Your Best Friends Are Swindling You

It’s entirely likely that, as you read this column, your resellers are driving up keyword prices on your most valuable terms. That’s because they’re bidding on the same terms you are. And, because you need to do better than everyone else is in the SERPs (read: survive), you’re outbidding them. That’s costing you money.

If they weren’t competing with you, you could save millions every year in unnecessary bid costs and gain millions more in the conversions they’re taking away. This would, by the way, seem like a legitimate thing to ask for — as these are the people you brought on board to begin with, and offered your brand name and products, too, so that they would actually help you.

But don’t worry. No matter how bad it is that the guys you thought were your friends are stabbing you in the back, it will be much, much worse come holiday shopping season. So think of all of this as a pleasant summer vacation.

Don’t be so sure. You might be tempted to argue that your affiliates and resellers wouldn’t do anything to hurt your business, because it wouldn’t be in their long-term interest. Why bite the hand that feeds you — especially if it’s feeding you money? But the argument is faulty for four reasons:

1. If you go under, they’ll find somebody else to supply them and then outsell.

2. They might be stupid.

3. They might be crazy.

4. They might be brilliant, and know exactly how to suck everything out of you without letting you bleed to death — so that you’ll stay alive for them to leech off of tomorrow.

Don’t drop the soap. Here’s one example. It’s an unhappy story. At the time of this writing, a major soap, fragrance and body products company (let’s call it SoapFragrance, even though that’s not its real name) is posting $1.18 as its Yahoo maximum bid on its own brand name. Meanwhile, another online retailer that sells SoapFragrance’s products is bidding $1.17 for the same brand name. And, lo and behold, the second company appears just below SoapFragrance in the paid search listings on Yahoo for SoapFragrance’s brand.

Let’s put it another way. After the $1.18 and then the $1.17 bid, the third-highest bid price drops to 95 cents. This means that, had the second-highest bidder — which ought to be working for SoapFragrance — been out of the picture, SoapFragrance could maintain the highest bid at 96 cents. It’s paying 22 cents extra on every click.

According to Yahoo Search Marketing, the soap company’s brand name got 13,699 searches in May alone. So SoapFragrance could be looking at a loss of more than $3,000 a month — $36,000 yearly — for one keyword, to just one upstart redistributor.

Of course, it’s bidding on a lot more than one keyword. And it’s probably dealing with a lot more than just one upstart distributor. And we’re not taking into account that holiday shopping season pushes bid prices to the point that $20 a click is considered normal.

Old scoundrels, new tricks. Actually, competing with yourself is a problem that retailers are largely used to — even if they aren’t happy with it. From brands that steal key elements of your image to the $12 “authentic” Prada handbags that get sold on sidewalks everywhere, it’s almost a rule that if you do something well, other people will turn your hard work against you.

But like click fraud to traditional crime, being forced to compete with yourself in the SERPs is a particularly troublesome version of an old problem, because it’s costing you money in a different way.

The knockoff Prada handbag isn’t directly costing Prada money. There’s lost revenue; there’s brand dilution; there’s the need to rethink the price tag on that thousand-dollar handbag when shoppers can buy nearly the same thing for 10 bucks. But Prada won’t get snagged with a higher bill on anything at the end of the month because of it.

But when you compete with yourself in SEM, it does cost you more money directly. It raises the PPC on the ads you need to bid on the most. So in search, competing with yourself isn’t just a problem of losing revenue; it’s an issue of spending more money than you ought to be, plus losing revenue. And it happens all the time.

To make things trickier, the reason these so-called friends are in your space is because you put them there, and you put them in your space because you need them. You have resellers because they can sell your products in ways you’re not equipped to, or because they let you work on a scale you can’t reach on your own.

Resellers aren’t the only culprit. Despite Google’s crackdown on affiliates that compete with their “parent” sites in paid search, the practice is still widespread. (How do you know if your affiliates are driving your bid price up? Hint: If five PPC ads on your brand name all display a different variation on your URL, let’s just say it isn’t a good sign.)

What to do, what not to do. If you’re stuck in a mess like the one SoapFragrance is, the solution to your worries is the same as the solution to any worries in SEM: It all depends on your exact situation. Even the reason your so-called allies are hurting you will vary from case to case — from accidental oversight to malicious backstabbing that calls for legal action.

But whatever the reason you’re competing with your resellers and affiliates, you have to act right away. The longer you wait, the more money you’ll lose — and the bolder the people causing you problems will become. And if you wait until things really start getting rough in November, you’ll be looking at a very cold December indeed.

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