Eastern Promises

Japan’s had it hard. After nearly a decade of stock market doldrums and an economy on the brink of disaster – just as the rest of Asia struggled too – Japan bounced back. Growth happened. Its economy is still a tad slow, but there are many industries looking way up. Online marketing is one of them.

Of Japan’s 130 million people, about 88 million are online. That’s about 68 percent of the population, according to Internet World Stats (Asia), compared with 210 million of the U.S.’s 300 million and 137 million of China’s 1.4 billion residents. Japan’s may seem like small numbers, but the momentum of online marketing and the ever-growing popularity of affiliate marketing in Japan make it a region everyone’s talking about.

Blogging, for example, in Japan is a popular way of getting products in front of the masses. Technorati Japan says that more than 85 percent of Japan’s bloggers write about companies and their products – and that over half of these bloggers have been contacted by companies to extol their wares. Japan’s Ministry of Internal Affairs and Communications says that bloggers totaled about 8 million in that country, making for an in-blog ad market of about $60 million last year.

Expansion on the Way

In the 1990s, the Japanese did not use credit cards much for online purchases, as bank transfers and postal transfers made e-commerce slow and a waiting game. But by 1999, a tech-hungry culture emerged and online spending came with it. Pay-per-performance business models were not far behind.

A leader in this space is online retailer Rakuten and its affiliates – managed through LinkShare Japan, a U.S.-led affiliate company acquired by Rakuten in 2005. Rakuten is the leader in online shopping destinations in Japan, so their penetration made them a default major player. In fact, Rakuten plans to be in about 27 more markets by 2012, according to Atsushi Kunishige, a vice president at Rakuten. He says they will use LinkShare, for example, as a way to "expand our business into the international market. We want to open a full-fledged Internet mall [abroad]."

Rakuten’s 20,000-plus online stores and merchants did about $66 million in operating profit in the second quarter of 2007. With the company traded publicly on the Japanese stock market, that’s a market capitalization of more than $5 billion.

LinkShare Japan has about 68 percent of the top-selling merchants in Japan and is the leader in customer satisfaction, according to a survey by Japan’s Affiliate Marketing Association. Atsuko Umemura, director, corporate planning, of LinkShare Japan, says that their focus on per-sales kinds of merchants has helped make them a leader. "Affiliate marketing has proven to have the best ROI for us," she says.

Late Bloomers

While the U.S. affiliate industry can trace its beginnings to the mid-1990s, the first affiliate providers in Japan didn’t start up until 1999. The U.S. market has had a few years to evolve and grow, whereas the Japanese affiliate space is still considered a "juvenile." There are more than 80 affiliate networks in Japan that cover both Web and mobile platforms. Some of the more high-profile affiliate networks include Adways, Access Trade, LinkShare Japan, Fan Communications (A8), TrafficGate, ValueCommerce and Zanox Japan.

Anthony Torres, president of affiliate marketing program management company MetaFlo Marketing, which is based in Japan, points out that the key difference between the U.S. market and the Japanese market is that the "Japanese affiliate networks can service only Japanese sites. U.S. networks such as Commission Junction operate worldwide due to English being the most popular language for Web content. So, no matter how large the Japanese affiliate industry gets, it will never be as big as the English-speaking networks," Torres says.

He also notes that Japan is still behind the curve in tracking technology and commission sophistication. For example, U.S. advertisers have more choices in how they reward affiliates. Generally, U.S. affiliate networks allow merchants to pay affiliates based on subscription status of digital content and, of course, future sales even if buyer clicks go directly to a merchant store. The U.S. networks also have more payout choices. A small CPA, plus a larger percentage of future sales generated by the lead is a method that hasn’t made it to Japanese network platforms.

Torres notes that the cost of acquisition of a typical online customer is high in Japan. "When you add in customer service and all of the accumulated costs in the sale cycle, you are left with a lower margin per sale," he says. Merchants in Japan are just not used to paying high commissions or lifetime commissions on a customer, he adds. "As the industry matures here and the ability to attract online buyers becomes more challenging, we may see online merchants less reluctant to try more aggressive commission terms." Unique to the Japanese market seems to be the cross-investment of media sites and affiliate networks. In order to increase media coverage, many networks invest in or make their own in-house media sites.

Considered the real pioneer in Japanese affiliate marketing is ValueCommerce (Yahoo Japan took a sizable stake in the company in 2005), started by a New Zealander named Tim Williams. ValueCommerce has more than 50,000 websites and blogs in its network, with about 2,000 advertisers. The company has about $43 million in annual revenue and trades on the Tokyo Stock Exchange. Goldman Sachs veteran Brian Nelson is now CEO, having come on in 2000 as COO. Nelson says that "we focused on our strengths, continued to hire great people, and launched new products and services that kept new customers, especially large brand name customers, coming in to work with us."

Consolidation is Coming

Nelson says that a large product database for shopping and their Web 2.0 applications have kept them in the No. 1 spot. It also doesn’t hurt that there is some consolidation going on in the Japan online marketing space now. "I have been telling people in the market for a long time that consolidation is coming " and it is in full swing now," Nelson says. LinkShare’s Umemura says, "It is a very saturated market right now. There is not enough room for everyone to survive."

Online marketing observers in Japan note that there are just too many networks trying to service the same advertisers. With about 1.3 million affiliates registered with the major networks and the majority of transactions driven by a group of search affiliates and "incentive media sites," there are not enough "quality" affiliates to take on all the offers out there. This means the networks are starting to look at new channels for ads.

One of those new channels is mobile, a platform that has performed very well for Japan. Because the Japanese adopted 3G standards fairly early, more than three-quarters of all cell phones in Japan have smooth Internet access. This means delivery of interactive content and ads to about 86 million cell phones (compared with 31 million in the U.S.). There are more than 48 mobile affiliate networks in Japan, with names such as Moba8, Pocket Affiliate and Smart-C. In 2005, the Japanese spent more than $3.8 billion on purchases over cell phones – 57 percent over the previous year. In addition, the CPA-based mobile affiliate provider model does much better in Japan than in the U.S., where CPC or CPM models prevail. It’s been said the culture in Japan plays a role in this since there are so many more commuters in Japan – leaving more travel time for the Japanese to experiment with their cell phones.

And with greater mobile traffic comes the opportunity to serve more Internet phone search advertising. Local search engines like Goo, Nifty and BigGlobe get a share of those eyeballs, but the leaders are Yahoo Japan (with about 63 percent of searches), Google Japan at 23 percent and about 14 percent left to split between MSN and the regional engines. Yahoo Japan is also the biggest local player in Internet auctions, Web email, mobile content and broadband.

Search Challenges

Japanese online marketing agency and search specialist Sozon sees challenges in the search marketing arena. One area in SEO that is unique to Japan culturally speaking, says Andy Radovic, VP of strategy and planning at Sozon, "is its variety in language used. Essentially, there are four methods of writing – kanji, the character system borrowed from China; hiragana, a more simplified form of kanji; katakana, the Japanese expression for foreign words; and romaji, which is the alphabet," he says. "Depending on what you intend to communicate, you may use just one or a combination of these. This greatly impacts the keyword planning stage of your SEO program. Another major difference is Japan’s reliance on Yahoo as the search engine of choice."

Radovic notes that Japanese-run companies are the leaders in services and customized solutions. "There are very few successful, market-leading international companies in the online space," he says. The international companies that operate in Japan tend to do so with a local partner. The exceptions, he says, are technology- dependent products, where some U.S. companies are in the lead, such as in search (Google) and bid management and Web analytics tools (like Omniture). "Some of the Japanese homegrown companies in the mobile, travel and insurance space are getting more sophisticated in their online marketing programs and are tracking to off-line sales," he says.

Scott Neville, COO of Sozon, says that, creatively speaking, ad messages need to really know their audience. "International ad concepts simply will not work most of the time," he says. "Text is definitely king here. More information is better and creative is often very busy with multiple propositions." He says you will need to provide as much detail as possible in your campaigns – that Japanese users will definitely read your privacy policy. He says that text email is the standard and somewhat limiting in terms of email marketing campaigns that may rely on HTML. Flash and graphic-centric sites tend not to work that well at either an advertising or a site-campaign level. He says that Flash campaigns "are not really supported by major portals for media buying and tend to be not that well received." Also, comparison campaigns are not generally used in Japan and "culturally not respectable to run."

