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What drives your success? That’s obviously a loaded question, and there are no simple answers – especially in a world as complex and rapidly changing as ecommerce. Geoffrey Moore (of Crossing the Chasm fame) suggests that all the activities of a company can be divided into two categories – core and context. Core are those activities which differentiate and drive the business. Context are all those activities that you have to do just to survive.
Over time tasks and efforts that were once core become context. Doing business online was a core activity five or six years ago – it could differentiate your company and provide a strategic advantage. Today, if you have a modern ecommerce platform, sophisticated guided navigation/site search, personalized cross-selling, real-time inventory status for your physical stores with online ordering and local pickup or returns, and high-end website analytics to track your site traffic, campaigns, and visitor behavior you’re doing well but have no advantage what-so-ever over dozens of other retailers. As Moore predicted, core becomes context and the cycle repeats endlessly.
The challenge is that as time passes and your business grows, the percentage of your time and money available to spend on core activities – new initiatives that can drive growth and success – shrinks simply because you still have to keep doing all the existing activities too. For an online retailer or business, it’s easy to be consumed with the ‘day to day’ effort of managing website infrastructure, organic and paid search campaigns, site merchandising and promotions, basic reporting and occasional analysis. But all of these activities and more are simply the baseline these days – the minimum you must do to be competitive and marginally successful.
So what are the core activities in online commerce today? What should you be doing and thinking about to drive differentiation and advantage? What skills and initiatives need to be cultivated now in order to survive in the not-too-distant future?
A few days at the Shop.org conference in Las Vegas have confirmed at least two of them for me. Details in the next post.
Perhaps my series on The Death of ROAS got them thinking. Who knows. But today the Official Google Adwords Blog posted the first of a promised 3-part series on ROI.
In Part I they explain ROI with the payoff quote "When an advertiser tracks and monitors their ROI, they are seeing the complete picture. This allows them to make smarter decisions about their online ads and, ultimately, make their business more profitable."
Interestingly, ROAS is never metioned. Not shown in the tables that list the standard Adwords metrics of impressions and clicks and conversions.
The next two posts promise to tell us how to track and then use ROI. Hopefully these will also include an announcement about Google supporting ROI reporting directly within the Adwords interface.
The only change to the world of marketing to even begin to rival the impact of the internet and technology itself over the past 10 years is the idea(s) of The Cluetrain Manifesto. "Markets Are Conversations' it famously observed, encouraging companies to construct and participate in two way discussions with their customers, prospects, partners, and marketspace.
An update of sorts is being presented today at a conference in San Francisco in the form of a paper entitled "The Manifesto on Monday Morning: How to put the wisdom of Cluetrain into action when you get to your office.” It will be interesting and probably important to really understand the ideas presented here. Read more about it on ZD - and if you haven't read the book yet - get it!
It seems obvious that to drive ecommerce success, you need a website. But in many cases that is probably the wrong strategy.
Consider an article in The Hollywood Reporter about Viacom MTV’s decision to abandon the mega-site and create dedicated sites for shows like The Daily Show, The Sarah Silverman Program, and SouthPark. As reported:
The sites join a growing list of targeted Web sites that the Viacom property has launched in the past year in conjunction with its TV shows. Other sites include Comedy Central's Indecision2008.com, MTV's YoMomma.TV and VH1's BestWeekEver.TV.The sites are the latest in MTVN's strategy in the online arena, which establishes individual destinations for shows and related subject matters instead of a centralized site. The new portals will bring the worldwide total of MTVN Web sites to more than 300 destinations by year's end.
Traffic across MTVN's properties has increased from 76 million unique visitors in January to 91 million visitors in July, according to comScore Media Metrix.
It makes a lot of sense. Fans of The Daily Show really don’t care that it’s part of ComedyCentral or is part of MTV and owned by Viacom. And a dedicated site almost certainly gets more resources, more content, and earns dramatically better organic search results.
Most ecommerce sites offer a range of goods from different manufacturers across a number of categories aimed at different user groups or usage purposes. A large sporting goods retailer like Dick’s sells tons of Nike, aims at Golf and Soccer and Running, and services weekend, hardcore, and armchair athletes. Targeted sites, which have been sparingly used under the name ‘microsites’ for a long time, would give Dick’s the same advantages as MTV.
A look at the Dick’s site reveals a highly attractive and professional site, with advanced features like guided navigation and user ratings. But managing such a huge range of goods has resulted in very little depth beyond core product information – the golf section for example is 100% ‘picture-price-paragraph’ without any supporting information beyond lovely glamour photography. A quick check reveals that the site doesn’t gain organic rankings on the first page for any of the main phrases of that section – golf bags, golf clubs, golf balls, etc.
Who does rank for Golf Balls? The answer is golfballs.com, golfballs101.com, golfsmith.com, onlygolfballs.com, etc. For Golf Clubs the answers are similar. How many millions of dollars is Golf worth to Dick’s? How many more if they ranked well. (They also don’t seem to be competitive in related PPC, fyi).
What would it cost to develop 50-100 pages of content and more informative and interactive features for the golf section, or better yet the new golf site? Relatively little. From my experience the technical issues of their CMS systems, commerce platforms, and in-house IT depts. are far larger barriors. Whatever these struggles are, they’re going to need to get resolved.
This isn’t picking on Dick’s, I chose them as an example of broad inventory, but all of the above could be said about Wal-Mart, Musician’s Friend, Advance Auto Parts, and many others. Of course, windshieldwipers.com, harmonicasandstuff.com, http://shitbegone.com, have already demonstrated the benefits of targeted sites, gaining top 3 rankings ahead of these merchants.
As the revenue potential, competitive realities, and ‘glass ceiling’ in paid search become clearer to the major (and smart minor) ecommerce companies I believe we’ll see a lot more MTV Retailing, with companies running a network of focused sites instead of (or in addition to) one central mega-store.
In the last few posts we’ve seen that ROAS is related but not directly or proportionally to the actual gross margin you earn from your paid search campaigns, and that believing that ‘keywords have an ROAS’ is a dangerous oversimplification because there are many other variables involved. Putting these aside for a moment, let’s look at a more fundamental question: is maximizing return-on-ad-spend even a good idea?
If the goal is maximizing revenue or profit, maybe not. The assumed correlation just doesn’t exist. Consider ‘keyword A’ with a 417% ROAS and ‘keyword B’ with a 375% ROAS – which one makes you the most money?
The answer lies in the interaction of the average cost-per-click and the conversion rate. If ‘keyword A’ has a $0.15 cpc and a 2.50% conversion rate, and ‘keyword B’ enjoys a 3.75% conversion rate with a $0.25 cpc, then ‘B’ produces a whopping 50% higher revenues and 45% more gross profit at the lower ROAS. (See the table above for a full breakdown.)
This example shows that for every keyword where you review the return-on-ad-spend to make future bidding and budget decisions, you really need to factor in cost-per-click and conversion rate. Add to that the importance of margin and the fact that keyword selection and max-bid are only 2 out of about a dozen factors you can manipulate to impact ROAS (and conversion rate) and we arrive back at the original premise - ROAS needs to die.
It would be great if paid search was a simple little game where the skills you’ve picked up in other endeavors prepared you to easily and consistently win. Once upon a time it might have been.
(Thanks to Bruce Ernst for the math and other guidance.)