David Rosenthal: observation

Transcript context

…Yes. Insight number one, paid ads on keywords auctioned off to the highest bidder showing up first. Insight number two, and again this is way back in 98, was that this whole cost per thousand impressions thing was wrong, that eventually he thought the whole world was going to move beyond this to a cost per click or pay per click pricing. He thought, why not just do it today? So GoTo advertisers only had to pay when a user actually clicked. The origin of this is since Bill had a bunch of companies at Idealab, he could uniquely feel this pain point. He hated the fact that he was getting billed for all these impressions at his companies when he just wanted to pay for the actual clicks. This is how advertising worked throughout all of human history to this point. There’s that famous John Wanamaker quote of, “Half the money I spend on advertising is wasted. The problem is, I just don’t know which half. ” This new model of performance-based advertising wasn’t possible until the Internet when you could track clicks and conversions. But now all of a sudden as an advertiser, you don’t have to worry anymore about what’s wasted. You know it’s all performing. And the nuance is CPM actually works fine in brand building situations, but on conversion you actually care about the click. Basically with cost per click, you’re getting free exposure every time your ad shows up, but nobody clicks on it. But in a high intent environment, you’re not trying to get exposure. You’re trying to actually capture the click. It’s reasonable the way that it shook out that a lot of brand, brand-based advertising is still CPM-based, but on search engines it totally should be CPC. So how did it go? Well, it worked insanely well out of the gate. GoTo did $100 million in revenue in one year.…

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