While online ad agencies in the U.S. are slowly starting to synergize their off-line traditional ways and the brave new web of interactive display advertising, the Japanese banner ad companies are not doing too well. Two online ad agency leaders, Cyber Communications and D.A. Consortium, actually had negative growth in recent years.

The Network View

Aside from the few U.S. companies acquired or now run by Japanese companies, there are few pure U.S. players in this market and there are not likely to be more anytime soon. Observers note that U.S. networks just don’t have the Japanese-language support. While LinkShare and ValueCommerce have a bilingual platform interface, they are the only two out of dozens. One of the U.S. networks to gain a measurable foothold in Japan is DTI. They host affiliate programs for Japanese adult sites, but since most networks in Japan won’t handle porn ads, DTI has found its niche in this area. Some experts point out that one opportunity for U.S. companies would be to acquire small- to medium-sized networks and re-brand. LinkShare’s Umemura says that in Japan, U.S. companies could have come in at an earlier stage, but that "starting now from scratch would be pretty difficult whether you are a U.S. or European company. There are some smaller U.S. networks that do quite well here."

In terms of what hasn’t been popular in Japan’s affiliate programs are third-party management vendors. Currently, only a handful of the affiliate networks have management services, mainly because they are pushing their own media. However, experts say, tool and service vendors could eventually find a market in Japan. Keywords tools such as Wordtracker, recruiting tools such as Syntryx Executive Solutions and competitive keyword research tools such as the makers of KeyCompete could enter the market fairly easily.

Perhaps the best indicator that the online marketing landscape in Japan is maturing is the formation in May of 2006 of the Japan Affiliate Service Kyokai, an association that started to draw up guidelines, educate the public and monitor ethical behavior in online marketing. The six major networks in Japan founded the association when they felt that "shady affiliates" were starting to encroach on the growth of the business.

A learning curve, however, still applies. Sozon’s Radovic says that "everyone is struggling with how to market in a Web 2.0 environment. The Japanese blog and peer consumer trust are major drivers of consumer purchase. So this is an ongoing challenge." And solutions to the challenge will certainly add up to a better marketing landscape.

Searching for Alternatives

It was a cold night in Pennsylvania when Leila Crooks was on Digg.com, the community-based popularity site, and came across a story about a "slanket" – a fleece blanket with sleeves that offers the freedom of arm movement so people can play video games or surf computers while snuggling under a blanket.

Crooks was intrigued, bought one, loved it and sent the link to three of her friends who all bought them. At $50 a pop, the maker of the Slanket was benefiting from Digg. The number of sites for finding information online – that are alternatives to search engines – is growing and the traffic to them is increasing. People go to them for different reasons: to find experts who can provide the best possible information, to have material presented in a different way, to see what other users value as important and to find information they know will be relevant to them specifically.

The Slanket example illustrates the difference between search (or "recovery") and discovery. Search (or recovery) is when you are looking for something specific – a confirmation of information that you know already exists, such as information about the governor of New Jersey or a recipe for meatloaf. Discovery is when you find something you were previously unaware of, weren’t specifically looking for or didn’t know that you’d have an interest in. It’s akin to reading additional stories in the newspaper because of the proximity to the article you wanted to read.

Amanda Watlington, founder of Searching for Profit, says social media sites like Del.icio.us or Reddit.com are organized to present information in different ways, which can appeal to people "depending on how their brains work." Users go to the Most Popular section of these sites and check out what others deem to be interesting.

Internet marketer Carsten Cumbrowski says he passes time on StumbleUpon.com, a browsing engine, to find sites that other online marketers find useful as well as to find sites that entertain him. He says it has a good filtering system – "if I say I don’t like something, I never get anything similar again."

Online marketers that want to leverage StumbleUpon can try its advertising system, which includes the link of the advertiser’s website in the regular StumbleUpon rotation. When a sponsored site is shown, a green button on the toolbar appears. However, some advertisers who have placed requests to get visitors in their category have received notices from StumbleUpon that there are not a sufficient number of people to view the ad in the category selected. Skeptics wonder if this is because StumbleUpon does not want to deal with a low ad spend or if they are overstating their traffic numbers.

Cutting Through the Clutter

As users become savvier in locating information, they realize that search engines are heavily monetized and loaded with nearly as many marketing messages as sought-after information, and they seek out alternatives, according to Sam Harrelson, general manager of the East Coast U.S., for Clicks2Customers.

Others agree that "less noise" and the struggle to find relevant information on search engines often lead people to alternative sites.

For example, if users are looking for tax help, they might go to Digg and read an article like "five ways to get your taxes done" rather than entering "tax help" into a search engine, which yields promotional sites about tax services, according to Chris Winfield, president of 10e20, an Internet marketing company.

Users often go to review or opinion sites to find information to complement what they have found on search engines. Winfield says he will search Google for a dentist in New York to get some names and then go to Yelp.com to look at their reviews. Searching for Profit’s Watlington says she searches for hotels in New York and then goes to TripAdvisor.com for the reviews.

Tim Mayer, vice president of product management of search at Yahoo, explains that when users don’t find the answers they want on search engines, they can ask a question on Answers.com. The site includes 4 million answers from publishers, original content created by its editorial team, community-contributed articles from Wikipedia and answers from WikiAnswers.com.

WikiAnswers is collaboratively written by volunteers "in the spirit of growing information for the public good," according to its website. For contributions that users find to be worthwhile, users vote with Trustpoints, which are indicators of how trusted the last contributor is as a member of the WikiAnswers community (as opposed to a measurement of how much you can trust the actual answer to a question). Trusting a user’s reputation is vital to not only WikiAnswers but to all social sites where users provide information or indicate the value of information (such as through tagging, bookmarking or ranking).

Just like in off-line world, the value put on information depends on who is giving it, and for this reason, users’ profiles can be weighty and influential. If you are reading an article about JavaScript on Del.icio.us, you look to see what other articles a user has saved – it gives you an understanding of that person’s knowledge base. It is similar to looking at someone’s book or record collection – it lends credibility and perspective.

Trust Me

Techmeme.com is one of online marketing expert Jim Kukral’s favorite sites because it decides what news is important as opposed to a site that simply aggregates feeds. "Techmeme saves me time. There is no need to go to a ton of blogs to figure out what is going on. That’s power to me," he says.

Techmeme works differently than other news sites. GoogleNews, a news aggregator site, uses its own software to determine what stories to display, but the sources are selected by a team of editors. Similarly, SFGate.com, the online version of the San Francisco Chronicle newspaper, also features stories decided on by editors. Techmeme creator Gabe Rivera explains that Techmeme uses a proprietary algorithm, which changes frequently, to analyze posts to determine what Web pages are being discussed or cited most often on the Web.

Blogger Robert Scoble (www.Scobleizer.com) explains that Rivera started by selecting 1,000 of the world’s top tech bloggers, put them in his server, studied their linking behavior and created a "fabric" that now includes thousands of blogs and websites. When Apple’s iPhone came out, high-profile bloggers in the fabric such as Michael Arrington (www.TechCrunch.com), Guy Kawasaki (http://blog.guykawasaki.com) and Scoble were all blogging about the new device. Because of this, the iPhone headline stayed up on Techmeme almost 24 hours a day over the summer. Scoble says he believes that information from a site like Techmeme is more valuable than information from Google because it’s more SEO-resistant – it is much more difficult for its links to be bought. For these top bloggers to link to each other, they must trust each other. "If I trust Arrington and he trusts Kawasaki and he trusts Joe Smith, then I am going to infer that I trust Joe Smith because my chain has trusted him. It would be very hard for a search engine optimizer to break into this chain," he says.

Dana Todd, president emeritus of SEMPO and SiteLab co-founder, says that she thinks it’s rather limited thinking to assume that all SEO is harmful and that SEO is the only market manipulation tactic on the Internet. "In any market, there are marketers – and they do exactly what marketers do. They attempt to find hype-holes in the system and exploit them." She notes that it took about 15 minutes for users of Digg to start manipulating the results. The findings of a September study by the Project for Excellence in Journalism (PEJ) warn that just because a news story is popular at a website (or within a certain community) does not mean that it is the most "important" story.

The PEJ study compared the headlines of user-driven news sites (including Digg and Reddit), and Yahoo News, which offers an editor-based news page and three lists of user-ranked news (most recommended, most viewed and most emailed), and compared these with the news agenda found in mainstream news outlets.

