decades, yet there's tens of billions of dollars in those companies. Google and Apple are going to pluck their feathers.

Google tried Google TV. Apple is working on their own TV.

Look at kids. They ignore TV. They prefer Youtube on their tablets and smart phones.

There's the other side of the equation: advertisers are learning that they can measure digital advertising. CFOs are demanding results. They will press advertising to show results. I expect digital advertising will surpass TV in the next few years in the USA.

5. It seems that as of 2006, SEM was growing much faster than traditional advertising and even other channels of online marketing. Because of the complex technology, a secondary "search marketing agency" market has evolved, and some marketers have difficulty understanding the intricacies of search engine marketing and choose to rely on third party agencies to manage their search marketing. Can you, please, explain our readers what are the main goals of search marketing agencies and why the marketers were "a bit slow" by accepting these new aspects of advertising?

There are problems with agencies. Many of them are just old agencies that add a bit of digital and pretend to be cool. The old system of high production costs is good for them and they don't want to change that. So they do a bit of digital, but they basically protect and continue the expensive TV, radio, and print advertising because it produces good fees.

Many of the small digital agencies are good at tools, but they don't have business connections to get the large fees. The technology is also a problem: the experts figure out the tools and become very expensive. The small agencies can't keep them.

Another problem is Google and Facebook: they don't like agencies. When advertisers pay a fee to an agency, Google wants that money. So agencies get very little support from Google.

6. In the past there were a lot of beautiful award-winning ad campaigns which yield no profit for the products advertised. How the ad campaigns have to evolve with the new Internet marketing tools and what sort of pressure that creates for marketing companies?

In the USA, everyone knows the "Got Milk?" campaign. Yet milk consumption has gone down.

For decades, advertising was a magic skill. They knew what the audience wanted. They could come up with award-winning ads. Advertising was billions of dollars and that much money got lots of respect.

But Google Adwords showed click rates, cost-per-click, and cost-per-sale, down to the penny. Suddenly, anyone can see what works and what doesn't. Digital advertising allows testing so you can test hundreds of ads simultaneously. A high school student can create better ads than people with 25 years of experience. She only has to write 50 different ads and test them. The tools show you which ads gets the most clicks and sales. The magic turned into numbers in a spreadsheet. Many marketing companies still pretend they can do magic. They charge high fees for a campaign. Many advertisers still believe in that model, so they pay those big fees. But more and more, the CFOs learn that marketing can be done by the numbers. The days of big agencies are coming to an end.

7. A decade ago online display advertisements, or "banners" as they were often known, were booming. Companies paid huge sums to appear on news websites, but, as the number of ads increased, people stopped noticing them. There's a new stuff: a real-time bidding (RTB). How it will affect media companies and market share?

Real-Time Bidding (RTB) is an improvement. In standard display marketing, a company (for example, Nike) buys the ad space at the top of the London Times website. Their ad is shown for five days to all viewers.

In RTB, the viewers are tagged by interest (cars, movies, sports, etc.). The advertisers's ads are shown to only the audience they want.

When you combine digital TV and RTB, you get a big improvement over traditional TV. During a TV show, the sports fans will see commercials for running shoes and car buyers will see commercials for cars. Nike, Adidas, and Asics can bid for the sports fans. Honda and BMW can compete for the car viewers.

Now add another step. Google discovered that better ads get more clicks. So Google doesn't show the highest bid; they show the ads with the highest click rate. The advertiser with good ads can have lower bids, get more clicks, and thus get more sales. Because there are more clicks, Google earns more.

That will allow RTB to show the ads that get the best results. TV advertising will shift towards results, not big budgets. Traditional agencies will restructure or disappear. New agencies that understand this process will take over.

Be careful. Many companies found display advertising didn't work for them. That's because they didn't understand it. When used correctly, display advertising can outperform search marketing. When it's used together with search and social as part of a multichannel campaign, it works even better. If display hasn't worked for you in the past, look at it again and learn how to use it.

