Narrowing Online Market Focus

Ilana DeBare, Chronicle Staff Writer
Sunday, May 20, 2007

Howard Mora started buying pay-per-click Internet ads two years ago for his Fremont pet-sitting business, the Animal Nanny. Today he gets about 40 new clients per year from pay-per-click ads -- more than from Yellow Pages advertising or personal referrals. The ads cost him, on average, $75 per month.

"The Internet is probably our biggest bang for the buck," Mora said.

The Animal Nanny is one of a growing number of low-tech small businesses that are experimenting with a high-tech form of marketing -- pay-per-click or paid search advertising.

Pay-per-click advertising can take a lot of time to figure out and implement well -- more time than many small businesses have.

But if done right, experts say, it can be a great tool for small businesses because of its low cost and tailored reach.

"You can compete with the big guys and not break your bank," said Laura Betterly, an online marketing consultant with the In Touch Media Group in Florida.

Terri Mayall, a Santa Cruz real estate agent, agrees. Mayall started pay-per-click advertising about two years ago, and now generates one-quarter of her home sales from ads that cost just $200 per month.

"When you consider all the other money I spend on advertising, this is real bang for the buck," Mayall said.

Pay-per-click ads are small Internet text ads that typically provide a few words of description and a link to a Web site. Advertisers bid to have their ad show up when users search for certain keywords. They pay only when someone clicks on their ad and goes to their Web site.

U.S. businesses will spend an estimated $8.3 billion on pay per click in 2007 -- up from about $1 billion in 2002, according to eMarketer, an online market research firm.

These advertisers so far include only a tiny percentage of America's small businesses. More than half of small businesses still don't have Web sites, let alone online advertising strategies.

But young companies -- those in existence for less than 10 years -- are twice as likely to use pay-per-click advertising as their older counterparts, according to a study by the Kelsey Group.

And some analysts predict that the number of small businesses using pay per click will grow significantly during the next few years.

"Within five years, 10 percent of small and medium business advertisers will be do-it-yourself pay per click," said Internet expert Greg Sterling of Sterling Market Intelligence. "Anecdotally, it's clear to me that more small businesses are trying to pursue online marketing, and paid search is a subset of that."

One of the biggest advantages of pay per click for small business is its low cost. Businesses can start out by spending as little as a few dollars per week.

Bandworks, an Oakland rock music school, pays about 25 cents per click when its ads pop up during a search for "rock music camp."

The school drew 17 visitors to its Web site during one recent week for just $9.

"The main reason we do it is it's so cheap," said Jeremy Steinkoler, president of Bandworks. "It doesn't cost us a whole lot compared to other advertising, which can be very pricey."

Pay per click also gives businesses immediate feedback on whether their ads are succeeding at bringing potential customers to their Web site. They can change or halt their campaign at any time -- something that's not possible with traditional media like the Yellow Pages.

"With the Yellow Pages, you spend money for a year and have no idea of the effect," said Stephen Herz, an Internet marketing consultant with Moonstone Interactive in San Ramon. "Here you can gauge the effect day by day."

Finally, pay per click is an efficient way of finding qualified leads -- potential customers who are actively interested in a company's product.

John Lyddon runs a San Francisco company called Star Hill Jawz that makes a tool for removing trees, brush, and rocks, that attaches to a tractor or loader.

Lyddon's ads showed up 22,231 times when people searched for the phrase "tree removal" on Google during a recent two-month period.

All those appearances led to a tiny number of clicks -- just 134. But they were from people who were actively interested in his Star Hill Jawz device. And they cost him only $22.41.

"When a person clicks on our ad, they're making a choice, versus looking at a display ad that just happens to be on a magazine page," Lyddon said.

Running a successful pay-per-click campaign typically requires a detailed understanding of how to choose and price keywords, and write effective ads. It also involves tracking results and tweaking the campaign on a frequent basis.

So small-business owners face a tough choice between channeling their own limited time into pay per click, or spending big bucks on a consultant.

Faramarz Mahdavi of Pylon Solutions -- a company that sells telecommunications equipment -- found himself spending up to three hours each day on pay per click when the company was advertising heavily.

"It needs to be monitored on a day-to-day basis -- how many clicks you have, what keywords are working, what products are getting clicks but not turning into sales," Mahdavi said.

Pay per click is also not right for every small business.

For instance, service businesses such as home contracting may do better with what is known as pay-per-call advertising, where Internet ads lead to phone calls rather than Web site visits.

And some small businesses face large, deep-pocketed competitors who drive up the cost of pay-per-click ads to unaffordable levels.

Harold Hoogasian, who owns Hoogasian Flowers, finds it tough to bid against nationwide e-commerce companies like 1-800-flowers.

"You can not advertise for 'florist San Francisco' for less than $3 per click on an everyday basis, or up to $6 before holidays," Hoogasian said. "Pay-per-click advertising can get you more orders, but it's hard to be profitable."

Many small businesses have been scared away from trying pay per click by news reports about click fraud.

This occurs when businesses try to sabotage their competitors by repeatedly clicking on their ads to drive up their costs. Or it occurs when a Web site owner asks friends to click the ads on his or her site in order to increase advertising revenue.

But some Internet experts say the risks of click fraud have been overblown when it comes to small businesses.

"A lot of the companies that get click fraud are large companies," said Andy Leff, who writes about online marketing on a blog called "If you're a mom-and-pop store, the competition probably isn't going out of their way to knock you."

Experts like Neff advise small businesses to expect a certain number of bad clicks, and build that into their budget.

They also advise businesses not to view pay-per-click advertising in isolation. Rather, it should be part of a larger marketing strategy.

Steve Collins owns a San Francisco house-cleaning service called Marvel Maids that gets about 60 percent of its business from paid and unpaid Internet search results.

Collins has found that real-world marketing measures such as having the company logo on its cars boost his pay-per-click results.

"People won't go with the No. 1 ad; they'll go with the one they've heard of," Collins said. "So we may be No. 2 or 3, but they click on us because they've seen our cars around town."

The San Francisco accounting firm of Sterck Kulik O'Neill combines pay-per-click advertising with Web site optimization, which means designing its Web site so it shows up near the top of the unpaid search results.

"Some people say they saw us on the paid side and the free side, and they kept on seeing us, and eventually they just gave up and figured they'd give us a try," said Galen Workman, the firm's marketing director. "That's all we need."

Steinkoler of Bandworks said that, as cheap as pay per click is, it's still no substitute for word-of-mouth referrals. "Nothing is going to replace personal recommendations from a friend through word of mouth," he said.

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