Earlier this year, TechCrunch reported that Google could be paying up to 1 billion dollars to remain the default search engine on Apple's iOS devices. Part of their reasons for doing this might just be that the cost of acquiring traffic is on the increase due to increased competition from the likes of Microsoft's Bing service.
The underlying question is : why should Bing (and others) matter to Google's TAC?
The answer is fairly simple. Google, Bing and others do deals to put their services on platforms as a default search provider. They pay money to be able to do this, and to hit the platforms with the highest penetration (Blackberry, iOS, etc.) they need to have deep pockets.
If they miss out on a platform, they have to work doubly hard (and pay more) to entice those 'lost' customers back to their service, as well as having a smaller customer base to start with. Even if advertising (or R&D) costs stay the same, the TAC would go up if they lost one of the key platforms.
According to TechCrunch, Google's actual TAC for 2013 is estimated at 3.3 dollars per iOS user, and is something like 5% of gross revenue across all platforms, which includes iOS and Mozilla, as well as Chrome/Android.
Now, obviously, the increasing penetration of Android, Chrome, and other Google platforms and products going forward will have an impact on Google's TAC, but unless iOS sales drop, that won't save them from paying absurd amounts to Apple, for the slightly dubious privilege of being the default search provider.
What can other businesses learn from this? Firstly, you need to make sure that your TAC is balanced by lifetime customer value. In other words, knowing your TAC per 100 dollars ratio (or similar) will be vital in helping you to understand if it is as efficient as it could be at retaining customer value.
The forEntrepreneurs website has a great graphic illustrating this key ratio. In essence, you can exchange CAC (cost to acquire customers) with TAC, factoring in your conversion rate as you go along.
It's interesting to note that Google has the R&D investment to increase several areas of the equation without shelling out to third parties (through open source participation, viral effects, and strategic partnerships that don't involve the exchange of real money), but that clearly their management puts a lot of stock in their core offering - the free search engine service.
That service drives the Google engine; and that includes opening up revenue opportunities. So, investing 1 billion dollars in keeping a high flow from established and emerging platforms makes good business sense, whilst also demonstrating the power of free.
Wednesday, August 7, 2013
Wednesday, July 31, 2013
How Keyword Research Helps Reduce Traffic Acquisition Costs
One of the key questions on all content producer's minds is "how can I reduce my traffic acquisition costs?"
There are some easy answers - pay people less for content designed to pull in visitors, blanket bomb the social networks with a variety of split-tested messages, and use tools to target the lowest priced PPC keywords that have the highest raw return.
But none of these are particularly efficient. They may well drive up visitor numbers, but anyone playing around with Google Analytics will quickly realize, by looking at the Visitor Flow diagram, that the quality of visitor will be falling.
In short, they won't stick around long enough to make a purchase, and they won't come back.
The underlying reason for this is simple : there hasn't been enough keyword research, and as such the visitors that are being captured don't have a real interest in what the site has to offer. You're just pulling in more people with the hope that some of them are interested, whereas an efficient traffic acquisition drive will aim to pull in traffic where the majority of the visitors are interested in what you have to offer.
If you think that sounds obvious, then do me a favor. The next time you go on a traffic acquisition drive, track the conversion rate. 99% of the time, no matter who is managing your traffic acquisition project, it will begin to dip, even as the visitor numbers climb. So will your repeat visitor ratio. As will the time spent on page.
In short, stickiness will fall. And the further it falls, the less profit per visitor is being made. And the cost per visitor therefore begins to climb, which makes the TAC (traffic acquisition cost) look a lot less attractive!
To counteract this, make sure you do your keyword research. Now, as I pointed out on the Keyword Cracker blog post 'The Future of Organic SEO', Google is, on the face of it, about to make this a whole lot harder with the retirement of their AdWords Keyword Tool.
But I think that it's a blessing in disguise, because it will force (persuade?) people to put more emphasis on the context of the keywords that they use, and to re-examine the actual keywords that are bringing in traffic now, rather than trying to second guess what people might be looking for in the future.
So, fire up Analytics (or just look at the Blogger/Wordpress/Squidoo/HubPages/whatever stats) and start your keyword research there, instead. Then try to pick out areas that people are interested in, but that you don't cover explicitly.
Use those in the next traffic acquisition drive, and you should see a rise in effectiveness over previous campaigns, making it that little bit more cost-effective.
There are some easy answers - pay people less for content designed to pull in visitors, blanket bomb the social networks with a variety of split-tested messages, and use tools to target the lowest priced PPC keywords that have the highest raw return.
But none of these are particularly efficient. They may well drive up visitor numbers, but anyone playing around with Google Analytics will quickly realize, by looking at the Visitor Flow diagram, that the quality of visitor will be falling.