The study illustrates how the news looks different when audience members pick what story they want to read or recommend, as opposed to when a professional journalist makes the selection. The study found that the most popular stories on user-driven news are more fleeting and often draw on a controversial list of sources and reflect the interests of the participants in the community – stories on Digg and Del.icio.us tend to be more about technology, which is why they are popular among online marketers.

User-driven news isn’t new – in October the site Slashdot celebrated its 10-year anniversary as a site where users could scrutinize science, science fiction and technology- related news. It is credited for being one of the first sites to provide forum-style comments alongside user-submitted news stories. Just like Del.icio.us, you wouldn’t go to Slashdot to find out information on the latest U.S. billion-dollar defense policy bill.

In a post on his blog, Gaping Void, Web 2.0 writer/cartoonist Hugh MacLeod posits that if he were looking for a Vietnamese restaurant in Phoenix, he could Google "Vietnamese restaurant Phoenix" and possibly end up at a bad restaurant. Or as a blogger with a good-sized audience, he can ask about his dinner plans on Twitter or Facebook.com and get a couple of good recommendations within minutes. "Because I know these folks, or at least, they know me " there’s a certain amount of trust and bonhomie that comes with the recommendation," says MacLeod.

Social networking site Facebook has received lots of buzz and high financial valuation because of the "social graph" – a reference to graph theory that models the connections between things. Facebook founder Mark Zuckerberg says Facebook is not a social network but a tool that facilitates the information flow between users and their connections. It is the ability for users to get more out of their connections that people find compelling.

The Power of the People

According to Scoble, Facebook, Techmeme and Mahalo – a human-powered search engine that creates comprehensive and spam-free results for the most popular search terms – will kill Google in the next four years because users will get their information from these types of sites where trust is more than what algorithmic search results provide.

In October, Facebook added Facebook Flyers, which offers two different advertising options to the social network. Flyers Basic enables marketers to run ads on a $2 CPM with targeting based on age, gender and network. Flyers Pro lets marketers use pay per click with a minimum of 1 cent per click. As with other PPC ad buys, a higher max price per click increases the chance your ad will be shown. Online expert Kukral says Facebook Flyers "is basically Google AdWords within Facebook." He says that as an online marketer in Cleveland, this gives him the ability to do things like drill down to specific demographics with Facebook and target those users for a local "event."

"I can create an event in Facebook and then look at all the people on Facebook that are in the area and maybe have certain political or religious beliefs [based on their Facebook profiles] and then invite them to participate in an offer or event," Kukral says. "That is powerful and it could be the next big thing."

Part of trusting someone’s advice or being receptive to marketing messages is awareness of users’ tastes. David Rodnitzky, vice president of advertising at Mercantila – a collection of hundreds of online specialty stores selling to U.S. and Canadian consumers – says StumbleUpon and movie site Flixster.com are popular because they leverage collaborative filtering.

Here’s an example of how collaborative filtering works, according to Rodnitzky: Two users rate 200 movies on Flixster, and 90 percent of the time the ratings of the same movie are consistent (user A gives "Star Wars" a 10, user B gives it a 10). So if user A wants to see a Chinese-language movie but has never seen one before, and user B has seen five of them, the odds are good that whichever Chinese-language movie user B ranked a 10 will also be a movie that user A likes. When user B types in "best Chinese movies," the results are tailored to his specific likes and dislikes.

"Over time, if a collaborative filtering engine gains enough information about an individual user, it’s possible for the results to be very powerful – and far more accurate than what you get by just doing a search on a search engine," Rodnitzky says. However, the collaborative filtering engine first needs to have enough users to make those ratings viable.

Wikipedia.com is a popular search alternative that has garnered enough users to make it worthwhile. It reached 2 million answers in the English-language version in September 2007. Since starting in 2001, more than 100,000 registered users have made at least 10 edits each to Wikipedia articles. It is in the search toolbar in the Firefox browser and the sixth-most-visited network of websites worldwide. Internet marketer Cumbrowski claims Wikipedia is exceptional because it lists references – users can find out what experts think are the best resources for a topic – which obviates the need to research a topic any further.


Finding the best information from the most informed user base is driving the growth in specialized communities and vertical search engines. Cumbrowski says there will be more specialization. As good examples of that, he points to BUMPZee.com for the affiliate community and Danny Sullivan’s Sphinn.com community for search information.

The explosion of content available on the Internet is fueling this specialization. Although Web 2.0 has made creating connections easier, it has made searching for information more difficult than ever. Because users’ queries are usually ambiguous, Google cannot serve the needs of every user. In turn, that has brought about an increase in the number of vertical properties, which restrict the scope of a search (see sidebar, Page 46).

Stephanie Agresta, a founder of the Conversation Group, says social networking sites such as Facebook and Twitter fill in the gaps. They allow individuals to tap in to different levels of networks of people to get information from someone who knows about a particular subject. Sites such as Mahalo and Squidoo.com enable users to view information through a specific user’s lens – the movement now seems to be toward a custom feed based on an individual’s friends and context, and away from algorithms.

But SEMPO’s Todd says it took only about 20 minutes for her to get bored with Facebook "because of all the ridiculous plug-ins and faux human interactions." She says that search engine optimization is not really the issue here. Google dominates that area because it caters to the very lowest common needs of users, and does so very elegantly. "It’s a tool, not a destination."

Moving forward, more of these types of sites are expected to pop up. Mixx, a new social news site – a cross between LinkedIn, Reddit and MyYahoo – is a social network that lets users find and share news based on their interests and location.

Another social network service is Ning, an online platform for creating social websites and social networks. Ning helps Web publishers create social networks around their content – more than 100,000 sites have used Ning’s tools to add their own networks. The sites range from a network of family members sharing content and photos to large networks such as Indiepublic, a social network for independent designers and artists.

Social sites are limited to certain topics, as several industries don’t have enough people using them yet and it’s tough to find any long-tail information on social sites, according to Web strategy consultant Cameron Olthuis. He expects that search engines and "alternative sites" will be completely necessary for people to continue to find information.

No Borders

In 1492, Christopher Columbus proved that the world was round. In 2006, Thomas Friedman reversed that thinking by writing in his book, The World Is Flat, that the Internet, technology and diminishing trade barriers have created a global marketplace. We can now work and trade with people all over the world with an ease that would have been unimaginable even one ago.

Performance marketers are taking advantage of this more open and leveled playing field to grow their business across borders and oceans by using the skills honed in their home countries. Publishers and networks no longer must confine their opportunities to the 50 states, but through partnerships can reach out to the world.

However, just as American networks and publishers envision growing profits by going abroad, marketers in other regions are now aiming to do battle in the United States. Everyone should prepare for heightened competition.

The United States may have had the early lead in Internet adoption and e-commerce, but the world is catching up quickly. The EU, which has a population two-thirds larger than the United States, now has approximately the same number of Internet users according to research firm eMarketer. China is expected to have the largest community of Internet users by the end of the decade, and Australia and Japan have a higher percentage of citizens with Internet access today than the U.S. As more people go online, global competitors sensing the opportunity are developing operations on par with the U.S.

Europe Grows Up

Just a few years ago Europe was between 18 to 24 months behind the U.S. in affiliate sophistication, but those days are over. During the past few years TradeDoubler, Zanox and Commission Junction have expanded their networks throughout much of Europe and rival the U.S. in their ability to establish relationships and attract an audience. Publishers are expected to help online commerce in Europe to grow from $94 billion in 2006 to more than $200 billion by 2009, according to Forrester Research.

From a network-services, marketing-savvy and technology standpoint, affiliate marketing in Europe is now equal to the United States, according to Carl White, vice president of ValueClick Europe. (ValueClick is the parent company of network Commission Junction.) For example, network software now automatically adjusts the content for nation-specific language, currency and taxes, says White, adding that ValueClick’s European and U.S. networks use the same software. With an understanding of local markets and a bit of training, publishers can get a passport to market internationally.

ValueClick Europe has offices in four countries and saw revenue grow by 30 percent in 2006, according to White. He says that while standardizing on the euro for currency has helped to unite the region, familiarity with the business practices and legal differences of each nation are critical for affiliates to succeed. For example, skill gaming is allowed in much of Europe, while in some regions software downloads as promotional vehicles are less tolerated, White says. “Each market has its own nuances.”

