Ad agencies are running scared because a significant innovation has occurred—and it gives unprecedented power to advertisers. Since the 1850s, regular advertising has worked the same way.

Newspapers sell ad space. Agencies market that space, for commission. Agencies make most of their revenues through commissions but rates have dropped from 15% to about 1.5%. Agencies supplement commissions by charging creative, retainer, production fees.

Media rates have shot up. A 10-second ad spot on TV used to cost Rs 2,000. Now it costs Rs 1 lakh. To compound matters, over 185 channels are fighting for viewing time. So vastly increased spend buys far fewer viewers, and far less time.

Globally, it’s even more daunting. But today’s pharma company wants to market in East Africa and east Delhi. Today’s IT company seeks custom in Uzbekistan as well as the US. Something that happened six years ago in California changed the dynamics:

Find the consumer when he's looking for you Try a thought experiment. Imagine you can see millions of queries fed into the Google search box. Someone in Madrid wants a “cheap hotel in Varanasi”, another in NCR is seeking “Maruti Swift price in Gurgaon”, a fan from the Caribbean wants “topless pictures of Salman Khan” and somewhere in Kentucky, somebody is looking for a “T-shirt supplier”.

TEN STEPS TO SEARCH-BASED REVENUE

1. Build a website or blog on a given topic

2. Optimise content to generate traffic and links—this makes you "trusted"

3. Enter relevant search keywords and see where your site is ranked

4. Optimise your content to get higher search engine rankings

5. Link to other sites on related topics—this is free

6. Advertise online—bid for sponsored links to generate traffic and business

7. Accept advertisements from other online advertisers to generate revenue

8. The average online advertisement costs Rs 7-12 per click

9. The conversion rate from click to sale is somewhere between 5% and 20%

10. Online advertising is growing at about 40% per annum

You are actually seeing the live stream of global consumer demand. Every search engine search is an expressed consumer demand. With this information, you become a marketing God. That is exactly where search engines like Google and Yahoo! help you.

When your prospects are looking, be found!

The secret to getting business is simple—make sure to be found when people are looking. So, a lodge owner in Varanasi first gets a website and then makes sure the website is on the first page of results when that Spaniard searches for “lodge in Varanasi”. Being on Page 1 is important — not too many people go beyond Page 1.

A cottage industry has sprung up of people who help you to rank high on search engine results. This industry calls itself Search Engine Optimisers, or SEOs. Many SEOs use dirty tricks, “black hat” in SEO jargon. This includes stuffing sites with invisible words (white text on a white background), hiding part of the site and more.

It is a spy-versus-spy game. The search engines didn’t like being manipulated and they started demoting sites that tried black hat. Every time search engines busted one practice, SEOs invented another. Even BMW has been black-listed for SE manipulation.

What is your online reputation?

The best long-term way to get a site ranked high is to get a good online reputation. Search engines use “reputation ranking” to determine which of a million sites rank #1, or #1,000,000.

The analogy is simple. Ask five people: “Should I buy Infosys shares?” You get different answers. You’re likely to pick one from the person who has the best reputation. Similarly, search engines promote sites with the best “online reputation”— and they measure reputation by seeing which other sites link to you, what reputation those have, and so on.

The faster route to being in the spotlight

Just like in the real world, getting an online reputation takes time and patience. Start seeing how you can get other sites to link to you. Perhaps you can write and distribute reports, get online journalists to cover you, or offer some other value. Hire a SEO or do it yourself. There are limitations to SEO. If you are a T-shirt supplier in Tirupur, you might be listed on searches for “T-shirt”, but not “Tee shirt”, or “hosiery” or “organic cotton”, even though all those searches are relevant.

One solution. Remember the “sponsored links” on top or to the side of search results? Those are ads. Marketers pay to be placed on Page 1 of search results. You may have to wait three or six months for an organic, free ranking; you can have an ad right away on “sponsored links”.

The art and science of search engine marketing

As with SEO, there’s an art and science to sponsored links advertising, typically called Search Engine Marketing or SEM.

Being on Page 1 of a search result isn’t easy, even if you’re paying. Let’s say a garment company wants to be present on US searches for “garment exporter”. Many garment exporters from everywhere have already put their hats in the ring for that spot. So the engines auction space on search results. This auction is live, 24X7 and it generally places, higher bidders on the top right corner, above lower bidders.

