Happy 10th birthday, pay-per-click (PPC) advertising -- part 1 of 2

As we prepare for our country's 232nd birthday tomorrow, I think it's only appropriate to honor the fusion of American capitalism and the search engine.

Whether you call it pay-per-click advertising or PPC (or now that it's all grown up, does it prefer to go by the name "paid search" or "sponsored search"?), this field has grown into one of the most acclaimed, most discussed, and most closely watched barometers of Internet advertising. However, PPC advertising had humble roots, and I was fortunate enough to watch and participate in the industry from the beginning. Here's a brief look back at my experiences and observations:



Although the modern era of pay-per-click ads took place in 1998 with the launch of GoTo.com, the model was piloted by Open Text back in 1996 through its "preferred placement" listings. Open Text abandoned PPC within a matter of a few weeks though, since there was a huge user uproar. The purist Web community wasn't ready for commercialized search engine results yet.



GoTo launched in 1998 to little fanfare. Many industry gurus didn't think it would be successful, given the failure of Open Text's experiment. For example, search pioneer Danny Sullivan wrote in the March 3, 1998 issue of the Search Engine Watch e-newsletter:

"So there are many reasons why pay-for-placement makes sense. There's also a big reason against it. It just doesn’t feel right."



and



"What impact will GoTo have on the other search engines? Probably little. A quick call to representatives at Excite and Lycos found minimal interest. 'It will be interesting to see how this plays out. My feeling that the consumer wants something more cleaner than commercialism,' said Brett Bullington, Executive Vice President of Strategic and Business Development at Excite."

But for some reason, I had a feeling this paid search thing was going to be big. I remember reading the first announcement about the GoTo launch in Search Engine Watch and thinking, "Wow, this is a really great business model. I need to try this!" Maybe it was just my youthful exuberance or naïvety.



At the time I was working as the webmaster (and Internet marketing manager, and software specialist, and hardware guy) for a small automotive accessories manufacturer. I had just finished building their e-commerce site six months earlier, and I was struggling to help them grow traffic and sales. The GoTo pay-per-click model seemed like a perfect fit for the company, since it didn't require a huge capital outlay. I knew I wouldn't be able to justify a big spend with the president of the company -- after all, our $2-$3K classified ads in the back of Car and Driver and Motor Trend magazines were a huge investment for this small company that was just getting its feet wet in retail. So I knew I needed to prove a quick ROI on any programs I recommended. GoTo's PPC approach seemed to fit the bill perfectly, since it was a defined spend that could be scaled up and down based on our needs and the success of the program. Plus it would be easy to quantify. So we started small, with a plan to ramp up if it worked well.



Many people don't know this about the early days of pay-per-click, but originally there was no automated bid management system at GoTo. When the site launched, you had to send an email to GoTo with a list of the words you wanted to bid on, along with how much you were willing to spend per click. GoTo's account services team would make sure your ads met their editorial guidelines, and they'd post them within a day or two (my recollection is a little fuzzy on how long it took...but the one thing I remember was that it wasn't instant like today's PPC!). The same process would apply for changing bids -- you'd send your changes in an Excel spreadsheet via email, and they'd implement them manually.



When I placed our first bids on GoTo.com, there was nobody bidding for "auto accessories" and I think only a few companies were even bidding on "cars"! It stayed that way for a couple months. (If there were no bids or only a few bids on a search term, GoTo would display results from another search engine...Inktomi maybe?...below the paid listings to "backfill" the results.)



As GoTo started to gain traction, the company launched a bid management system -- the precursor to today's automated Google AdWords or Yahoo! Search Marketing web interfaces. GoTo's tool was rudimentary compared to today's standards, but it finally put the bidding power in the hands of the marketers. No more sending Excel spreadsheets via email to the GoTo customer service team. That's when GoTo and the PPC business model started to take flight. (Here's a Search Engine Watch article from July 1, 1998, around this time.)



About a year after GoTo's launch, the company filed for an IPO. These were the dot-com boom days, and it seemed like there were a half dozen Internet companies going public each day. I was among the lucky ones to participate in GoTo's IPO. The company did an interesting thing -- it set aside a pre-defined number of shares for each of its customers. Customers could buy up to 100 shares at $15 apiece, and of course I jumped in on the action (I would've been crazy not to!). The stock opened at $27. Within a matter of months, it rose to $70+ per share. Also, I was one of a few customers quoted in GoTo's annual report that year. I don't remember what I said that was so deserving of inclusion, but I'm sure it was brilliant. :-)



Remember, all this was happening in the days before Google. Google didn't launch pay-per-click on the current market-leading AdWords platform until years later, in 2002!

To be continued tomorrow... (click here to view next post)