William Cooper, chief executive officer of TradeDoubler, says his company learned that hiring local personnel who live in the country and have an intrinsic understanding of the cultural values and language is critical to growing an affiliate program. TradeDoubler, which started in Sweden and now has offices in 15 of the 18 EU countries in which it operates, grew revenue last year by 61 percent to $256 million.

Rather than trying to conquer Europe simultaneously, the company added one or two countries per year, according to Cooper. “I wouldn’t say for a second that it has been easy,” he says. While most of Europe has adopted the euro (with the exception of the U.K., Poland and Sweden), the unique tax regulations and business laws require time-consuming research before a network can set up shop in a country.

Cooper says that European networks have a more handson style than their American counterparts. “It is more of a consultative approach as we work on a daily basis with our publishers,” Cooper says. Focusing on account management rather than technology enabled TradeDoubler to spread across Europe, he says.

TradeDoubler’s publishers have asked the company about expanding its network into the U.S. and Asia, but for now the focus remains on Europe, according to Cooper. Earlier this year AOL attempted to acquire TradeDoubler, but shareholders rejected the offer.

The European market may become even more crowded should Performics enter the fray. Chris Henger, vice president of affiliate marketing at Performics, says the company is still debating expanding outside of the United States. “We have other priorities than an international distribution effort.” However, Henger says 2007 will be a year for international “investment and investigation” for the company. “We can decide based on demand whether or not to go international,” He says. His rival Link- Share is already in France and the U.K.

Steve Denton, president of LinkShare, says the focus in the U.K. is not about the merchants, which often have two or three different affiliate programs, but with the publishers.

He notes that because interactive agencies have a much bigger influence on advertisers’ affiliate programs in the U.K., its harder to have exclusive merchant deals with networks. Instead, that means that networks must work hard to woo publishers who often have to decide between offers from the same merchant who may have programs on several networks at the same time.

“As a network you need to look at the needs of publishers,” says Denton. “It’s about how they choose and why.”

Consumers-Border Conscious

While most of the trade and technology barriers to market across borders in Europe are crumbling, publishers may find difficulty in converting visitors because of consumer resistance to shopping internationally. According to a 2006 European Commission survey, while 27 percent of citizens have purchased something online, only 6 percent had made an online cross-border purchase.

European consumers say the biggest concerns about buying internationally include the security of transactions, potential problems in resolving complaints, differences in national laws regulating consumer transactions and higher delivery costs, according to the survey. Partially because of these perceptions, just 29 percent of EU retailers offer their products outside of the country, which limits the number of merchants available to publishers.

ValueClick’s White says the software and practices used in affiliate marketing and e-commerce has evolved to the point where the physical location of the publisher or network no longer restricts entering a new market.

“A publisher’s life is border-free,” says White. With a little guidance and local connections, publishers who are successful in one country can achieve success elsewhere, he adds. “A good business in one country is a good business in another,” he notes. He says it is becoming commonplace for U.S. affiliates to come to the EU, and the company also has affiliates based in South Africa.

Zanox, the network based in Berlin and with a U.S. office in Chicago, sees Asia as a fertile ground for affiliates, and has been among the most aggressive European networks in the region. The company has relationships with approximately 250,000 publishers in Asia, according to Holger Kamin, Zanox’s U.S. regional manager. Kamin says China, “with only 9 percent [consumer] Internet [access] penetration … has by far the greatest potential.”

TradeDoubler’s Cooper says his company currently is not active in Asia, citing the challenges posed by cultural differences. “Europe has been the focus for us,” he says. Nicky Senyard, CEO of Ecom Access, attended the Ad:Tech conference in Sydney and says there is considerable interest in affiliate marketing in the East. “The take-up in China and Asia is amazing,” she says. She predicts that Asia will follow Europe as the next quickly maturing affiliate arena.

Because of its ties with parent company Rakuten, LinkShare has established a strong presence in Japan.

From Global to Local

Technology has made it much simpler for publishers to participate in international marketing, including targeting the audience on a local level. Geo-tracking and geo-targeting are becoming standard features of affiliate and advertising software. The software prevents ads from being seen outside of their intended geography and should increase conversion rates.

Zanox, which works with publishers from 30 countries and five continents, uses geotracking technology to customize how publishers display content to visitors from different countries. The technology identifies the visitor’s IP address, and when used in conjunction with a geo-targeted advertising system, displays geographically relevant content to maximize revenue, according to Kamin. Advertisers in industries such as finance and insurance that can only offer services to domestic consumers do not want to pay for external leads, so Zanox prevents their content from being shown.

U.S. publishers can monetize their international visitors by signing up with an international network and then displaying relevant content to visitors regardless of their country of residence.

American publishers who enter the United Kingdom can tap into an audience of English speakers that will include some traffic from their home country, according to Malcolm Cowley, director of strategic accounts at the Buy.At network. Up to 25 percent of visitors to some U.K. sites are from the U.S.

Cowley says Buy.At’s network currently has many U.S. publishers who market U.K. products to a U.K. audience. It also works in the other direction, as Cowley says U.S. affiliates can enhance revenue by signing up with a U.K. network and automatically deliver relevant content to those visitors from their home by tracking their IP addresses.

Ecom Access’ Senyard says geo-targeting is a “great function for affiliates” to enhance revenue by serving foreign visitors. The company developed the software in-house and uses it to deliver custom advertising to its European audience through its ShareResults network. The company, which has offices in Canada, the U.K. and Australia, also has affiliates in Italy, Sweden, Finland and Spain who use the software to identify people from other regions and customize content to suit them.

Sophisticated geo-targeting software can identify the city of the visitor (or at least the city of their Internet service provider), which can be used to customize content for people living in a nation with regional differences in culture or language. For example, Digital Envoy’s geo-targeting software, which is used by Performics, maps Web addresses at the city level and can also detect for connection speed. So sporting affiliates can display different merchandise to footballers (or as we say, soccer fans) in Birmingham and Sheffield, or similarly target different areas of the U.S.

Coming to America

But just as technology has made it seamless for U.S. publishers to participate internationally, it also creates a window for foreign networks and affiliates to participate in the domestic market. In March, Buy.At opened a U.S. network without a physical presence, although executive Cowley expects to do so at a later date.

Buy.At chose to expand into the U.S. before operating anywhere else in Europe because of the common language and because the network already had relationships with many American advertisers. “We were looking to make it a two-way street because of brands we have in the U.S.,” according to Cowley. He hired veteran affiliate manager Andy Rodriguez to develop the network because of his local expertise and ability to develop the affiliate relationships.

Zanox’s Kamin agrees that there is considerable interest from U.S. and European publishers to work with affiliates on the opposite side of the Atlantic. Despite the maturity of the U.S. market, Kamin sees opportunity in creating vertical networks that develop market-specialized material.

Affiliate marketer and blogger Fraser Edwards, who works with Commission Junction in the U.K., visited the U.S. recently to learn more about the networks here and to meet with potential partners. He was surprised at the number and variety of specialty cost-per-action networks.

Despite the intense competition, he sees opportunity for international networks to enter the U.S. Edwards, who is based in Edinburgh, Scotland, says that by focusing on the quality of service delivered to affiliates, they could take business away from U.S. networks.

Edwards says European publishers who apply for U.S. programs using current domains are often automatically rejected, but they get around that by signing up with an American Web-hosting company. Content would need to be modified to give a local perspective and the language used in campaigns would have to be checked to ensure that it is familiar to a U.S. audience, Edwards says.

During the next few years publishers are likely to have a much greater audience to market to as more consumers go online. By 2010 more than 360 million consumer households worldwide will have broadband access, with nearly 40 percent of all connections located in the Asia/Pacific area, according to research firm Gartner. This will result in new affiliates and networks with international aspirations.

As author Friedman says, “Globalization 3.0” enables individuals to collaborate and compete globally. With global networks and software that automatically adjust for local currency, language and taxes, international online marketing has indeed become flat.

John Gartner is a Portland, Ore.-based freelance writer who contributes to Wired News, Inc., MarketingShift and is the Editor of Matter-mag.com.

Stop the Presses

Extra! Extra! (click here)Prepare the obituary: The era of the daily newspaper as the news source is over. The Daily Tribune, Inquirer and Journals of the world have been recycled, replaced by multi-platform (online and off-line) entities that engage readers and operate around the clock. This rebirth is good news for advertisers big and small who will be able to more effectively target a growing audience.

