How Geico Wastes $90MM a Year on SEM (blog.tippingpointlabs.com)
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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[ 3.2 ms ] story [ 56.5 ms ] threadSure, 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.
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.
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.
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.
Can you explain?
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.
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!)
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".
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.
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.
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.
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.
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.