Topics for Today Customer leads What to learn from web site visits? Web chain analysis of visits

Visitor perspective Web site perspective

Acquiring customers through search Industry structure How much to bid?

Online Business Relies on Leads

"Just give me some leads that don't come out of a phone book, huh, you give me something hotter than that and I can close it. It's just a streak. I'm gonna turn it around."

Shelly in Glen Gary Glen Ross

Many Sources of Leads

External links

Destination Site

Paid links

Search engine listings

Word of mouth &Publicity

Domain names& Branding

Banners

External links

Destination Site

Paid links

Search engine listings

Word of mouth &Publicity

Domain names& Branding

Banners

Leads Can Follow a Circuitous Path

Not Always Responding Online

Ingenio sells ads that lead to a phone call – but still tracked by the system.

Good Leads are Illusive

These relatively high conversion rates imply only 1 purchaser out of 1,000 impressions.

Average Lead Costs Vary by Media

Some Major Categories Are More Expensive

Some Online Leads are VERY Expensive

Ad Position Max B id* Cost per click**1 $100.00 $99.992 $99.99 $99.983 $99.98 $30.024 $30.01 $25.015 $25.00 $20.01

* Using Overture bidding tool, 2/18/05.

** Next lowest bid.

Overture keyword: “peritoneal mesothelioma”

Reflecting a Battle for Attention

Figure 7-2: Routine Can Lead to Ignoring New ContactsSource: cartoonbank.com

Figure 7-1: The Battle for Attention is Getting More Intense(Web pages of largest search engine versus U.S. Adult Internet user base)

1.422.93

13.01

23.63

0.00

5.00

10.00

15.00

20.00

25.00

6/98 6/2000 6/2002 6/2004

Web Pages in English Per U.S. User

Reflecting High Potential Profitability Sources of High Lead Values (Shelly’s hot

leads) High conversion rates High customer lifetime value

Back of the envelope for p. mesothelioma. Formula?

All of Which Makes Understanding Web Use Valuable How web visits evolve.

Duration Explanation

Quantifying a web chain & results. Search economics

Web Site Visit Decisions Our Becker activity model allocates time

between activities (the “macro problem”) Visitors repeatedly solve: “Should I stay or

should I go” at a site (the “micro problem”) Most web site visits are very short. One more click, or try new site?

Web site visits are short

The Length of Visits on the Xerox Company Web Site, in page views.Source: Huberman and Lukose

With only some exceptions

How Visitors Browse Has Implications for Site Design and Site Economics

Is it best to view visitors as “economic agents” or “mechanical channel changers” when browsing?

Implications for Site design Customer acquisition costs Strength of revealed preference information

The “Random Surfer” Model A user has a constant probability q of

continuing at a site (may change between sites, time of day, location of usage).

Web site visit lengths are random draws.

Implication -> Passive browsing

The “Look Ahead” Model A web site visit is a dynamically evolving

sample trying to solve a problem. Visitors strategically evaluate the value of

continuing a visit or going elsewhere.

Implication -> Active browsing

Look Ahead Model Conclusions

1. Enter a website, observe page.

2. Update beliefs about site.

3. If expected value of continuing high enough, visit new page. Otherwise, leave.

Basic model result: The “bar” starts low and keeps rising.

Additional Factors: Involvement & Repeat Visit

Either Model Produces Benefits to the Site Exposure to information Leads to Actions Actions have quantifiable benefits

Branding Registration Purchase

New customer Repeat buying

Customer funnel has steep drop off.