Newspapers have been increasing their online operations in the past few years in an effort to replace falling revenue from diminishing print subscriptions as more people turn to online news and bloggers for their daily digest. Now they are going on the offense to expand their audience and build loyalty.

Publishers have been hemorrhaging print advertising dollars as retailers have been moving online. Print advertising was down by more than $11 billion (2.6 percent) in the third quarter of 2006 from the previous year. While online advertising on newspaper sites grew by $638 million during the third quarter of 2006, that is less than 6 percent of the print deficit, so the pressure is on to grow online revenue to make up the difference.

Publishers see engaging their audience through community and social collaboration features – which are part of the so-called “Web 2.0” technology wave – as the keys to driving traffic and advertising revenue growth. By incorporating “community” aspects from blogs and websites such as Digg, MySpace, YouTube and del.icio.us, publishers hope to increase reader loyalty and become the epicenter of their online news activities.


The Washington Post Newsweek Interactive (WPNI) Company saw this change coming and started to incorporate community participation into its websites two years ago. The company saw online revenue jump 24 percent during the third quarter of 2006, and by more than 31 percent for the year.

WPNI vice president of marketing Tim Ruder says bringing readers into the news process can enhance readership as well as the quality of the editorial. “Publishing is no longer in the realm of the exalted few, and to ignore the potential [of reader contributions] is suicidal,” he says.

Because reporters are generalists it is difficult for them to match the expertise of individuals on all topics, according to Ruder. “There is somebody out there who knows more” about nearly every topic, he says, and publishers can profit from giving them a forum for participation.

During the first quarter of 2007 WashingtonPost.com will introduce social networking, Ruder says. Readers will be able to create personalized Web pages to link to, comment on and share content, including articles, images and video. These new features will enable errors to be corrected and generate comments and new story ideas that can be used in print, he says.

Ruder believes that adding social networking features will increase traffic and give the company more online inventory to monetize through advertising. While adding one social aspect “won’t make us a million dollars,” collectively creating a dialogue with readers “will separate us editorially from others” and greatly increase reader loyalty, Ruder says.

Austin, Texas-based Pluck enables publishers to add social media aspects to their website without requiring programming. Pluck’s “Sitelife,” service includes the ability to attach comments to articles, create forums and blogs, and enables readers to post photos, according to general manager Eric Newman.

Pluck hosts the social areas on its servers, but the content is thoroughly integrated, according to Newman. Social networking elements “promote additional discovery on the website, which equals reader loyalty and page views,” he says.

Brad King, assistant professor of media informatics at Northern Kentucky University, says publishers who create a community by allowing readers to contribute could see “astronomic” growth in Web traffic. King warns, however, that publishers must provide oversight of the comments and user contributions so that advertisers will feel comfortable in having their ads alongside the content.

Publisher Gannett, which prints 98 regional newspapers plus the national paper USA Today, is among the most aggressive when it comes to redesigning its editorial and sales process around its community of readers.

Michael Maness, vice president of strategic planning for Gannett, says all of its newsrooms are being transformed to “information centers” that operate around the clock and will heavily rely on user contributions. “The future is pro-am, as in professional- amateur,” Maness says. Readers are asked to provide assistance in obtaining documents and images relevant to investigations and videos of breaking news events.

Maness says the Ft. Myers, Fla., News- Press got readers involved in investigating sewer utility rates, and the “crowd-sourced” investigation resulted in uncovering price fixing. At Gannett’s NYK.com, readers in the Northern Kentucky metropolitan area post information about local events and community stories, enabling Gannett to connect with a younger demographic of readers who primarily go online for news, according to Maness.

While the morning paper and nightly television news used to be the dominant sources of news, the Internet is becoming the go-to place for news for many Americans. According to the Pew Internet & American Life Project, the majority of people with broadband say the Web is their first choice for science news.

Peter Negulescu serves a technology-savvy readership in his role as the vice president of digital media at the San Francisco Chronicle’s SFGate.com. Inviting readers to contribute will attract a desirable community of participants for advertisers and make the content more valuable, he says. “The role of the new media arm is to aggregate content to tell a more complete story.”

By recruiting “citizen journalists,” publishers can add to the breadth and depth of their content. Publishers most commonly offer fame as compensation, so the major cost is vetting all of the contributions to find those that are newsworthy.

By enticing readers to return to the website consistently and provide demographic information about themselves through the registration process, Negulescu says SFGate is increasing the ability to understand and deliver targeted advertising to its readers. “From a revenue perspective, adding social media engages readers more deeply,” he says.

At the end of 2006 SFGate launched Community Blogs, a section where a select group of readers write about topics of interest, and in early 2007 the website will allow readers to post comments to its news articles. Negulescu says adding reader input to the website “gives advertisers an opportunity to understand what people are talking about and how it fits with the marketing message.”

For example, an advertiser that is included in a restaurant guide or mentioned in a food review could respond to negative or positive comments. Negulescu does not expect that all marketers would want to advertise against user-generated content, so they will be able to specify the pages upon which they appear. Reader participation requires registering and providing some basic demographic information that can be used for target and email marketing.

What used to be considered newspaper websites can become information-based centers of community that provide unique value to advertisers, according to media consultant and blogger Susan Mernit. Readers/contributors can provide first-person accounts of unfolding events that will entice people to become loyal readers.

Posting reader commentary and images from the scene of a natural or man-made disaster can be more compelling than stories composed by professional journalists, Mernit says. Publishers could post pictures similar to the first images that were captured in the aftermath of the London subway bombing, says Mernit. “You want the equivalent of that picture for your audience.”

The plethora of choices for online content makes it a challenge for local advertisers to know where to go to reach potential customers, but newspaper sites are part of the daily reading regimen for many people with Internet access. Publishers that provide a community around local news can capture a loyal audience that makes for an attractive demographic. Adding user ratings of local businesses for entertainment events could enable news sites to best the local search sites such as directory services or CitySearch or Yahoo Local in capturing the community voice and attracting advertisers, according to Mernit.


Advertising in print newspapers provides access to an audience that is generally located in limited geography, but online news sites can reach a wider swath of the population. Publishers that track where their audience lives can provide more targeted advertising to both local and national advertisers.

SFGate’s Negulescu says that 80 percent of his readers are in the Bay Area. The website’s servers automatically check the IP addresses of readers’ computers so that geotargeted ads can be delivered to either national or local audiences as requested by the advertiser, he says.

Gannett’s Maness says buying ads from newspaper publishers now resembles a TV purchase more than it does a print buy. “It used to be ‘How big of an ad do you want, and for how many days?’ Now it is all about audience reach.” Gannett has integrated its print and online sales so that the company can package a demographic of readers to meet advertiser needs. Advertisers who want a younger audience might spend more online, he says.

Now that Gannett has more demographic information in hand, the company can sell to smaller buyers, according to Maness. Local businesses that can’t afford to advertise on TV or radio can buy ads that will be delivered only to a specific demographic, such as middle-aged married women. Gannett uses cookies to track visits and anonymously collects data about who is reading articles about fashions or appliances, he says, and that data is used to deliver targeted ads.


In addition to allowing readers to contribute on their websites, publishers should allow content to be shared and manipulated on other sites to expand the audience. Publishers can significantly increase traffic by adding tools to their website so that readers can add links to their articles on ratings sites such as Digg or Reddit.

People who add tags (categories used by specialty search engines) to news articles through social websites are enhancing the content with metadata, according to educator King. Readers who interact with news content in this way are assembling personalized archives that create a community that publishers should encourage. “At the end of the day, Web 2.0 is a platform for communication that allows people to build other things upon it,” says King.

Publishers who join with rather than fight against news aggregation sites such as Yahoo News or Topix.net can also expand their ad inventory. Late in 2006, seven publishers, including the Hearst Corporation and Cox Enterprises, agreed to share content, advertising and technology with Yahoo News, the largest news portal. Yahoo News, in partnership with Reuters, has also embraced citizen journalism by creating the You Witness News website that enables readers to post articles and images.

Topix.net, a news aggregation site that organizes news from around the Web by location or by category, has received funding from three publishers – Gannett, the Tribune Company and McClatchy. Topix.net uses an algorithm that identifies the news stories relevant to a region, according to Chris Toiles, vice president of marketing. The company currently places AdSense ads on most of its local pages, but it can offer national advertisers targeted buys based on geography, he says.

