Anecdotally, many retailers report weak web sales over the last two weeks, and attribute the decline to the crises in the US financial markets.

The big question: have online sales tanked?

We don’t think so.

There is weakness, yes. But, for now at least, there is no sign of an across-the-board deep downtown. Some retailers are down, but others are up.

Let’s look at some data.

Here are daily sales data since August from one large RKG client.

The green line indicates paid-search driven web sales. The spikes and valleys are the day-of-week effect. The red line indicates the advertising-to-sales ratio. The red line is basically flat. This indicates this retailer hasn’t changed the aggressiveness of their ad spend.

The purple arrow denotes 9/7, the date of the Fannie Mae / Freddie Mac bailout.

While the roots of the turmoil date back to at least to 1999 with Gramm-Leach-Bliley, we’ll mark 9/7 as the beginning of the broad media coverage of current financial crisis. Certainly since 9/7, the dismal headlines have come with increasing frequency: Merrill sells to BOA (9/14), Lehman files bankruptcy (9/15), Fed invests $80b to bailout AIG (9/17), Paulson requests $700b for bailout (9/19), and JPMorgan buys WaMu (9/26).

That client’s sales didn’t head south after the Freddie/Fannie news coverage. Perhaps sales were down a bit, but the prior graph shows no glaring decline.

Let’s look at another large client.

This retailer experiences a larger day-of-week effect, but again, for this client, September sales look essentially like August sales.

Those two clients might not be representative. The next chart aggregates all RKG clients, all PPC-driven sales, across all search engines. For context, our client base includes more than 100 retailers, predominantly B2C, with an aggregate annual PPC spend of roughly $100m.

The graph looks pretty similar before and after September 7th. (The noticeable uptick was a client who ran a significant promotion, selling $2.6m that one day).

Aggregating sales across all RKG clients in effect weights larger retailers more heavily. The prior graph could hide widespread suffering among smaller retailers.

To remove size effects, for the next graph we divided each client’s daily sales by their own largest single sales day during the period. This normalizes each client’s daily sales to a fraction between 0 and 1. We then averaged these normalized figures by day across all clients. The resulting graph counts each client equally, regardless of absolute sales volume.

The normalization smoothes the trend. Again, there is no indication of any significant sales drop over the last two weeks. September looks like August.

Let’s turn from retailer revenues to search engine revenues. Over the last few weeks, what are the search engines experiencing? Are retailers cutting spending on paid search clicks?

No. Aggregated across all RKG clients, ad spend is essentially steady since August, with Google again showing slight gains.

What about click-through-rates?

On average, CTRs have declined modestly since August for Google and Yahoo. Microsoft shows greater decline.

Aggregate conversion rates also show a slight downward trend.

Similar story for average order value: some recent erosion. Again, that big one-day promotion shows as a spike.

Beyond sums and averages, what is each retailer experiencing?

To describe the range of individual differences, for each RKG client we calculated the percentage change in PPC-driven sales during the week of 9/1 versus PPC-driven sales during the week of 9/15.

Here’s a histogram.

Putting it another way, comparing the week of 9/15 to the week of 9/1, 56% of RKG clients suffered a sales decline. 44% enjoyed a sales increase.

Yes, more RKG clients were down than up following the Freddie/Fannie news.

But, 56% vs. 44% is pretty close to an even split. And despite the crisis, a third of our clients saw sales up by low double digits. Which is pretty normal, given seasonality, and given the ordinary spikiness of sales at the week-to-week resolution.

So.

What does this all mean?

Thus far, on average, over the short-term, online sales are holding more or less steady. Ad spend levels are holding. Conversion and average order show slight weakness. Some retailers are down, but also some are up.

Hopefully, decisive action from Washington will calm the markets and avoid further turmoil. Like everyone, we continue to watch and hope.

Please note these analyses and charts are all extremely short-term, looking at just the last few weeks. On the longer time horizon, we did observe online sales generally slowing heading into this summer. More on that in a followup post.

My review: I like it.

