Web usability Guru, Jakob Nielsen, has posted a new column called "Search Engines as Leeches of the Web" that outlines the challenges faced by pay per click advertisers. To paraphrase:

A company continually needs to increase the performance of their web site in order to compete in a market where pay per click bids continue to increase. Search engines are leeches because their profits increase without doing any additional work as bids increase.

That's a pretty fair assessment of the playing field, and a great explanation of why Google and Yahoo are so valuable. It's really no different from any media source with a valuable but finite amount of real estate. It's the same is a reason why Superbowl advertising is so expensive. Pay per click advertising on competitive search phrases is the online version of Superbowl advertising, but it is carried out on millions of search terms every day of the year. As permission marketing guru Seth Godin points out, Nielsen's column reinforces, "why keyword advertising is such a brilliant invention."

Just like businesses would be foolish to put all of their ad dollars into one Superbowl ad, building a pay per click ad campaign around a handful of search terms would also be dangerous. Nielsen suggests alternatives to pay per click advertising that diversify business' online marketing efforts; including email newsletters, affiliate programs, and printing your URL on everything. He also emphasizes the value of marketing directly previous visitors. All are great ideas but overlook the most common flaw in pay per click campaigns that causes underperfomance.

Pay Per Click Portfolios

The vast majority of pay per click advertisers have too few terms in their ad portfolios. For example, an online hardware store may feel frustrated with their pay per click performance after watching the performance of a dozen common terms such as [hardware], [hardware store], [tools], etc. That's to be expected, because high level and fairly generic terms like those tend to be expensive with high search volumes.

A better strategy to build a portfolio of highly specific terms, including product names and model numbers. Considering how many products an average hardware store carries, a portfolio like this goes way beyond a dozen or so terms. While each term will receive only a fraction of the searches a term like [hardware store] receives, the traffic will generally be cheaper and convert to sales at a higher rate.

Diversify, Diversify, Diversify

If you've ever lost sleep at night worrying about a competitor outbidding you on your most valuable search term, or find yourself incessantly checking your ad placements, diversification of your campaigns is way overdue. Diversify today so you can sleep better tonight.