Topix.net blends both regional and statewide stories and combines blogs with news stories, according to Toiles. Readers add 18,000 comments per day to articles and then Topix.net funnels that traffic to news publishers, he notes.

Publishers can also enhance their traffic by displaying competing news sources along with their content. Websites including SFGate enable readers to personalize pages by mixing their content with that of other news sites through a custom RSS reader. Readers can add feeds to customize their news-reading experience by category, according to SFGate’s Negulescu. Readers who visit the newspaper site every day can read news from around the Web on a branded SFGate page, which builds loyalty and keeps them on his site longer, he says.

Publishers are also incorporating content from bloggers from around the Web to increase their traffic and stickiness. WashingtonPost.com and others have incorporated Pluck’s syndicated BlogBurst content. Publishers can choose the BlogBurst blogs from dozens of categories, and the advertising revenue is split between Pluck and the publisher. Bloggers get increased traffic from links, and those that generate the most revenue will receive bonuses, according to Pluck’s Newman.

Newspapers that implement “social Web” technologies can learn more about readers and use that information to provide relevant content and targeted advertising. News, and the advertising system that support it, has been irreversibly opened so that more people can participate, and that is good news for all.

JOHN GARTNER is a Portland, Ore.-based freelance writer who contributes to Wired News, Inc., MarketingShift, and is the Editor of Matter-mag.com.

Search Is Getting Personal

Your phone rings. A good friend is calling, more excited than you’ve heard her in months. “My book is on the home page of Amazon! I can’t believe it. My book was just published last week and already it’s on Amazon’s home page!” Exciting? Maybe not to someone who knows how Amazon works. Your friend has seen her book on her version of Amazon’s home page, but a closer look shows it under “Items Recently Viewed.” She views her book’s page each day to check any new reviews. Based on what books she looks at, Amazon thinks she’s very interested in buying this book and places it on her home page. But it may not be on anyone else’s Amazon home page.

That’s how personalization works. Each person sees something different even though everyone is looking at the same page. We’re used to seeing personalization on Amazon, but now it’s coming to a search engine near you.

Inside Personalized Search

So how can search be personalized? By showing each searcher different results. Just as Amazon shows different content on its home page for different people, a search engine can show different content on its search results page, even when two searchers look for the same keyword.

Why do this? Money. Personalization can be lucrative for search engines. If personalized results are more relevant results, then searchers are happier and search more. And if search marketers can target ads to the right people, they’ll pay higher per-click prices.

Search engines have personalized paid results for years, using geographic targeting. With geographic targeting, a furniture store, for example, that delivers within 25 miles of its location can purchase the keyword furniture but ask the search engine to show its ad only to searchers within the delivery zone. Search engines check the geographic location of the IP address for each searcher’s computer to decide whether it is within the geographic zone or not. Paid search marketers can set geographic limits on city or zip code boundaries, or sometimes even by longitude and latitude coordinates.

Search engines are now extending personalized search beyond geography. MSN Search pioneered personalization using searchers’ demographics; all search engines will eventually offer similar programs. With demographic targeting, search marketers can raise their bids for searchers based on gender, age or other characteristics. So, you can raise your normal per-click bid 3 percent for women over 65, if that’s your highest-converting market.

But how do search engines know which searchers are women over 65? They need searchers to tell them. That’s why Google, MSN, Yahoo and other search engines are racing to provide services that entice searchers to identify themselves. Whenever people register with one of these companies, they provide demographic information that the search engines can use to personalize searches.

In personalization parlance, demographic targeting is called explicit personalization, because it’s based on information explicitly provided by the Web user, such as age. Expect search engines to also engage in implicit personalization, changing search results based on searchers’ behavior, such as what kinds of Web pages they look at.

Implicit personalization may eventually prove more valuable than explicit personalization, because so much more information can be gathered. Search engines can observe which results people click when they search, discerning patterns that allow them to rank their favorite kinds of pages higher for all their searches. If a particular searcher regularly clicks product reviews rather than manufacturers’ specs, Google could begin to rank product reviews higher when he’s searching for product information.

Search engines have other ways of observing implicit behavior. Google can analyze the message text of its Gmail users to see what subjects they write and read about. Yahoo can look at the keywords used by its search toolbar users, and even see what pages they look at. You should expect search engines to use this information to personalize search, both for paid and organic. Search engines are always looking for ways to improve relevance – the match between searchers and content. High relevance means the search results correlate closely with what the searcher has in mind. For 40 years, search engines have improved content analysis to increase relevance. Personalized search concentrates on the people side of the relevance challenge instead.

Inside Personalized Search Marketing

Now that you understand the basics of personalized search, you may want to know how search marketing will change.

One change is obvious. Personalized paid search bidding is more complex, because search marketers must consider geographic location, age, gender and other demographics when they make their per-click bids. Instead of different bids for every keyword, now you need different bids for the same keyword.

You should raise your bids for targeted demographics only because they convert at higher rates. To bid effectively, your Web metrics system must track conversions by geography and by demographics, not just by keyword, and your bidding software must adjust based on those metrics.

Less obvious changes will confront us when search engines begin applying personalization to organic search. Search marketers have always wanted to achieve the No. 1 ranking for their favorite keywords. But what does it mean to be No. 1 in a personalized world? If the organic results are personalized, then different searchers get different No. 1 results. Your excitement at being No. 1 will be no more warranted than your author friend’s glee at making Amazon’s home page. In a personalized search world, every site can be No. 1 with some searcher sometime.

Widespread personalization will doom traditional rank checking. The question won’t be, “Does my site rank No. 1?” but rather “For what percentage of searchers does my site rank No. 1?” or “What was my average ranking yesterday?”

And who can answer those new questions? Only the search engines themselves. Only MSN will know where your pages ranked for every search performed with their search engine, so only MSN can tell you. Will the search engines provide that information for free or will they charge you for that analysis? Will search engines tell you the demographics of the referrals that come to your site? Time will tell.

Optimists also believe personalization will reduce the problem of search spam. The thinking is that spam is all about content, so that personalizing results based on searchers makes it exponentially harder to spam the search results (because spammers must then fake their content for many kinds of searchers). By increasing spammers’ costs for the same number of searchers, it takes part of the profit out of these unethical techniques.

No matter its effect on spam, savvy search marketers must stay on top of the personalized search trend – it’s the biggest change in search marketing since paid search. If you focus on who your best customers are, and you craft your content to match, you’ll be ready when the personalized search revolution breaks out.

MIKE MORAN is an IBM Distinguished Engineer and product manager for IBM’s OmniFind search product. Mike is also the co-author of the book Search Engine Marketing, Inc. and can be reached through his website (mikemoran.com Posted on Tags , , , , , ,

Search for Tomorrow

It doesn’t take Edwin Hubble to recognize that the search universe is expanding. Instead of studying faraway galaxies to see the shifts in the cosmos, it only takes a glance at the home page of any major search engine to realize that search is moving at light speed.

The stars of search – America Online, Google, MSN and Yahoo – are attempting to extend their reach by launching a stream of search tools that provide custom filters of online information. The rate of change has sharply accelerated during the past year, and it seems that with every fortnight comes a new personalized, localized or visualized search method aimed at speeding up the delivery of relevant results.

A decade ago it was assumed that most users would find companies and information through portals that organize content into easy-to-navigate sections. However during the past few years search engines, led by Google, have become the primary resource for finding information.

According to an April 2005 Harris Interactive survey, Web surfers said they use a search engine during more than 90 percent of their online sessions.

“Google’s sneak attack was quality,” says Jon Cooper, vice president of interactive services at search marketing firm UnREAL Marketing. Instead of trying to direct users to content partners or handpicking links, Cooper says offering quality search results is the best model for satisfying surfers.

Google’s model of throwing open the doors through advertising-supported search has won out over trying to provide premium content. “As long as the content is pretty good and free, people will take the path of least resistance,” Cooper says. Google’s ad-supported search model has helped search engine marketing grow to a $4 billion industry in 2004, according to the Search Engine Marketing Professional Organization (SEMPO).

Tools of the Trade

Basic search tools provided by all of the big four include standard search, image search and news search, although the depth of the search results can vary widely among engines. For example, AOLSearch’s news tool generates results from news wire services only, while all of its competitors include links to articles from newspapers and online media outlets.