Chrome Pros

• The “one-box” address bar is excellent. One single box for URLs, for searching, and for history. I found myself typing fewer URLs today. Very handy. (Browser autocompletion crushes the search funnel and, imho, works in favor of online retailers — more on that in a subsequent post.)
• Chrome seems to runs Javascript apps faster. For example, CustomInk has a neat tshirt layout designer . Their drag-and-drop app is smoother under Chrome.
• The UI is pretty and intuitive. Pulling tabs off the browser onto the desktop, and dropping them back — very slick.
• Chrome starts up quicker than IE.
• Chrome feels like it renders pages quicker than FFox and IE.

Chrome Neutrals or Minor cons

• Some websites had minor rendering bugs. For example, the text in the buttons on CustomInk’s app mentioned above were sliced off vertically. The splash image on my wife’s lab site didn’t appear at all.

  
• A small number of websites — PetSmart.com and ComputerWorld for example– rendered glacially slowly in Chrome, repeatably taking over several minutes. I wager it was some sort of redirect or ad serving issue. No speed problems for the same pages on FFox or IE.
• Password manager shows cached passwords in plain text. This is a security hole — if you leave your browser open and unattended, anyone could grab your bank or email passwords, if you let Chrome save them.

  

• Multiple sites are reporting Chrome is a memory hog; I personally did not notice memory usage patterns between IE, Chrome, and FFox. The memory use order depended on the specific pages and tabs.

  

• The rendering engine has minor spacing differences (image below).

  

Chrome Significant Cons

• Plugins. Currently, Chrome lacks plugins. Plugins are what make Ffox so great. For me, for example, Firebug is a must-have.
• The default font is too small. Smaller than Ffox or IE. Made me squint. The small font could make Chrome harder to use for older folks, but Google could easily bump this up. Yes, I know about “control +”; I’m speaking generally.

  

Predictions

I predict Chrome will steadily eat share from Ffox.

I predict Google will soon cut deals with computer manufacturers to make Chrome and Google Docs a productivity suite option (”Save $200 — Google Docs vs. MS Office”). These deals will materially eat into IE browser share.

The browser wars are back!

Chrome download link

Update: Google is now advertising Chrome on the Google homepage.

That is extremely dear real estate — Google counts characters on that page — so “cluttering” the homepage with Chrome Beta on the day after launch indicates just how seriously Google intends to push this browser.

Microsoft, watch your back.

Put another way, Google continues to control over five times the paid search market share of Yahoo.

Remarkable how stable these aggregate percentages are, despite continuous change in underlying data as our agency launches new clients, clients shift strategy, summer moves toward fall, etc. A Law of Large Numbers effect, clearly.

For full details, see June 2008 Google, Yahoo, Microsoft Paid Search Market Share.

“Everything changed,” our project lead replied, “and the documentation is pretty poor.”

In general, one of the characteristics of a good API is stability. Once published, partners in the outside world build code which depend intimately on the API spec. Well-designed APIs evolve slowly, adding and removing features gracefully so partners can adjust their apps to the improvements.

MSN jerked the rudder hard in a new direction going to v 5.1. Below is a list of pitfalls our engineers encountered. Hopefully this list will help others struggling with MSN’s docs.

Beyond MSN’s business challenges competing again Google and Yahoo, this list demonstrates some of the technical challenges MSN is facing with their codebase. To their credit, the MSN API team has responded quickly and knowledgeably to our requests. For that we are grateful. We appreciate the technical help we receive from MSN, and we hope their API stabilizes relatively quickly.

If any MSN folks are reading this, if it would be helpful, our project lead on this recent API upgrade would be glad to share his experiences with you folks on how in the future this could go more smoothly for both sides.

For contrast, about the same time period, our engineers upgraded our platform from Google API v11 to v12.

The Google API upgrade took 20 minutes.

To be fair, Google v11 to v12 was an extremely small and gradual API tweak, a handful of type changes and other little details. Comparing the Google 20 minutes to MSN’s many developer-days of effort is comparing apples to oranges. I would say, though, that Google’s API advances more gradually and more thoughtfully, making Google an easier technical partner than the other engines.

Again, our thanks to the MSN engineers for fielding so many of calls and emails to clarify the docs. The following email snippet indicates some of the places our engineers hit snags.

There there were more of these, but here is a brief list. In overall they changed the external interface, including names, enumerations and methods. This was more like a full rewrite than an upgrade. My biggest negative on the list is the documentation, as this was the cause of much of our frustrations.

And to give credit - MSN responded quickly and knowledgeably to our requests.

