Econometa

—– Search engines and intermediaries —–

As usual, the picture comes first, with explanations to follow.

This figure shows how vendors use intermediaries as outsourced marketing in the same way that manufacturers use distributors and resellers as outsourced sales. As usual, you can click on the diagram to get a bigger version.

—– Search —–

According to our terminology, search engines are publishers: they are a web site that sells advertising space. So are sites that incorporate search in their use, such as shopping sites.

A huge advantage of search is that in performing it, a user automatically provides the highest quality user targeting data known: search keywords. Keywords tell the publisher what the user is interested in at that very moment, without causing either user inconvenience or undue privacy concerns.

In addition, search has become an important de facto interface to the Web for many users, so that ranking highly in search results and advertising on search engines has become an important factor in marketing success for many companies. The result is that search has quickly become a huge component of online ad sales, spawning an entire sub-industry in the process.

—– Search engine marketing —–

Search engine marketing (SEM) has two aspects, both of which can become complex and so are often outsourced to SEM specialist companies. The search engine results page (SERP) has two sections:

- Organic results (AKA natural results): this is the list of links that the search engine found most relevant to the search keywords according to its presumably objective search algorithm
- Sponsored links (AKA paid placements): this is the list of ads shown along with the organic results; they are usually text ads, which may either avoid distraction from or encourage confusion with organic results

Attempting to increase a web site’s rank in the organic results is called search engine optimization (SEO). SEO can range from modifying a site to be more accurately indexed by search engines to manipulating the search engine algorithm by creating false keywords, links, or other factors used to determine ranking in organic results.

The other aspect of SEM is managing paid search, that is, buying keywords on search engines and calculating the resulting ROI. Paid inclusion is a program some search engines have that allows a site to pay in order to be “guaranteed” inclusion in organic results.

—– Intermediaries —–

If you use a search engine to search for a common product, for example digital cameras, you’ll find several different types of sites in the organic and paid results:

- Manufacturer sites (e.g. Kodak)
- Distributor sites (e.g. Circuit City)
- Shopping comparison sites (e.g. PriceGrabber)
- Directories and research sites (e.g. CNET)
- Vertical specialist sites (e.g. digitalcamera-hq.com)

Distributors and value added resellers (VARs) are a normal part of the offline world of sales and fulfillment: they are vendors who buy product from the manufacturer and sell it directly to the customer. But intermediaries such as comparison, research, and specialist sites make their money in a completely different way. Instead of selling product themselves, they link the user to a vendor for purchase, and for this they are compensated.

The relationship between intermediary and vendor depends upon whether any user data is included:

- Affiliate marketing: If the intermediary simply causes the user to follow a link to the vendor site, the link is called a referral, and the intermediary is called an affiliate.
- Lead generation: If the intermediary collects and passes along data about the user such as contact information and details concerning what the user is looking to purchase, the user following a link to the vendor site is called a lead, and the intermediary is called a lead generator.

The line between affiliates and lead generators is not always distinct, but in general affiliates are smaller and more numerous, and are usually provided with a standardized way to make referrals (such as Amazon affiliate product links). Both are paid on a CPC or more often a CPA basis.

Since intermediaries are compensated by generating interest in a vendor, they can be viewed as outsourced marketing, in the same way that distributors and VARs can be viewed as outsourced sales. And just as distributors often supply VARs, affiliates can join an affiliate network, which gives them a central place to manage and track affiliate relationships with many vendors.

Next up, Part IV: Google, auctions, and arbitrage.

This entry was posted on Thursday, January 26th, 2006 at 6:37 pm and is filed under Marketing. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.