A marketer bids to pay the search engine “X” if someone clicks on the sponsored link. Bids start at $0.01 (Re 0.42) per click and go to $100 (Rs 4,200) per click. It’s a huge range—and the big boys bid big on all the “big” search terms, also called “keywords”. You also pick the places you want the ad shown. You can pick the world, any set of countries or specific cities. Bid prices vary by country and region. To see how it works, you can go to “adwords.google.com”, register an account for $5 and start playing with the online tools there.

You can outsmart the big boys. One trick is to find phrases consumers use to search—but that other advertisers have not found.

More than words

There is no easy way to do it. But there are priceless gems of keywords waiting to be discovered. Half of all searches done in every month have never been done before. In other words, the universe of potential search terms doubles every month. At my company Pinstorm, we’ve built a tool specifically to generate relevant but non-obvious keywords.

We know that we must expand our in-house database of over 12 million search terms rapidly. Put yourself in the mind of prospective buyers and guess what keywords they would search. Don’t stick to the obvious. Try synonyms, variants, plurals, tenses, misspellings, words from Web pages of competitors. Another trick is that longer search terms convert better into enquiries—but cost less. A search for “T-shirt exporter from Tirupur India” is more likely to convert into an order than one searching for “Tshirt exporter from India”, who is in turn, more likely to respond than one searching for “T-shirt exporter”. But terms typically decrease in price as length increases.

What should I bid?

After picking keywords, you can bid the amount per click you’re willing to pay. You can play with a daily budget of $5, but you’re not likely to get much for it. Average prices for bids in India in 2006 were around Rs 7 per click. This is growing rapidly. In categories like travel, it’s now at Rs 12 a click.

I, the copywriter

Once you’ve picked keywords, geographies and bids, write the ad that appears as a sponsored link. Copy can make a compelling difference. Perhaps offer a small freebie? You might offer a free catalogue of products, a free market report, or answer a question. Remember, the prospect wants information—and will be glad to get any.

Landing page: Most people simply link to their home pages. This is not the best idea if your home page is cluttered. Build special uncluttered landing pages and have a contact form. Keep trying to increase conversions from visitor to enquiry. Typical conversion rates can range from 5% to 20%.

Test, fix, test, fix. Remember this is a new medium. You can change things on daily or hourly basis. Try out stuff, change words, prices and geographies. Do it for a few months and you will know more than anybody in your local advertising agency.

Coming to agencies: Do you think you need a professional SEM? It’s not an easy question to answer. Some Indian companies spend upwards of Rs 15 crore a year on search. Others hand over about Rs 2 lakh per month. Commission-based agencies will handle your ad spend and charge 5-15% as management fees.

This works well where you don’t spend too much or expect too much. The second sort of agency is performance based. Here, the agency does the copy, pays for clicks, monitors conversions and charges for visitors generated, or leads, or enquiries. This works better when search is a critical medium and you have a large budget.

Making money from search: Hopefully you now have some understanding of how search works. Here is the flipside. Search engines like Google don’t just place sponsored links on their search results. They also place ads on other sites. Check out sites like Economictimes.com or Moneycontrol.com or various blogs —there are banners saying “Ads by Google”.

Google and Yahoo have their own ad networks—called AdSense and Yahoo Publisher’s Network, respectively. Each pays hundreds of thousands of sites to show ads. Many of these sites are blogs run by one person. And all these sites make money from hosting advertising.

Here’s how hosting works. Say you have a blog or site about travel or banking. The search engine reads words on your site and places ads from marketers who have “bought” those words. If some visitor from your site clicks on the link, the marketer pays Google or Yahoo!, and Google pays you a part of that fee.

You might earn just a rupee a click—or as much as Rs 10— depending on keywords and your site geography. Beware, you can’t click on your own ads and earn money—there are safeguards against this. Revenues from advertising can vary. Some bloggers earn over Rs 30 lakh a year simply through advertising.

Read up about AdSense and YPN by—yes—searching for these terms. And you could also soon be earning from the boom in online advertising.

(The author is CEO of digital marketing firm Pinstorm)