• .Net2/asmx (Administration, CustomerManagement, NotificationManagement interfaces) .Net3 (or 3.5?)/wcf (CampaignManagement, Reporting interfaces)
  • changed xml structure (authentication, etc)
  • enforced xml sequence
  • appears to be that the upgrade is not full, likely an internal deadline was not met
• Renamed many fields and classes to comply with industry standards
  • API is for machine communication, so the name only matters to developers, who has to redo the code now
• Changed method enumerations
  • most of these are 1-to-1 renaming enums, what is the point?
  • eg. removing underscores from EasternTime_US_Canada
• Xml arrays for NegativeKeywords (yes, no longer notkeywords)
  • fine, although web-interface uses comma separated list
• Date type of fields
  • communicate as 3 xml tags: year, month, day
  • link to docs
    • looks like a bug workaround, as field supposed to be nullable!
• Inherited classes (eg: Ad to TextAd and MobileAd)
  • readonly “Type” field is set by derived class type
  • http://msdn.microsoft.com/en-us/library/bb671952.aspx
  • creating ads as Ad xml tag with xml attribute of TextAd, but eliminate Type field during soap operations, as it is readonly…
• API DOCUMENTATION
  • bad navigation (needs to click through many pages to get to the right page, unless you know what you need, and use the sidebar then)
  • INCORRECT information
    • Campaign BudgetLimitType field for a while listed v4 enumerations! - incorrect hyperlink (simple MSN internal curl could discover these after removing the old docs from their internal website, like what we do with our website :-))
    • Parameter substitution in some Ad fields were listed without substituion (appears to be fixed by now)
  • offline version for windows framework only
  • xml code snippets are limited and started to appear in June (middle of the upgrade process)
• Why to have fields, which are reserved for future use? (like v4 had APIFlags, which never made to production, and now is eliminated)
  • Nice to see the ideas, where MSN might go
  • But has no value for an API, and makes documentation readability worse as it litters the information with useless stuff
• V5 was retired ~2 months before deadline, and 5.1 took its place (5.1 had some new reserved for future use fields, AND expanding int to long fields)
  • not a big deal, but what is the point to publish deadlines?

 

Here are the year-to-date ad spend share figures for our clients.

Same data, graphed:

Background: RKG manages pay-per-click advertising for over 100 online retailers. Most are B2C. Nearly all bring a direct-marketing perspective to paid search. Our clients focus on ROI rather than CPC or CPM. We’d suggest online retailers as a class are among the savviest and most demanding competitors in the click auctions. Data from our agency may or not be representative of the total online advertising universe.

Our clients don’t establish a priori budgets by engine. Rather, our clients instruct us to buy as many clicks as possible which meet their marketing targets (revenue, margin, ROI, etc). Our portfolio bidding platform is highly effective at achieving these targets.

Thus, we’d suggest that the ad spend share data presented above is a reasonable proxy for click quality. Click quality is a function of both the population using each engine, as well as the engines’ skill at matching searches with relevant ads.

The main take-away from those data is Google’s staggering dominance of paid search. Sometimes this obvious point seems forgotten in the mainstream business press. In the paid search world, Google isn’t big, Google is gigantic. And Microsoft isn’t small — Microsoft is tiny.

It seems logarithmic, like the Richter scale. In terms of share of ad dollars, Yahoo almost is four times larger than Microsoft, and Google is almost five times larger Yahoo. Rarely is the skew between the top three competitors in any field so dramatic.

A smaller take-away from these data is Yahoo has upticked in each of the last four months, gaining share at Google’s expense. However, the absolute size of that improvement is small, and doesn’t change the situation.

Which engines are driving sales to our clients? Because our analysts and our technology manage campaigns to profit targets, and because those targets are typically consistent across the engines, it follows that our clients see roughly the same percentage of revenue from each engine as the corresponding ad spend.

Here’s that graph, tracked web sales by engine by month, aggregated across all our clients.

Are the engines equally good at transforming impressions or clicks into ad revenue? Nope.

Google brings in an effective aggregate CPM of $10, versus Yahoo’s effective CPM of $6. Microsoft commands an impressive $20 eCPM, but remember that is on tiny volume.

Google enjoys an effective aggregate CPC of 52c across all our clients’ campaigns. Yahoo and Microsoft come in about 17% lower, at 44c and 43c respectively.

