James Beriker is the president and CEO of search technology and marketing group Efficient Frontier.

In a turbulent few weeks for the industry, we asked him about Google’s recent share dive, the prospective Microsoft-Yahoo merger and the agency’s plans to expand into new areas like display advertising, localised search and emerging economies.


Can you sum up the PPC spending trends you have seen from your clients so far this year? What’s behind the 5% year-on-year drop in click volume on Google you saw for your US clients in January?

In terms of trends we have seen in spending, we saw our financial services clients pull back a little bit in January, more significantly in February, then come back into the market with more dollars in March.

Our suspicion is that the pullback was really about them figuring out how to deploy those dollars, and how they might change their product mix or develop new products that would be more suitable to the kind of market we are seeing in the US.

The good news is we have seen some growth over February in March and by all indications it looks to be improving again in April.


Do you see Google’s reported flat click growth in January as a blip then?

It’s hard to say at this point. I wish I could tell you that it was a blip, but we work with some of the larger financial services companies and our feeling is they pulled back on budgets to assess what was happening.

Our thinking is they are retooling and taking a hard look at their product mix as they have to stay in business somehow.

They are figuring what users they are looking for, what is the product that is most likely to resonate with consumers given what is happening in the marketplace, and what are the best channels to acquire those consumers.


Can you give us any figures for Q1?

We don’t release Q1 figures for another month or so, so I can’t give you that information yet.

But we have a pretty good cross section of clients across many verticals that are still very healthy and growing. Travel is obviously very big still. Retail is still strong, and online dating and personals is another big vertical.

We expect to have another growth year. Our business has had very aggressive year-on-year growth for the last three years and we expect to have another good year in 2008.


Why do you think Google’s share price has fallen so dramatically?

Part of the problem is they don’t share much information with the investing world. We are often left to our own devices to make judgments about their business.

We publish data once a quarter on all the search engines and the trends we see is Google gaining share and becoming more efficient at monetising their results pages. We see that quarter over quarter over quarter.

There is a lot of turbulence in their share price and it’s a huge swing, and it speaks to the concern about what Google will do next to keep growing at the same rate and what the Microsoft Yahoo! combination will do to the marketplace.
But here at Efficient Frontier, we keep seeing significant growth from Google. We continue to see improvements in CTRs for our bigger clients and we continue to see increases in CPCs. For example, in Q4 of 2007, we saw a 22% increase in CPC for Google over Q4 in 2006.

We’re seeing that trend at least continue into 2008. And while CPCs are increasing, RoI is also up for all our clients on Google. For us, that’s good news for Google as our clients will be spending more money on Google.


Can you explain what you are doing to extend your technology to channels other than paid search?

The core strength of our organisation lies in the technology we have built and the services we have created around that technology. We are able to drive significant growth and scale for clients with complex campaigns.

Our vision is to take the algorithms we have built and extend them into new marketplaces as they become biddable.

We are working with some of the social networks and ad exchanges that are emerging to figure out how we could interact with those platforms. We would ultimately like to be able to optimise across channels for our clients so we can allocate the right dollars to the right channels to drive the best returns for our clients.

If you see Adwords becoming an advertising platform for all sorts of media, we see ourselves as the optimisation layer – being in a position to optimise all media where we can use data to drive maximum performance for clients.


Which ad exchanges are you talking to?

We’re talking to Right Media, AdECN, DoubleClick and the social media sites. We’re trying to figure out the right way of working with them.

We’re trying to drive the direction of their products so we can interact with them. By the end of the year, we see ourselves being able to optimise ads across those exchanges based on the data we have.


As advertisers get a more detailed view of customer activity across different channels, do you think budgets might be diverted from paid search budget to other forms of marketing that are known to drive search traffic?

We see it as an incremental thing. We have clients that are in the travel space, for example, where we have data on users that query hotel rooms in New York.

If you do a search and click onto our client’s site but don’t convert, we could find you on another site and serve an ad to you that could give you a compelling reason to convert through our client.

