

How Geico Wastes $90MM a Year on SEM - tplDrew2
http://blog.tippingpointlabs.com/2009/04/how-geico-wastes-90mm-a-year-on-search-engine-marketing/
The more and more people I talk to, the more often I find myself taking a militant stance against gigantic search engine marketing (SEM) spending. My position is simple: if you create relevant, frequently generated content that’s high-quality and of a significant volume, you don’t need AdWords. That’s it.
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omarchowdhury
This person obviously does not understand the value in capturing BOTH organic
search visitors and paid search visitors.

Let us say 30% of the searchers for "auto insurance" click on Geico's organic
search listing. What about the other 70%? Some of them click on other organic
search listings, some of them will click only on other paid search listings,
some of them will click on a combination of listings (comparing).

It would only make sense for Geico to buy paid search listings as well - to
capture SOME of that other 70% that do not click on their organic listing.

Simply, ranking organically and buying keywords will only increase the chance
for a potential customer to find your site. And with an industry as
competitive as car insurance, if Geico doesn't spend that $90MM to acquire new
visitors someone else will.

Also I highly doubt the accuracy of the $90MM figure as Spyfu's database is
only an estimate.

Finally let's not forget this article also doubles as a marketing material for
Tipping Point Labs, I'm sure they agree they are "expert story-tellers" who
completely "understand online content marketing".

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tplDrew2
Thanks Omar. I think you make some great points. However, as much as google
would like you to believe that AdWord buys are more successful than the top
ten organic search results, that's just not the case. Organic search results
have higher conversion rates than adword buys. Hands down. I'll give you the
SpyFu inaccuracy, however, it's some insight into adword spending. Also,
although the post helps market tippingpoint, we're much more eager to spark a
debate and engage in an active dialogue. Thanks again for your insight.

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omarchowdhury
How can you say that paid search traffic converts less than organic search
traffic? The beauty of paid search traffic is being able to target the RIGHT
keywords for the RIGHT customer and the RIGHT time.

It is inherently wrong to say paid search traffic converts worse than organic
search traffic because different variables will change the outcome (conversion
rate). Those variables can be keywords, negative keywords, type of keyword
matching, ad copy, time of day, landing page, geography, industry, product. I
can change these variables and make the paid traffic convert poorly compared
to the organic visitors. I can also tweak these variables and have my paid
traffic converting much better than organic traffic!

What is my point? The data that you used to draw your conclusion, that organic
is better than paid, was simply data from a poorly converting paid search
campaign. Not to worry though, _most_ paid search campaigns are full of flaws
because a lack of understanding of the Adwords system.

Furthermore, Google does not want me to "believe" anything. I have websites
that rank organically AND which receive paid search traffic (Google). I have
my own data to draw conclusions.

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profgubler
I see some of his points. However, buying keywords on searches that you rank
highly in is often not a negative. We buy brand terms for our clients all the
time and it only helps them. They do very well in the organic listings for
these same terms, but they often make more money through the PPC terms. The
reason I feel that it often works that way, is that people clicking on PPC
terms, are often more in a buying mode.

Because, people clicking on PPC ads want to be marketed and sold to. Is this
always the case, no. You have to run the analysis on it to determine if it is
worth it to buy keywords you do well with in the organic searches.

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breck
Absolutely. Also, I question the assumption that a significant percentages of
searches for "cavemen" would convert.

I would ballpark that conversions on "cavemen" versus "auto insurance quotes"
would be much less, probably 2-3 orders of magnitude or more.

But the basic idea that Geico is wasting some money on search is probably
right. However, it could also be that they are not spending ENOUGH. It's hard
to tell without being on the inside.

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randallsquared
It's hard to tell when you _are_ on the inside. :)

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breck
Good point!

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JoelSutherland
This article misses the much bigger picture on two points:

1) Geico is forgoing efficiency in favor of growth. In the past 20 years it
has roughly quadrupled its market share. It can do so safely as it is owned by
Berkshire Hathaway. As many other auto insurance companies have failed, Geico
has climbed to a top 4 insurer.

2) Geico is owned by Berkshire Hathaway. Unlike some of the other companies,
it does not have profitability as an exclusive motivation. Even at break-even,
it generates significant float for Bershire to invest. This is why growth is
favored to high margins.

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blurry
_Unlike some of the other companies, it does not have profitability as an
exclusive motivation. Even at break-even, it generates significant float for
Bershire to invest._

Can you explain?

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JoelSutherland
An insurance money makes its money from the premiums people pay and spends
money on claims. Once a claim is made, there is a period of time before the
company must pay it.

Even at break-even, an insurance company must keep a large amount of cash on
hand to pay future claims. This is called float. Even though the company does
not 'own' the money, it is free to invest it while it holds it. Buffet has
used Geico and other insurers primarily as vehicles to invest their float.

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byrneseyeview
On the other hand, it's important to note that Berkshire's insurance companies
have been unusually profitable. Their combined ratio (ratio of expenses to
premiums collected) is often below 100% -- not especially common for the
insurance business. However, that average incorporates more volatility, and
more deviations from the norm.

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tapostrophemo
Well, any insurance company that doesn't have a combined ratio (CR) less than
100 is not making money.

Example: a CR of 92 means that for every dollar of premium, the company has to
spend 92 cents, leaving 8 cents of profit. A CR of 102 means that the company
has to spend $1.02 for every dollar taken in.