We take our aggregate spend on Google, Yahoo, and MSN across all RKG clients and show how it breaks down by month, by engine. (Search and Content combined, but the data is heavy on Search) In addition, since advertising spend is set on economic goals and not engine favored, this approach removes search engine bias, seasonality and RKG growth. In other words, the allocation of spend reflects availability of quality clicks on each engine, and we’re using relative proportions.

May 2008 results: steady, no big change.

Google @ 80.8%
Yahoo @ 14.5%
MSN @ 4.7%

Google’s at ~81% because their clicks work. As for market share, no big change YTD.

Here’s a glimpse at CPCs across our client base for the month.

The results: Google earns more per click.

Next, CPC trend by month, indexed so google = 100%. (This removes seasonality and RKG growth.)

Pretty stable. Google consistently has 10 to 20% higher CPC than Yahoo, MSN.

CPM (cost per thouand imps) for May across our clients:

MSN actually earns more per imp than Google, though on far far far fewer imps and clicks (our clients in aggregate bought 14 times as many clicks on Google vs MSN in May).

Trend in eCPM, indexed so G = 100% to remove seasonality and RKG growth:

Reveals that as we buy more traffic from MSN, we see eCPM decreasing.

Stay tuned for next month’s post!

Now Microsoft has launched the next salvo in its attack, cutting a deal with HP to make Live the default browser on new HP machines.

From MSFT press release yesterday:

“Microsoft Live Search Toolbar to Be Distributed on 2009 HP Consumer PCs”

REDMOND, Wash. — June 2, 2008 — Microsoft Corp. today announced that it has won a key distribution deal with HP, the world’s largest PC manufacturer, to install a Live Search-enabled toolbar on all HP consumer PCs planned to ship in the United States and Canada, beginning in January 2009. As part of this deal, the default search engine setting in the browser on all HP consumer PCs will also be set to Microsoft Live Search.

Same day, different press release. From ComputerWorld:

Firefox on track to crack 20% share in July

June 2, 2008 (Computerworld) Mozilla Corp.’s Firefox browser is on pace to hit the 20% market-share mark next month, a Web metrics company said today. Firefox boosted its share by 0.6% in May, accounting for 18.4% of the browsers used during the month and putting it within shouting distance of a major milestone, according to Net Applications Inc. “Firefox is trending to hit 20% market share sometime in July,” said Vince Vizzaccaro, the company’s executive vice president of marketing, in an e-mail.

Interesting. Right off the bat, 1 in 5 of Microsoft’s pricey HP Live users are back to Google.

Dunno. Still think this game all shakes down to search quality.

Or, to be more precise, to perceived search quality.

Which Mountain View has locked up.

Running too quickly, I assumed MSFT was funding the refunds.

Free money promotions are always a win for the stores when the free money comes from somewhere else. — rkgblog

Nope, it is a rev share arrangement

While most search advertisers pay each time a user clicks on their ad, participating merchants will pay Microsoft a fee each time a customer completes a sale through Live Search Cashback. The fee will be a percentage of the retail price, and when the purchase is complete, Microsoft will return the fee to the consumer in the form of a cash rebate, the company said. The rebates to the customer, in effect, come from the advertisers. — washpost

So it is not “free money” to retailers. It is retailer money going to consumers via Live discounting. Sigh.

Sorry for that mistake.

As it makes no difference to consumers who’s footing the bill, I’ll stand by yesterday’s argument — that Microsoft can’t buy user adoption with cash.

Discountistas will finish their transactions at Live to get the discount, but IMHO will stick with their fave search engine for most chores.

Heck, I’ll predict some clever programmer whips up a Firefox plugin to automate that: “Click here to install the Seach On Google Buy From Live FFox button!”

What about the retailer angle?

An industry buddy sent me this email yesterday:

If I only pay a percent of what is sold and that percent leaves a little for me why not let Microsoft advertise my stuff as much as they want. There is little risk on my part. (I know there are lots of other issues, like limited supply, cannibalization of other channels etc.) Still, if I know my advertising cost is never more than a fixed percent of sales that means I can do a LOT of advertising and be guaranteed profitability.

Dave’s right, there’s no risk, but there is the issue of control.

Suppose I go into a restaurant and, when asked for my order, I respond “Bring me something delicious!”