This year’s flurry of new search tools will generate additional volumes of Web traffic (and therefore advertising opportunities) by adding utility, increasing the level of competition and enhancing the significance of search in daily online activity.

Google and Yahoo have been the most active during a frenetic 2005 in rolling out new search tools, while AOL and MSN are also rapidly increasing the profile of search on their portals. Instead of taking away traffic from others, the new features will prompt more searches, and advertisers are expected to increase their search engine marketing spending by 41 percent in 2005, according to SEMPO. “The pie keeps getting bigger,” says David Berkowitz, director of marketing at search advertising agency icrossing.

Google and Yahoo have added personalization features that tailor results so that the most appropriate links for the individual are delivered at the top of the results page. Google’s Personalized Search enables users to scan their past searches to “re-find” information and uses the search history to refine the results. Yahoo’s personalization service, My Web 2.0, similarly uses past searches to refine results, as well as enabling friends to share pages that they have visited.

According to Nielsen NetRatings, nearly 70 percent of all search traffic flows through Google (48 percent) and Yahoo (21.2 percent). Personalized search could increase Google and Yahoo’s market leadership because it produces better results without asking users to change the way they search.

Most people use relatively simple one-or-two-word search terms that lack the context to filter out inappropriate results. For example, someone who searches on “Lincoln” will get results about the car, city, university and the president, but a personalized search relying on previous experiences would automatically narrow the results.

“Changing user behavior is a challenge,” says Gary Price, news editor of SearchEngineWatch.com and editor of ResourceShelf.com, because even after many years of searching, people still make the same mistakes. Since people won’t change, “search engines have to do things to make results more relevant,” he says. If what they are looking for is not delivered in the first 20 results, users will give up on a search, according to Price.

Getting Googled

Price says it’s much easier for the market leaders to get users to experiment with new search features than it is for their smaller competitors. When Google introduces a new vertical service, such as a search of academic papers or product catalogs, Web users and the press provide plenty of coverage.

“Google is a PR juggernaut,” says Price, adding that the word of mouth the company gets from enthusiastic supporters puts competitors at a disadvantage. Yahoo similarly generated considerable buzz when it launched tools for searching subscription content and comparison-shopping sites, even though similar services existed from lesser-known competitors.

The challenges for search engines not named Google or Yahoo in spreading the word will likely further the current trend toward consolidation in the search engine industry. Smaller companies that fail to distinguish themselves are likely to be acquired, according to Price.

Microsoft has become more serious about the importance of search on MSN, which previously served as more of a shopping and news portal and showcase for emerging Microsoft media technologies than a top-tier search engine. Microsoft decided in 2003 to replace the Yahoo search technology it had been using with its own search technology, which went online in February this year, according to MSN product manager Justin Osmer.

Osmer says MSN Search’s product development is focused on giving factual answers and not just links. When users type in a question, MSN searches Microsoft’s Encarta database as well as external resources for the answer, an approach similar to that of niche search engine AskJeeves.com. For example, typing in “Phillies score” will yield the score of the team’s latest game as the first result, while “population of Seattle” displays the latest statistics from the U.S. Census Bureau.

Google and Microsoft are further enhancing the importance of search in everyday computing by integrating Internet and desktop search. Both companies have launched free desktop search utilities, and Google’s Gmail email service replaces folders with a search model.

America Online is beta testing a new home page highlighting search tools that makes available to everyone a portion of the content that was previously restricted to subscribers. In addition to reference material and product search utilities, AOL now provides multimedia searches that enable users to tap into its considerable content partnerships.

AOL Search’s video search uses technology from fellow Time Warner subsidiary SingingFish and includes clips from television shows, movies and music videos, while the audio search displays radio program segments and music tracks.

Yahoo’s AltaVista also includes audio search technology, and Google is developing technology to search the text of audio, according to a report in the New York Post. Searching the spoken word currently requires developing faster and more accurate speech recognition technology, but eventually “will become just as important as the written word,” according to SearchEngineWatch’s Gary Price.

Steam Behind the Local Motion

According to Chris Henger, vice president of marketing and product development at Performics, the new tools will propel search marketing to become a $13 million industry within four years. Matching consumers with local sellers is expected to be one of the largest areas of search growth, according to Henger. “Local search is the biggest thing and opens up the door to a whole new set of advertisers,” he says. (See “Think Global, Search Local” on page 40.)

All four of the top search sites have launched local search services that look for nearby businesses selling services or items that match the search term. Henger says that working with smaller regional companies poses some challenges for search companies. Search engines will be interfacing with smaller companies that may be inexperienced in the business model, which may require search engines to augment their existing sales teams with a network of local sales representatives, according to Henger.

MSN’s beta local search service attempts to match the searcher with relevant local information by automatically scanning IP addresses, according to Microsoft’s Osmer. The location of the searching computer is used to call up nearby business listings, and the same technology is also used to identify the location of the results pages so that nearby websites are given priority.

The search engines will have to contend with established phone directory companies such as Verizon’s SuperPages.com, YellowPages.com, YellowBook.com and Amazon.com’s A9, which recently launched a visual search tool that provides images of the actual storefronts.

All of the search engines are experimenting with RSS (really simple syndication) search capabilities, which could further boost the amount of advertising opportunities. RSS is a method of formatting content used by many news sites and bloggers to share information with other publishers. Tracking feeds currently requires RSS reader applications, but search engines are likely to integrate RSS into search in the not-too-distant future.

Google rotates RSS feeds into its Gmail service, which could pave the way for broader RSS searching. MSN Search enables users to save any search query as an RSS feed, eliminating the need to repeat searches. Yahoo is integrating RSS into its news search, and AOLSearch includes video content formatted with Media RSS, which describes the content of the video.

Connecting search advertising with bloggers and news content through RSS would take advantage of some of the Web’s fastest growing segments. Google is currently posting some RSS advertisements on Gmail, and in July WashingtonPost.com became the first major news organization to include ads with its RSS feeds. Yahoo is testing RSS as a medium and looking into the viability of RSS advertising, according to senior manager of communications Gaude Paez.

Too Much of a Good Thing?

Keeping up with all of the search options and learning the benefits of each presents challenges to advertisers and users who must determine which variations will work best for them. The home pages of the top search engines now include a half dozen or more search options, and beta search technologies are often listed on their own pages.

When initiating a search, users have to keep mental notes as to which search tool will work best for each occasion. Users who would like to speed up searches through personalized search must remember yet another ID and password, and also have to remember to sign out before performing searches that they would rather not have saved on a search engine’s servers.

Marketers have to decide which of the multitude of search tools from a given search engine they want to participate in, and then figure out how to track their return on investment. For example, a search marketer might be getting good returns on standard search, but might not do as well on local search and generate no returns from news searches associated with their keyword or contextual ad.

Since each new tool increases the magnitude and complexity of search marketing, the need for interactive agencies will greatly increase, according to Chris Henger of Performics.

“Companies will need to go to specialists and third parties” to sort through the dozens of search marketing options, he says. Specialized agencies will track the new search tools for volume, user demographics and potential ROI.

Icrossing’s David Berkowitz says the rise in search tools “is phenomenal for interactive agencies because it makes it very difficult to keep track of everything that is going on.”

Search marketers also have to consider if they want to exclude having their ads show up on specific websites that include content that they consider objectionable. Berkowitz says large advertisers will call on agencies to protect their brands from unwanted associations, particularly with the rise in video and audio searches.

The search engines are committed to extracting the maximum value from the growing universe of content by producing personalized packets of information. New customized tools that anticipate the intent of users’ queries or automatically refine the scope of the search will further entrench search as the de facto first step in the quest for online information.

JOHN GARTNER is a freelance writer in Portland, Ore. He is a former editor at Wired News and CMP. His articles regularly appear on Wired.com, AlterNet.org and in MIT’s TechnologyReview.com.

Think Global, Search Local

If you are looking for help with your water heater in Plano, Texas, Harvey West is your man. Type in “water heater plano texas” on Yahoo and this ad will come up as the top sponsored result: Harvey West Plumbing Company: Water Heater. Family owned and operated repair and replacement plumbing company with fair prices and fast service. $25.00 discount to all new customers.

Off to the right, you’ll see sponsored results from the likes of Lowe’s, eBay, Target and BizRate. But West, who sold his 35-person plumbing company and now works solely with his son-in-law, manages to get the primo spot on search engines these days.