How much spent depends, in general, on operating expenses and claims paid.
Limiting how much you spend can only get you so far; hence the rest of an
insurers profit comes from investments.

(And where does the money for investing come from? Collected premiums!)

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byrneseyeview
An insurance company with a combined ratio of 99 has a cost of capital lower
than the US treasury. So yes, it is probably making money -- even if it has
its assets in T-bills.

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coglethorpe
If someone at Geico can track that the $90 million a year gets them more than
that back in business, why is it a bad decision?

Sure, they could create some insurance related content and have some articles
show up higher in the rankings, but I doubt they would hit first page for all
they keywords they want.

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tplDrew2
Thanks so much for your comment. I too hope they’re doing some real testing
and tracking to make sure they’re seeing a big ROI. Too often I’ve seen
agencies hand deliver reports to clients that are ’stretching’ at best. All
the client cares about is that they’re performing ‘better than the benchmark.’
As long as that’s the case, they don’t dive much deeper. It's entirely
possible to garner every result on the first page of search results, if the
content is REAL content of value it can be done. Thanks for the comment.
Really appreciate it.

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ssharp
This guy completely discredits his company with a nonsense post like this. The
reason Geico wouldn't PAY for the Caveman keyword is because it's not going to
have much benefit. When someone types in "caveman" into Google, they aren't
looking to buy car insurance. When someone types "car insurance quotes" into
Google, they are. Geico wouldn't be dropping 90MM a year into that keyword if
it didn't have a positive ROI. Althought "Caveman" might be cheaper to buy, I
would bet any amount of money that it still have a negative ROI.

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tplDrew2
Thanks for your comment. You don't need to buy the Caveman keyword... that's
my point. What you need to do is convert people who are looking for caveman
content at the height of it's popularity, and turn them into Geico loving
insurance consumers. That IS the goal of the ad campaign, I would assume. I'd
be surprised if their keyword campaign is THAT effective. If they don't buy
the keyword, I'd imagine they see little to no drop in conversions. Thanks
again for the dialog.

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ssharp
So all Geico needs to do is convert people who are looking for cavemen into
paying customers and they can stop paying $90 million a year to AdWords?

Honestly, your article doesn't make any sense. You're title is that Geico
"wastes $90MM" a year in paid search. Yet you offer no evidence that Geico has
a negative ROI on this spending.

If your point is that Geico isn't concerned with organic traffic, they are
ranked #1 for "car insurance" and #2 for "car insurance quote". I think they
seem to be doing alright.

What do you think the point of the Caveman commercials were? The appeal was
"it's so easy, even a caveman could do it". The cavemen were an added benefit
of a recognizable character. While Geico probably could have spent some time
and money getting higher ranking for "cavemen", you don't provide any evidence
that doing so would actually covert sales. Missing this is huge because common
sense tells me that folks looking for the Geico Cavemen are probably more
interested in some quick entertainment than car insurance.

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nikblack
It is always tempting to point to a big company and to try and argue how
stupid they are and how they waste money etc. but as most of the comments here
have already pointed out, there are fatal flaws in their argument.

I will add one more to the list. The difference in click-through rate for the
top result from the second result is 3.5x. ie. Top result gets 43%, second
place gets 12% CTR. Ranking first means a lot.

Also the spikes in trends for the caveman keyword being linked to Geiko is
very speculative at best.

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tplDrew2
Thanks for your comment. Really enjoy the dialog. The caveman spike is
correlation, not speculation. It does correlate very closely, the news stories
for the time period even other platforms like YouTube, trend very highly for
Caveman around the same months... but you're right - I don't know for sure.
Where did you get your CTR stats? Those are intriguing. Our experience is very
different. Thanks again!

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mattmaroon
He's making the assumption that Geico hasn't done any sort of testing to
verify that this is optimal. You can use urls in adsense to track which of
your traffic comes from there and which organic.

My guess is that Geico isn't spending $90m blindly. But, like everyone in the
tech industry, the author assumes that everyone not in the tech industry is
stupid.

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transburgh
Just a personal note, my experience with SpyFu's numbers are horrible. They
have always been way off the mark.

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earl
I've worked for a company spending hundreds of thousands of dollars per month
on SEM. SpyFu's numbers are really poor.

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tomkinsc
This is largely unrelated to the content of the article, but as a community of
intelligent individuals, can we make an effort to avoid TLAs (three-letter
acronyms?)

It would be helpful for the uninitiated to have acronyms spelled out. For
those of us in the physical sciences, "SEM" is generally understood to mean
"scanning electron microscopy." While this is obviously not the case of
Geico's search engine marketing (surprising that they have a daily search
advertising budget of $244k!), disambiguation would be helpful.

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speek
That's ballsy. I like it.

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tplDrew2
Appreciate it. Ballsy is fun.

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earl
So, he thinks nobody at Geico has ever looked at that $90MM and tested what
happens if they spend less? Really? The idea that nobody has ever wondered
what would happen to his or her bonus that year if they saved even 5% of the
SEM spending is kind of far fetched, IMO.

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tplDrew2
Thanks earl for your comment. I'm not that silly to assume no one's watching
the adword buy, but I also know from experience that clients blindly take a
'better than the benchmark' as a sign of success - especially in the keyword
space. Thanks again.

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gddub
Because his point is that they could spend less and still generate the same
income therefore increasing the profit margin.