In short, they won't stick around long enough to make a purchase, and they won't come back.
The underlying reason for this is simple : there hasn't been enough keyword research, and as such the visitors that are being captured don't have a real interest in what the site has to offer. You're just pulling in more people with the hope that some of them are interested, whereas an efficient traffic acquisition drive will aim to pull in traffic where the majority of the visitors are interested in what you have to offer.
If you think that sounds obvious, then do me a favor. The next time you go on a traffic acquisition drive, track the conversion rate. 99% of the time, no matter who is managing your traffic acquisition project, it will begin to dip, even as the visitor numbers climb. So will your repeat visitor ratio. As will the time spent on page.
In short, stickiness will fall. And the further it falls, the less profit per visitor is being made. And the cost per visitor therefore begins to climb, which makes the TAC (traffic acquisition cost) look a lot less attractive!
To counteract this, make sure you do your keyword research. Now, as I pointed out on the Keyword Cracker blog post 'The Future of Organic SEO', Google is, on the face of it, about to make this a whole lot harder with the retirement of their AdWords Keyword Tool.
But I think that it's a blessing in disguise, because it will force (persuade?) people to put more emphasis on the context of the keywords that they use, and to re-examine the actual keywords that are bringing in traffic now, rather than trying to second guess what people might be looking for in the future.
So, fire up Analytics (or just look at the Blogger/Wordpress/Squidoo/HubPages/whatever stats) and start your keyword research there, instead. Then try to pick out areas that people are interested in, but that you don't cover explicitly.
Use those in the next traffic acquisition drive, and you should see a rise in effectiveness over previous campaigns, making it that little bit more cost-effective.
Tuesday, March 13, 2012
Components of Traffic Acquisition Cost (TAC) Calculations
Traffic Acquisition Cost (TAC) is often used as a general catch-all to explain to stakeholders the reason why a recent marketing campaign has cost so much money.
For example, Wikinvest has a detailed account of Google's own TAC explantion and justification. From this text, it is clear that even though Google benefits from a strong market position, they regard payments to affiliates (generating traffic) to be a vital part of their traffic acquisition strategy.
So, that's one component that can be listed under TAC cost calculation. Here are a few more:
These are the old standards, in more recent discussions of online traffic acquisition costs, social media has become increasingly prevalent. For example, when some organisations come to define traffic acquisition costs, they find that they need to include:
The question is - when do these traffic acquisition costs examples become just another form of marketing or advertising, and when are they valid components of the TAC calculation?
As Investopedia notes in their definition of traffic acquisition cost, it has a direct affect on profitability, and is worth tracking as a component of total advertising costs. Expressing it as a percentage, whilst maintaining a consistent definition is key in understanding TAC evolution over time.
This is important to any business that relies on traffic to survive, and investors keep a close eye on TAC evolution as a way to measure the performance of an online company.
Entrepreneurs need to keep a close eye on TAC evolution as well, as it may well point to issues in their online marketing strategy that need to be fixed.
While there are no hard and fast rules, hopefully this brief discussion of the components of traffic acquisition cost calculation has helped understand the importance of this complex metric.
For example, Wikinvest has a detailed account of Google's own TAC explantion and justification. From this text, it is clear that even though Google benefits from a strong market position, they regard payments to affiliates (generating traffic) to be a vital part of their traffic acquisition strategy.
So, that's one component that can be listed under TAC cost calculation. Here are a few more:
- pay per click (or pay per action) campaigns;
- paid inclusion in search engine directories;
- banner and click based advertising.
These are the old standards, in more recent discussions of online traffic acquisition costs, social media has become increasingly prevalent. For example, when some organisations come to define traffic acquisition costs, they find that they need to include:
- paid tweets;
- paid content (i.e. blog entries, forum posts, etc.)
- creation of free resources to attract traffic (eBooks, newsletters, etc.)
The question is - when do these traffic acquisition costs examples become just another form of marketing or advertising, and when are they valid components of the TAC calculation?
As Investopedia notes in their definition of traffic acquisition cost, it has a direct affect on profitability, and is worth tracking as a component of total advertising costs. Expressing it as a percentage, whilst maintaining a consistent definition is key in understanding TAC evolution over time.
This is important to any business that relies on traffic to survive, and investors keep a close eye on TAC evolution as a way to measure the performance of an online company.
Entrepreneurs need to keep a close eye on TAC evolution as well, as it may well point to issues in their online marketing strategy that need to be fixed.
While there are no hard and fast rules, hopefully this brief discussion of the components of traffic acquisition cost calculation has helped understand the importance of this complex metric.
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