8. It seems that future of advertising's in high-volume, low-cost market that real-time bidding is advancing. In the past year, real-time bidding has risen from almost nowhere to capture 30-40% of spending. Does Real-time bidding make it easy to aim ads at susceptible eyeballs, and how really effective is it?

The issue again is money. Traditional advertising is based on CPMs: you buy five days of space and your ad is shown to two million people. The newspaper sells that space for (say) $20,000. That's easy to understand.

But that ignores results. How many people really saw your ad? How many went to the store to look at your product? How many bought it? It was very hard to know. Yes, you could track, but that took weeks and it was expensive. So you just hope for the best.

When you combine RTB with Google's PPC model (the ads with the highest click-rate, not the highest bid), along with cost-per-click and cost-per-sale tracking, you have a powerful model that can report the results.

This changes the business model for TV. No more "$400,000 for one minute" on a top TV show. Instead of one ad, there will be dozens of ads, each targeted to different types of consumers. The advertisers will pay for clicks, based on bids and click-rates, so they'll pay less. The cost of TV ad production will drop dramatically, because it's the results that matter, not the budget. It won't be good for TV. It'll be really bad for the big ad agencies. But it'll be very good for advertisers.

9. Today, the largest SEM vendors are Google AdWords, Yahoo! Search Marketing and Microsoft adCenter. What made them so successful and to what extent each of them evolved to capture the attention of advertisers and public? Do you see some new companies or concepts emerging?

Yahoo was #1 back in the 1995-2000 dotcom boom, but Google took over in 2004. Yahoo lost market share because it had many internal strategy issues. People love Google, just as people love Apple. Google was the best search engine when the web was made up of web sites. Microsoft adCenter (which covers Bing and Yahoo) is spending hundreds of millions of dollars to attack Google's market share.

Can another company get a share of the market? Facebook has a small chance. However, Facebook's revenues are only around $3 billion/year, and more than half of that (60-70%?) comes from games. So Facebook's annual advertising revenue is around $1-1.5 billion. Google makes that much in a week. Microsoft makes that in two business days. Facebook could become a threat perhaps in two years, but not now.

As I said, Google grew when the web was based on pages. But the web is turning into a social web of people and their connections. Will Google be able to evolve? Can Facebook figure out how to improve its ads? The average conversion rate in Google is 1% (1 sale in 100 clicks). The average rate in Facebook is 0.0005% (1 sale in 2,000 clicks). That's really low. If Facebook can produce better results than Google, then Facebook has a Chance they have just a year to do this. If you have an idea to improve Facebook, you'll get a great salary and a huge bonus.

There are other competitors. Yandex (Russia) and Baidu (China) have monopoly in their countries, which gives them a base to generate lots of revenue. They may become large enough to compete against Google.

But I don't think social media is the end of the web. It's popular, but it's not a good business model. Something else will happen, probably around cell phones.

10. Here's a last question: What would be your advice to the mass print media people, journalists and magazine creators: what is the best way to survive online? How will journalism survive the internet age according to the latest e-advertising mechanisms and tactics?

Newspapers are losing readers because the web allows cheaper and faster distribution of news. They are also losing advertisers because the web is more effective for advertising. The only reason newspapers are still alive is bureaucratic inertia and tradition among large advertisers. They grew up by placing full-page ads in newspapers. They make good money by doing this. They will continue as long as they can. But the current newspaper model will die, just as the telegraph disappeared.

Newspapers can survive by changing. Forget mass distribution. The web can do that better. Don't offer the same content that 45,000 other news sites also offer.

Newspapers should find their target audience, wherever they are in the world, and hire expert authors to write for those readers.

There are around 1,500 newspapers in the USA. Many of these are just local papers for advertising. The San Jose Mercury News was one of the top US newspapers only ten years ago. It's now barely better than a free advertising paper. I expect ten years from now, there will not be a single local newspaper in the USA, and that includes the New York Times. They will be primarily web-based.