Computing the Value of the Funnel

A Web Chain of Events

E1: Views Pagewith Paid Link

R1: Doesn't Notice Ad =$0 benefit

E3: Visits Web Sitebut Doesn't Buy

E2: Clicks Through toCompany Web Site = Prospects

E4: Visits Web Site and Buys

E5: LoyalCustomer

Click-through Rate (CTR)

Repeat BuyerRate (RR)

No Notice Rate (NNR)

R2: Notices Ad but doesn't click = Ad-brand impact

(1-CR-NNR)

R5: NewCustomer = (Ad-brand +

Web Sitebrand +

Online profit+ Lifetime

Value)

R6: Would have bought offline

anyway =

R7: Would only buy online =

OfflineInducedBuyer(OIB)

(1-OIB)

Offline Buy Rate (OBR) Online Only (1-OBR)

(1-PCR) Prospect ConversionRate (PCR)

END

BEGIN

NewCustomer

(1-RR)

R3: OfflinePurchase = (Ad-brand +

Web Sitebrand +

Offline profit)

R4: No ImmediatePurchase = (Ad brand +

Web Sitebrand impact)

(Ad-brand +Web Sitebrand +

Online profit)

(Ad-brand +Web Sitebrand +

Online profit -Offline profit)

Rates

No notice rate (NNR) 70.00%

Click-through rate (CTR) 0.75%

Prospect conversion rate (PCR) 3.00%

Repeat buyer rate (RR) 90.00%

Offline induced buyer rate (OIB) 5.00%

Offline buy rate (OBR) 30.00%

Wine Glass Plots

Web Chain Data: Impacts

Impacts:

Ad brand impact $0.005

Web site brand impact $0.38

Offline profit $15.35

Online profit $23.00

New customer lifetime value (LTV) $95.00

A Simple Web Chain Analyzer

Inputs

Outputs

Search Bidding Revisited: The Perspective of the Advertiser

Search engine referrals to eBay are divided between natural and paid implementations

Free eBay URLs “picked up” by

search engine crawlers that index the web

Less control over what is included and how it is presented

Less ability to be tracked Can be optimized through meta-

tagging and other methods, though algorithms and methods used to index differs by search engine and changes over time

Natural Paid

Two primary methods for paying for search marketing:

Pay for inclusion (e.g. Inktomi, Looksmart)

Pay for placement (e.g. Google, Overture)

Execution differs by partner: Within results (e.g. Overture,

Inktomi)

Alongside results (e.g. Google)

Search LandscapeDescription CompaniesSearch Model

Search engines

Search directories

SEOs

Bid-for-placement

Crawl the web and present the search results based on algorithm

Human edited directories of web sites

Companies that optimize web pages for inclusion in search engine results

Sites where advertisers bid for advertising placements and placement within search results

Google, AltaVista, FAST, Inktomi

Looksmart, Open Directory

Be1st, Gateway Traffic,Traffic Boss

Overture, Google, FindWhat,Sprinks

Search engine optimization companies (SEO’s) develop optimized “mirror” web pages in order to get “picked up” by search engines and included in search indexes.

These listings/web pages ultimately attract traffic that is redirected to eBay, and the SEO’s get paid based on activity generated on eBay from this traffic.

Types of search companies Search Engines Search Directories SEO’s Bid for placement

Types of search companies Search Engines Search Directories SEO’s Bid for placement

With cost-per-click, bid-for-placement programs, advertisers bid for higher placement in search results.

Google and Overture have CPC bid-for- placement programs.

Here, we see an eBay listing for “wedding cards” syndicated from Overture on Lycos Search.

Sources of keyword queries for paid search marketing efforts Top searched terms on eBay Top searched terms on search sites Category managers (top products, brands, etc.) Keyword suggestion tools (i.e. Overture search

suggestion tool) eBay search engine referral logs Keyword dictionary from eBay listings in database

Keyword Dictionary• Daily snapshot of site supply

• Enables partners to more effectively drive demand

• Helps in prioritization of new keywords to include in search marketing campaigns