That might work out really well. In a good restaurant with a good waiter, my ambiguity might yield wonderful meal I’d never have thought to order myself.

On the other hand, a misguided waiter might assume that everyone loves liver as much as he does. Or a less-than-scrupulous waiter could bring me the scrod — not because it is delicious, but because nobody else ordered it and it is starting to go bad.

Rev-share is like letting a waiter pick your meal.

By turning over control to the rev-share partner, the retailer focuses on the end (”get my stuff sold”) rather than the means (”here’s what we need to advertise”).

Rev-share partners will naturally push what is easiest to push — your sale items, your loss leaders, your low-margin merchandise. (”I recommend the scrod tonight.”)

So one issue with rev-share advertising is lack of control: the retailer cedes the marketing strategy to a third party who may be working towards a different goal. This issue of control may or may not matter that much.

One other thought.

A downside of MSFT Jellyfish CashBack (indeed of all cash-back programs) is that it trains consumers to shop by price. By doing so, it helps further erode the role of retailer brand in online shopping.

“Never start shopping at Retailer.com,” consumers learn. “Always start at Live.com.”

Search marketing is an incredible advertising channel. Truly game changing, and wonderful for online stores.

(And by now, regardless of you feel about it, search is utterly unavoidable for retailers — you simply have to be in the game, and be playing well.)

I believe in search. I built my business around it. The channel is amazing, but the channel ain’t perfect. One dark cloud on the horizon: search engines atomize retailer brands.

From the American Heritage dictionary

Atomize

1. To reduce to or separate into atoms.
2. To reduce to tiny particles or a fine spray.
3. To break into small fragments.
4. To subject to bombardment with atomic weapons.

SERPs reduce your brand to list of SKU pages, laid out in short vanilla snippets, presented right alongside similar snippets from all your competitors.

Your brand, misted into tiny particles.

Your brand, nuked.

Hmm.

Consumers increasingly regard the search engines as stores.

According to NRF, consumers name “Google” as the ninth most popular e-commerce site online (!) Think about that. All four of the major engines made the list of Top 50 online stores. That, Dear Reader, is disturbing.

Programs like MSFT Cashback only further this troubling trend.

One interesting metric to watch is the fraction of repeat customers who return to your store directly, versus the fraction of repeat customers who come back to you via paid search, affiliate, comparison shopping engines, etc.

Strong online brands have a high rate of direct-to-site return buyers.

Think Amazon, Zappos, Overstock. Many consumers go to them to shop directly, avoiding Google infomediation.

Are you watching your direct-to-site return buyer rate? Are you testing any strategies to improve it?

This ramble is getting long, so I’ll stop before tumbling into another rant about discounting as a promotion strategy. Happy Friday, and a good weekend to everyone out there!

Update: Spot-on post by the illustrious Andrew Goodman on this. Worth checking out over at Microsoft-Google Price War Already Insane-o

I’ll give you all I got to give if you say you love me too
I may not have a lot to give but what I got I’ll give to you
I don’t care too much for money, money can’t buy me love.
— Paul McCartney

So Microsoft Live (via JellyFish) will soon be providing cash-back bonuses for consumers who use Microsoft search and then make a purchase. This is being reported as big news.

We’ve seen the spend-money-to-try-and-buy-love approach before. Many times. Usually at holiday season, when a portal or a search engine offered cash incentives to consumers to shop through them. The goal is to encourage new user adoption, and also (this is the cynical view) to bump traffic to impress Wall Street short-term. AOL did this regularly in the old days. Ditto Yahoo. Paypal. Google Checkout.

IMHO you can’t buy user loyalty. The savvy deal-focused shoppers will swoop in to use Microsoft during this deal, and then will swoop back to whatever search site they had been using when the deal ends. (Odds are, that would be Google.) Deal shoppers won’t stick. I don’t think you can buy share ongoing, even if you have as much cash as MSFT.

Who will be the real winner here?

Participating retailers.

Free money promotions are always a win for the stores when the free money comes from somewhere else.

Given this tough economy, it is good to see some online retailers getting something positive tossed their way.

Update: Ooops! Mistake in this post. Please see the following day’s post for clarification.

Frankly, I find this shocking. Who ever would have imagined this could happen?

Hat-tip: Marketing Charts