Run a Google search with the same keywords and, once again, Harvey West will be the top dog.

West admits pricing varies by geography and estimates that he shells out a mere $2 per click. Because it’s so cost-effective, Internet advertising is the only marketing the Texan plumber does these days, and it accounts for most of his leads. West is on to something: Local search is growing at an astonishing rate, and the numbers are absolutely staggering.

Searching for Profits

According to comScore Media Metrix, more than 421 million local Web searches were conducted in February. That means the number of times users conducted Web searches for local information more than doubled from January 2004 to February 2005.

Online merchants are eager to capitalize on the trend. Commerce sites typically convert 2.4 percent of visitors into customers, according to a study by retailer association Shop.org. The typical brick-and-mortar conversion rate is about 1 percent. The proliferation of broadband should help e-commerce grow even more. As people can more quickly find results, they are more likely to make purchases.

Industry observers say the already sizable local search market is likely to lift even further. Total local online advertising sales are expected to grow to $5 billion by 2009, with $3.4 billion of that coming from search engines, The Kelsey Group predicts.

Compare that figure to $670 million in 2004, with $162 million coming from search engines.

Sales of sponsored links and other forms of search advertising are expected to increase at a 12 percent compound annual growth rate, generating more revenue than display ads by 2010, according to JupiterResearch.

ComScore found that 111 million people execute 46 billion Internet searches yearly. And The Kelsey Group-BizRate estimates that 25 percent of all Internet searches are local in nature, meaning local consumers are looking for local merchants.

Although local search has really taken off only recently, local search queries already account for more than a third of all search engine queries. If surfers add a geographic term (like city or ZIP code) to their search queries, the results show them businesses within their area, usually giving them results they want – happy searchers, happy local businesses and happy publishers.

Make fun of the Yellow Pages if you want; the local listings are laughing all the way to the bank. This market has been dominated by local phone directories, like the Yellow Pages, with profit margins of 50 percent or more.

SBC made a hefty $2 billion in profits from its publishing unit last year on revenues of $3.8 billion. Researchers at The Kelsey Group predict at least $3 billion of Yellow Pages money will move online by 2008. To put that in perspective, the total Internet ad market was $9.6 billion last year.

But search engines attract 66 percent of online local search users, according to comScore. Clearly, local search is exploding. There is a huge potential to make money – it’s reportedly a $1.2 billion market – and that’s why search localization is the focus of efforts by AOL, Google, MSN and Yahoo.

Competitive Landscape

New data from Hitwise, an online competitive intelligence service, show that the top three search engines – Google, Yahoo Search and MSN Search – accounted for 93.5 percent of U.S. Internet searches across major engines in July 2005.

Visits to Yahoo Local (local.yahoo.com) were 4.4 times greater than visits to Google Local (local.google.com) in July 2005. However, Google Local’s market share increased 61 percent between February and July, while Yahoo Local grew 14 percent.

Google Local’s catch-up is occurring amid the growth of Google Maps (maps.google.com), which has quickly grown to become the third-ranked site in the Hitwise Travel-Maps category in July 2005. Maps have become important to local search users, as 17 percent of Yahoo Local’s visitors went directly on to Yahoo Maps in July 2005.

Yahoo has another advantage when it comes to local search: it has 176 million registered users, so it can direct local ads to people who have provided their cities or ZIP codes upon registration. While Google and Yahoo currently dominate the landscape, MSN has the financial resources to maneuver its way into search superiority. Microsoft spent $44 million marketing various MSN services in the first four months of 2005, while Yahoo spent $14 million – versus just $2 million for Google, says TNS Media Intelligence.

Still, underdog AOL is striving to play catch-up. AOL has long been for members only but it recently opened up its borders, enabling more of America to access its content. The move is meant to encourage advertisers, both national brands and local businesses, to fork over ad dollars because their ads will be seen by more than just AOL subscribers. It is clearly intent on trying to grab a share of search profits. And for good reason: Internet search advertising is set to overtake pedestrian online banner advertising by 2010, as online sales double to $18.9 billion, up from $9.3 billion at the end of 2004, according to JupiterResearch.

Executives at the Big Three realize that local is the way to go. “The local search market should be larger than [Google’s] other markets because most people’s purchases are local,” said Google CEO Eric Schmidt, at an investor conference in May. And Google isn’t alone in its thinking. All the major players are looking for more ways to attract the most local search dollars.

The various search parties are using several approaches to move into local advertising. Maps are a leading tool. MSN has launched a beta of its Virtual Earth application. A Locate Me feature finds a present location and lets the consumer explore and discover the area around them. The Locate Me link activates Microsoft Location Finder, which uses Wi-Fi access points or Internet Protocol address geocoding, to determine a person’s location.

Google has its Keyhole technology. Google bought dodgeball.com and, at press time, aborted plans to acquire Meetroduction, “location-aware social networking software.” Google’s interest in social networking and mobile technologies show its commitment to localized services.

Mobile search is a promising prospect because people are attached to their cell phones and are often looking for goods and services while on the go. Eyeing this mobile climate, AOL bought mobile software company Wildseed; Google has local search for mobile phones; Yahoo introduced a texting service for getting local search listings. While mobile search is still in its infancy, it is likely to take off quickly and add another element to the local search wars.

Local Winners

In August 2005, Affinity Internet announced the launch of ValueTraffic Local, a service that helps small business to target their online advertising to Web searchers in specific geographic areas. Mastering the art of local search is a skill that few possess, but those who do stand to reap rich benefits.

Harvey West, the Texan plumber, is so good at bidding on keywords and tweaking ads that a number of other plumbing outfits, from Philadelphia to Palo Alto, Calif. hire him to help them with their local search efforts.

Cabrillo Plumbing & Heating in the San Francisco Bay Area does extensive advertising – TV spots on local cable, direct mail, Yellow Page ads and moving billboards in the form of company trucks.

“We track every piece of advertising scientifically,” says President Jeff Meehan who handles Cabrillo’s advertising himself. He even shot Cabrillo’s TV commercial on 35 mm film in his mother’s kitchen.

But when it comes to Internet marketing, Meehan hands the reigns over to West. “I’ve given him carte blanche to get us at the top bar for our service area which is San Francisco and Palo Alto.”

West says a Philly plumber doesn’t have much competition and only has to pay around 75 cents a click. Meehan, however, forks over more like $4 or $5 a click because there’s more competition for eyeballs in the Bay Area.

“If you bid the most, you’ll get the highest listing,” explains West. But plumbing is a business where you can spend $300 acquiring new customers – he recalls the days when he spent $8,000 a month on Yellow Page ads alone – so $5 is a deal, says West. But local search isn’t something you let stay static.

Tweak, Tweak, Tweak

Searches for “yoga San Francisco” and “spa San Francisco” found International Orange, located in San Francisco.

“We do local search marketing for good reason,” says co-founder Amy Darland. “It’s effective, and you aren’t committed for a month or year. It’s a nice get-out-of-jail card.” Still, it’s such a tricky business that, like Meehan, she entrusts her search marketing to a Web advisor.

In the past year the average advertiser’s roster of keywords grew by 50 percent, according to Efficient Frontier a Mountain View, Calif., firm that manages $100 million in keyword purchases for its clients.

“People will go in and put in keywords and leave it like it was Yellow Pages,” says West. “You’ve got to tweak it, work on different ads, change it 15 times to see what gets the best clickthrough rates. As soon as it works, you’ll find it changes.”

Local search is a huge and expanding market. The major players are constantly changing and so it’s important to understand the evolving landscape. So how does local search impact primarily merchants and affiliates? It means that large, established merchants are bidding more to get top listings.

The growth of local search is a case of half-full, half-empty for affiliates. But they can take advantage of overlooked locales. They can bid for the top spot in small towns, getting local shoppers to connect to online merchants through their sites. While a spa search in San Francisco or New York results in a raft of sponsored results, there are many towns with only natural search results. So affiliate sites that link to SpaWish.com, for example, can take advantage of the undiscovered towns and bid to get sponsored spots that lead to commission payouts.

But affiliates hoping to be local leaders would be wise to heed Harvey West’s words: “You gotta keep on top of it.”

DIANE ANDERSON is an editor at Brandweek. She was the managing editor for Revenue magazine for Issue 4 and previously worked for the Industry Standard, HotWired and Wired News.