We will have taken inventory that is not worth so much to others and added a significant amount of value because we know something about the user on that page.

Right now, it’s about using the search data we have and being able to weight it based on factors including recency. If you looked at a hotel room today, you will be of more value to our client than you will be in two weeks.

Our ability to understand your value on that page and use an exchange to extract more value from those impressions is where we will begin our extension into other media.

So we see it more as an extension of the budget, rather than taking dollars out of search and applying them to display or TV. Our position is that as that media becomes more targetable, growth will be incremental.

It may not be true of all advertisers, but for the large advertisers we work for, the ability to drive more compressions this way won’t take money out of a channel that is working very well.


What are your thoughts on


? Do you think it will happen? And if it does, do you see it significantly benefiting your clients?

From our perspective, we would much rather see two very engaged, larger competitors, rather than one clear winner and two smaller competitors. I think it is going to happen and I think it will be good for search engine marketing and online marketing as a whole.

Having said that, I think the big challenge will be in the decisions Microsoft and Yahoo make around which brands to retain, what the leadership will look like and which platform they choose to go with.

My concern is that they will spend so much time trying to figure that out that it will give Google an opportunity to get stronger in the marketplace.


Do you think there’s a particular direction they should take in terms of developing around either adCenter or Panama?

We like adCenter and have had very good results with it. With its API structure and the ease of use of the platform, it has been a good experience. However, Panama has had a pretty significant impact . We saw RoI and we think that is largely a result of the improvements they made in Panama.

If asked, we would say they should choose one and merge the marketplaces. Don’t continue to try and run two different search marketplaces. Whichever they chose, we could work with.


If they combined, how much of an impact do you think they could have on Google’s dominance?

I just see them being a better competitor combined than they are individually and competing against each other.

If you look across the globe, Google dominates. Australia is at 90% plus, the UK is at 85%, mainland Europe is at 93% and the US is at 75%. The only geography in which Google is not dominant is Japan and China because Baidu is the big deal in Asia.

It’s hard to see anybody competing with the kind of momentum Google has globally. But I do think that Yahoo and Microsoft combined could field a legitimate business on the display side that would give them a good differentiator to what Google has. That is probably part of the strategy.

With all the properties that Microsoft controls and all the display advertising that goes through Yahoo, and with the purchases they have made like Blue Lithium and Right Media, it looks like the most viable way for them to become a strong player in online marketing is to combine in search and make display a large, core part of their business.


How will you be affected by the end of Google’s best practice funding in Europe?

Not at all. Our practice has been to charge clients a fair rate for the work that we do. We’re not renegotiating any of our deals based on best practice.

A lot of agencies in the UK charge their clients nothing and keep the best practice funding. With that ending in 2008, they are in a position where they have to go to their clients and say they can’t do this for 0%. What that has meant is that clients have thought they might as well speak to other agencies. That’s been a great source of new business for us in the UK.


Are your clients spending more on mobile search ads? How do mobile search ad CTRs compare to those for the same keywords in traditional search?

I don’t have that data at my fingertips and it’s not something we have looked into very recently. If I had to guess then I would say that CTRs on web searches are higher than mobile.

We’re seeing lots of spending on local. Advertisers are realising that there is a lot of benefits to be had in geo-targeting their ads. We’re seeing a lot more sophistication from clients in targeting ads, in the ad copy they generate and in targeting ads using the geo-targeting functions in search engines.


What’s the latest with your international expansion?

We have partnerships in Japan and Australia and we’re about to open an office in Hong Kong so we can figure out China.

We have an advertiser on Baidu so we are optimising on Baidu and learning a lot. We are trying to help them evolve their API so our clients can be more active on their marketplace. We also have four or five top clients in India.

We see international being about 20% of our business and I hope it will be 30% of our business by the end of 2008. By the end of 2009, we hope it will be 40% of our business.

We’re investing very significantly in Europe – we have an office in London and Paris and we are about to open one in Hamburg.


Related research:

PPC Best Practice Guide

SEM Buyer’s Guide 2007

SEM Report 2007