SITE_ID KEYWORD

TOTAL_ITEMS

TOTAL_FIXED_PRICE

TOTAL_AUCTION_BIN

TOTAL_ALL_BIN

BEST_METAID

CONCATID

CON_BR_L1

CON_BR_L2

CON_BR_L3

CON_RATIO LASTENDTIME

0 golf 7835 235 2564 2799 888 1513 5120 3905 3842 49.0% 3/6/2003 7:460 nokia 7801 267 6165 6432 293 20336 7740 7725 7034 90.2% 3/6/2003 7:540 figure 7775 169 2655 2824 220 246 4969 3520 0 45.3% 3/16/2003 21:110 auto 7708 313 2273 2586 888 212 4891 2598 0 33.7% 3/9/2003 19:130 sweater 7628 93 2051 2144 11450 1062 7077 4394 3445 45.2% 3/6/2003 7:540 patch 7604 370 1687 2057 1 1 4366 0 0 57.4% 3/6/2003 7:080 barbie 7503 228 2194 2422 237 15949 6360 6131 4804 64.0% 3/6/2003 7:560 wall 7452 374 2662 3036 11700 11700 2498 0 0 33.5% 3/6/2003 7:450 sign 7398 191 3369 3560 1 1 4327 0 0 58.5% 3/6/2003 7:260 wars 7371 172 2042 2214 220 2477 3720 2894 2730 37.0% 3/6/2003 7:580 battery 7367 454 5203 5657 293 20336 4178 3628 3193 43.3% 3/6/2003 7:580 brass 7353 106 1291 1397 1 1 2819 0 0 38.3% 3/6/2003 7:55

Imagine You Sell Fuel Pumps

•What position to bid for?

•How much to bid?

•How to develop the data?

Recall that Max Bids doesn’t necessarily equal actual price

CPAk(1) = bk

(1) / CRk(1),

CPAk

(2) = bk(2) / CRk

(2), … CPAk

(n) = bk(n) / CRk

(n).

Cost per action actual price conversion rate

Two Stage Process

V $15.35Keyword Phrases: fuel pump

Clicks ConversionsCost per click to

hold postion

Test

impressionsCTR

Conversion Rate

CPA by position

Expected Profit per Search

Position 1 821 29 $0.46 10,000 8.21% 3.53% $13.02 $0.0067

Position 2 622 19 $0.38 10,000 6.22% 3.05% $12.44 $0.0055

Position 3 603 22 $0.35 10,000 6.03% 3.65% $9.59 $0.0127

Position 4 421 12 $0.29 5,000 8.42% 2.85% $10.17 $0.0124

Position 5 158 4 $0.22 5,000 3.16% 2.53% $8.69 $0.0053

Position 6 162 6 $0.21 5,000 3.24% 3.70% $5.67 $0.0116

Stage 1 Data Gives Best Position per Keyword

Stage 2: Select profitable keywords

Max CPA 15.35

Keyword Phrases Clicks ConversionsCost per click to hold postion

Conversion Rate

CPA Keyword bid

skylark fuel pump pos. 1 62 6 $0.10 9.68% $1.03 0.10$ gm fuel pump pos. 2 148 18 $0.20 12.16% $1.64 0.20$ fuel pump pos. 3 603 22 $0.35 3.65% $9.59 0.35$ used buick skylark pos. 1 8678 95 $0.23 1.09% $21.01 -$ buick pos. 3 362 15 $1.37 4.14% $33.06 -$ used car parts pos. 2 17265 98 $0.34 0.57% $59.90 -$

Summary Leads are the key concept for recruiting

online traffic, Lead value is driven by:

Value of ultimate customers Conversion rates Alternative sources of traffic Negotiation power & risk sharing.

Errata: Table 5-4

Value of a Dollar Forever at Different Discount Rates and Retention

10.00% 12.50% 15.00% 17.50% 20.00% 22.50% 25.00% 27.50% 30.00% Retention = 100% $11.00 $9.00 $7.67 $6.71 $6.00 $5.44 $5.00 $4.64 $4.33 Retention = 95% $7.33 $6.43 $5.75 $5.22 $4.80 $4.45 $4.17 $3.92 $3.71 Retention = 90% $5.50 $5.00 $4.60 $4.27 $4.00 $3.77 $3.57 $3.40 $3.25 Retention = 85% $4.40 $4.09 $3.83 $3.62 $3.43 $3.27 $3.13 $3.00 $2.89