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With the holiday season just around the corner, more and more small businesses are attempting to compete with the big-box retailers in the complex game of paid-search marketing.

And why not?

Paid search is a great way to drive targeted traffic to small (and large) retail websites and boost holiday sales. It's a quick, easy way to compete with the larger retailers without spending big bucks. Or so it seems on the surface. After all, you just need to sign up for an account on either Google, Yahoo, or both; choose your keywords, write your ad; set your budget; and you're good to go. That is, until you realize that the profits you hoped would come rolling in are actually jangling away in the pockets of the already cash-laden paid-search providers. And you're spending more and more money on clicks but nobody's buying your product.

The problem with paid search is that it has a tendency to turn the small-business owner into first-time poker player with money to burn in Las Vegas: They get in over their heads because they don't understand the complexities, nuances, and competitiveness of the game.

In an attempt to help those companies struggling to make sense of paid search, here's the first part in a series of articles that (I hope) will help shed some light on how to profit from paid search without going bankrupt in the process.

Part One: Understanding the different players

As of today the paid-search market consists of two major players, Google and Yahoo. Between them these two search engines supply paid search for smaller engines such as AOL and Ask Jeeves (supplied by Google) and MSN (supplied by Yahoo). MSN does have plans to join the game soon but for now they're not giving away details of how their paid-search product will work.

All paid-search providers are not the same

Although on the surface Google and Yahoo appear to be the same, there are differences in how the pair rank their paid listings, and differences in each engine's audience demographics and psychographics.

Let's start with Yahoo. Yahoo is a straight bid-for-position engine. In other words, the way to get your site to rank highly for your keywords in Yahoo is to make sure you pay the highest cost-per-click for that word. The highest bidder wins the #1 slot. For example, if you bid $1.00 per click on a given search term and your competitor bids $0.50, you need to pay only $0.51 to get the top position.

The advantage of Yahoo's system is that you know exactly the position you're going to get for your money. And if you're willing to pay the price it's easy to get yourself to #1. The system works well for those with keywords that aren't too competitive or for those who can afford to spend big bucks bidding on popular keywords, but does not work so well for those companies using competitive keywords on a small advertising budget. That said, with Yahoo it's easy to keep track of your spending. Plus, there's an option to bid on listing #3, #4, #5, and so on.

Google has a slightly more complex model which they say produces more meaningful results. Using a relevancy algorithm, Google's paid search blends straight pay-per-click with the number of clicks an ad gets. It's similar to their organic ranking system insomuch as each click on an ad is counted as a vote for that ad. The more clicks an ad gets, the more popular (or relevant) it is thought to be. So the more people who click on an ad, the higher it appears in the listings.

Google does allow you to control your daily spending limit so you don't go over budget, but because clicks cost money it's easy for your campaign to be ineffective -- especially if those clicks aren't converting into paying customers. Plus, if you set your daily spending limit low, your ads may appear for only a short time in the early part of the day. For example, if your limit is $5.00 a day and your average cost per click is $0.35, you can easily max out before breakfast.

For retailers this can be problematic because what time of day you run your ads is important too. Why? Because studies show that online customers tend to make purchases either during their lunch hour, after dinner, or before going to bed. If your ads are no longer running at these times because you've reached your spending limit, you're missing out on potential sales. As of today the only way around this is to manually pause your campaign during the hours you don't want it to show and restart it when you do.

Demographics

It's also important to understand the audience gender differences of each engine and their buying power. According to research conducted by comScore Networks Inc., Google is slightly skewed toward male users (51.5%), while Yahoo is split almost 50/50 between the two sexes. MSN, AOL, and Ask Jeeves are favored by women, 51%, 51.9%, and 53.7% respectively. These may not be huge differences but when you think of them in terms of the total of Internet users they have huge implications for companies targeting a male or female audience. Plus, according to comScore's data, MSN users tend to buy more online than users of Google, Yahoo, AOL, and Ask Jeeves.

Getting results from paid search is not as simple as it first appears. And with MSN poised to launch its own paid search soon, things will get even more complicated. As the market evolves it's becoming more and more important for small businesses to understand the complexities of paid search before embarking on a campaign. That is, if they want to boost their own profits and not keep adding to the already overflowing pockets of the paid-search providers.

About the author:

Julia is an independent copywriter and consultant specializing in advertising, search engine optimization and search engine marketing services . To learn more about how Julia can help boost your company's profits visit her site at www.juliahyde.com. Or email info@juliahyde.com. You may also like to sign up for Marketing Works! Julia's monthly ezine. Visit www.juliahyde.com/form.html to sign up.