Bronte Media

I was taking a closer peak at one of my obsessions - direct navigation advertising - and turned up an interesting data point.

First as background, Richard Ball did a great job of painting a picture of one direct navigation provider trying to add in a little fat to the organic traffic. And naturally because the industry is gaining scale, the incentive to pad higher quality traffic with lower quality traffic becomes more attractive. The sausagifying of search if you will.

Now, Direct Navigation has traditionally been described as users typing in a URL into their browser and then clicking on a sponsored link of interest. Advertisers were happy, as conversions were the same as, and in some cases higher, than search marketing.

But I wonder how much of the traffic is now blended in with ‘arbitrage’ type situations (p.s. I hate the word arbitrage, what search people do with showing higher value ads to users they’ve acquired at a lower price isn’t arbitrage as there are risks etc.).

Here is a snippet from Marchex’s - one of the leaders in direct navigation - annual report:

“Internet-based advertising is concentrated primarily with three providers. The amounts for online and related outside marketing activities were approximately $309,000, $4.2 million and $13.6 million for the years ended December 31, 2004, 2005 and 2006, respectively.”

Now, Marchex didn’t have a direct navigation portfolio in 2004, so we can see that they didn’t really spend any significant amount of money on online advertising for their other businesses (which mainly are to do with bid management and SEM for small merchants).

Now let’s place the ad costs alongside the proprietary web site revenue:

There are a lot of moving parts in the business and Marchex could have been promoting other properties but there seems a strong enough correlation to suggest that paid traffic is starting to represent a significant proportion of the traffic (if you assume their ROI is 100% then it would be the majority but that’s probably not a realistic scenario).

What I take away though is that paid traffic (probably from various search sites) is becoming an increasingly large part of the traffic pie, and costs are going up significantly.

Conversely the number of people who type in urls into their browser are not growing as fast.

There is another source of organic traffic and that is through the natural results of Google and Yahoo and Marchex is focused on establishing this as the largest pointer of traffic by integrating Openlist throughout its portfolio of sites.

At which point though, they aren’t a direct navigation provider but rather a content network that primarily survives (margin wise) through organic search traffic.

So is the direct navigation industry merely a temporary place-holder for an immature online advertising industry? And perhaps the domain park page will rapidly decline in popularity and be virtually extinct among high paying keyword concepts. Just something to think about.