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Why Paid Search for B2B Companies is Dead (or Dying)

Uri Bar-Joseph
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google-adwords-dynamiteI’m not one to make announcements like this, and usually titles like this only mean the opposite. How many times have we seen the famous “SEO is Dead” title? A quick Google search for the term yields results less than one-week-old showing that people are still trying to claim that SEO is dead, or not dead, or they don’t really know, whatever.

So while I’m completely aware of the risks of claiming that a marketing channel is dead, I’m making this announcement in a clear mind and support it by a little bit of data and few disclaimers. I believe that paid search for B2B companies is dead, or at least dying, and here’s why.

The Trends of Paid Search

Marketing Athlete Study – Optify

Optify recently concluded its first annual B2B Marketing Athlete Survey and discovered an interesting trend – PPC has scored the lowest on most of the questions related to time spent on tactics and expertise level, and scored the highest for areas most likely to be outsourced:

  • 57 percent of marketers spent no time on PPC, and only 4 percent spend more than 15 hours per week.
  • 25 percent noted that they have limited to no knowledge in PPC.
  • 29 percent already outsource PPC and 13 percent plan to do so in the next 12 months.

weekly-hours-spent-on-lead-generation-channels

2011 and 2012 State of Digital Marketing Report – Webmarketing123

These surveys (2011 and 2012) included more than 500 U.S. online marketers each; about two-thirds of all respondents identified themselves as B2B marketers. Both surveys included several interesting findings (and the comparison between them reveals some trends), but the most relevant to this topic were:

  • Since 2011 to 2012 (the time the two surveys were taken), PPC has trended down on all questions related to effectiveness, budget and usage, and trended up on likelihood to be discontinued or decreased.
  • In 2011, 24.8 percent of B2B marketers identified PPC as the channel with the biggest impact on their lead generation goals compared to only 20 percent in 2012.
  • In 2011, 9.3 percent of B2B marketers indicated that they would decrease spend on PPC in 2012. In 2012, 11 percent said that they would decrease their PPC budget in 2013.
  • In 2012, 36 percent of B2B marketers indicated that they have no PPC program in place and another 20 percent noted that they use an agency to manage their PPC program.

b2b-lead-generation-2011-2012

Customer Usage Study – Optify

As a preparation for this post, I dove into Optify's database to see if more data supports this possible trend. It’s important to note that the database is comprised of primarily B2B marketing companies and digital marketing agencies for B2B companies. Here’s what we found:

  • In the last six months, the share of sites with paid search traffic has declined by 8.6 percent.
  • The percent of total paid search visits out of total visits has declined by 39 percent.

percent-of-sites-with-paid-traffic-normalized

The data supports the hypothesis that paid search for B2B is declining in usage and effectiveness. Do we know why?

The Problems with Paid Search

The data tells us that there is a trend among B2B marketers to stop doing paid search and redirect the budgets to other, more profitable venues. Paid search – and when I say paid search I mean AdWords since Google controls almost 67 percent of the search market – has some basic, inherent problems that create a challenging environment for the B2B marketer:

  • It’s expensive and if you’re successful, it’s only going to get more expensive not less.
  • To do it well, you need an expert, an agency, or a full-time employee. This adds a cost to your basic campaign cost.
  • The good terms are extremely crowded, making the prices go up and the competition much harder.
  • Organic results still get the majority of clicks, making SEO much more attractive from a quality control perspective.
  • For most B2B companies, since the price point is high and the sales process is complex, decision makers don’t do their own research and therefore won't click on sponsored links. So the leads you’re getting are either bad, or too far from the purchase decision.

These basic problems make paid search for most B2B companies a negative ROI expenditure.

The Math of Paid Search

Let’s say that the price point of your product is $1,500 (if you’re a subscription based product treat this as your Annualized Contract Value). Your close won rate for opportunities is 20 percent and your conversion rate from leads to opportunities is 10 percent. This would mean that a single lead is worth $30. Meaning, to break even (without including any profit margin elements), you shouldn't be spending more than $30 on a single lead.

marketing-sales-funnel-calculating-values

Now let’s look at AdWords and use some conservative assumptions.

Let’s assume that your bid for a competitive keyword that is extremely aligned with your offering is $5 (it’s probably much higher, but let’s just assume that). Let’s also assume that your conversion rate from click to lead is 10 percent, above the average of 8.4 percent according to a recent research by MarketingSherpa. This would mean that out of every 10 clicks on your paid search ad, only 1 converts into a lead – a basic cost per lead of $50.

In other words, for every lead you generate from paid search, you will lose $20.

As you can probably see, I didn't include the cost of the agency or the full-time employee or any overhead cost you will need to incur in order to run this campaign – landing pages, software, etc. I also used a 100 percent profit margin rate, which is true only in fairytales.

Now, you can play with the assumptions and find a model that works for you and gets you to a positive, or at least a break even point. But with so many alternatives out there, why bother?

The Alternatives to Paid Search

What are the alternatives? Well, there’s always the good ol’ SEO that will yield a higher click-through rate and will drive higher quality visitors and leads to your site. But what if you can’t wait for your SEO initiative to bare fruits?

Here are some alternatives you can use to generate more leads:

  • Social media ads. Twitter promoted products produces great results and I’ve heard good things about LinkedIn. Personally, I don’t believe in Facebook as a medium for B2B, but if you can get to a model that works, go for it.
  • Content syndication channels or any cost-per-lead program. There are more and more cost-per-lead programs out there that will yield high volume of leads at a much lower cost per lead than paid search. You will need to create content or offers to attract leads.
  • Display and retargeting. While paid search is declining, I believe that display ads for B2B, specifically retargeting services, are gaining more prominence in B2B and are still relatively cheap. You still need to have good offers to attract visitors and do good work on your landing pages, but you can take the expertise you gained in PPC and transfer it. Check out Onespot, a great new content retargeting startup, and retargeter, another retargeting company that is doing very well.
  • Integrated campaigns. Call it integrated, cross-channel or multi-channel campaigns, the concept is the same: synergy. The sum of the parts is bigger than the total and so the ROI tend to be more favorable.

Kill it

If you’re not convinced yet, run some basic opportunity cost analysis and see if you can’t put your money to better use somewhere else. And if you’re afraid that your competition will get all those leads, don’t be; while they are busy with sorting through their unqualified leads and working the paid search dials, you can focus on closing deals.


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