Google announced the plan on its “Inside Adwords” blog in December, and has recently begun displaying an alert within the AdWords account interface, noting that the change will happen this month (February). To avoid the automatic switch, complete this form before February 14.

Many AdWords customers have tried to set up conversion tracking and optimization, but failed to properly implement it. The two most common problems are “over-counting conversions” (by treating certain pageviews or events as “conversions” when there is no financial transaction), and “under-counting conversion values” (by merely counting transactions, but not transaction amounts).

Until now, experimenting unsuccessfully with conversion tracking in Google AdWords hasn’t had any financial consequences, unless the advertiser has switched to “Optimize for Conversions.” But this month, Google will automatically switch accounts that are configured to “optimize for clicks” to instead “Optimize for Conversions,” which could result in dramatic changes that could turn profitable campaigns into money-losers.

I’ve never recommended using the Campaign Optimizer to “Optimize for Clicks,” because that method doesn’t track ROI (return on investment), but actually shifts activity to the lowest-value clicks. Advertisers who haven’t enabled optimization won’t be affected by the current change. But if you’ve chosen this option, you need to immediately review your AdWords account to see if conversion tracking might be an even worse option for you.

It’s extremely important to recognize that Google AdWords is constantly steering customers toward options which spend more money, but which often reduce ROI (return on investment). The current change (switching from “optimize for clicks” to “optimize for conversions”) is quite likely to increase ROI for customers who’ve properly configured conversion tracking within Google AdWords, but could financially ruin advertisers who aren’t aware of the new consequences from past experiments with AdWords conversion tracking.

Note that some advertisers use third-party tracking and reporting tools for conversion tracking, instead of using this feature within Google AdWords.

I’ve now run two promotions, each for two weeks. In the first, I gave away a $10 Amazon gift card (drawing 593 entries from 11/30 to 12/14/2011). In the second, I gave away a collection of 40 used books (bringing 343 entries, from 12/15 to 12/28/2011).

I didn’t really think much before launching the first giveaway, but was pleased to find that a substantial number of new followers appeared to be teachers (my target audience). However, I decided that my second giveaway would offer a prize that would be uniquely attractive to classroom teachers: a set of 40 used young-adult novels for a “classroom library” (I expected this prize to be less attractive to non-teachers).

Unfortunately, neither Facebook nor Hooplasoft (the provider of the “app” which powers the giveaways) provide any way to determine a new follower’s profession (or other information, except what’s publicly visible to non-friends on Facebook).  The relatively small number of participants and the expected seasonal “lull” during the winter holiday period combine to make any statistical analysis meaningless.

LessonIndex.com‘s Facebook page attracted a total of 812 new followers (rising from about 900 followers ON 11/20 to more than 1,700 followers on 12/29/2011). Estimating the total cost of the promotion at $100 (including the cost of prizes, shipping, and my time), I’ve added 800 new followers at a cost of about 12.5 cents each.

Don’t let that confuse you: they’re not  often not relevant. Here’s why.

This week, while viewing the Google Analytics Dashboard for my LessonIndex.com web site, I noticed that during August, the bounce rate had increased by a few percent, and average pageviews per visitor had declined slightly.  (“Bounce rate” refers to the percentage of visitors who view just one page at a web site.)

And those rates might seem dismal to many folks: 90% bounce rate, 1.3 pageviews per visitor. For an e-commerce retailer, or a community forum web site, these would be horrific figures — but for LessonIndex.com, they’re fine.

LessonIndex.com is a web directory site, and most visitors are referred by search engines, arriving directly to a specific “literature title” page. I’ve designed these pages to be self-contained, so that a teacher searching for a Huckleberry Finn lesson plan immediately sees all the related resources on a single page. She never needs to view any other pages at LessonIndex.com, but will click on links to the resources she needs, on other web sites.

Likewise, customers find many e-commerce retailers’ web sites through search engines, often while searching for a specific product, and the search engines often deliver the customer directly to the page describing the product the consumer wants.  Of course, to complete a purchase transaction takes several extra steps (add to cart, check out, fill in form, payment, confirm), but most visitors will still exit the merchant’s web site immediately, resulting in “bounce rates” of 60% to 80%, with average pageviews-per-visitor often under 2.

And an online community forum may also draw significant traffic from search engines, with visitors shown a specific discussion thread that answers their question (or isn’t relevant); again, the bounce rate might be over 50%.  However, visitors who stay and explore the community forum site often view many different pages, so even with a bounce rate over 50%, the average pageviews-per-visitor is often 3 to 5.

But the raw numbers can be highly misleading, because they combine all sources of traffic into a single metric.  As I mentioned, most visitors to LessonIndex.com (90%) are referred by search engines, and arrive on a specific literature-title web page that matches their search phrase.  What about the other 10%?

Some visitors (6%) are referred by other web sites which link only to the home page, and others (4%) type the URL directly into the browser window.  When I “drill down” to view data only for the home page, the bounce rate drops below 40%, meaning that “more often than not,” visitors click through from the home page to a specific literature-title page at the site.

So what happened that made my “bounce rate” increase, and my “average pageviews per visitor” decrease?  During August, search engine referrals increased faster than other sources of traffic (rising from 87% to 90% of total traffic).

That’s an important piece of information: I’d prefer to have a more diverse mix of traffic sources, to reduce the impact of changes in search-engine algorithms.

But when I adjust for this change, the “bounce rate” and “pageviews per visitor” haven’t really changed at all.

Finally, it’s critical to remember that nearly all of the data reported by Google Analytics are “intermediate metrics,” which can easily be manipulated in ways that don’t actually affect the site’s more meaningful measures — including “profit.”   (Lies, damned lies, and statistics.)

To date, I’ve only been able to identify one merchant who began collecting any state’s sales tax after enactment of this law: Amazon made a strategic decision to “collect the tax and sue” in New York, after its retroactive enactment of the law in 2009.  Amazon hasn’t repeated that strategy elsewhere.

In June, I posted my question on a popular affiliate-marketing discussion forum, asking if any publishers or retailers could identify any companies which began collecting sales tax in any state as a result of the “Advertising Nexus” issue. Nobody could name even one.

I also left a phone message and sent an email to Assembly Member Nancy Skinner, the law’s sponsor in California:

Ms. Skinner: I left a phone message, but thought I’d clarify my question. As you know, I’m upset about the “Advertising Nexus” tax law, which forced Amazon to stop paying me for advertising on my web site.

But I’m open to learning more about [how] California and other states benefit from this law. Specifically, could you name ANY online retailer which began collecting ANY state’s sales tax because of an “Advertising-Nexus tax law”?

I’ve only been able to identify one: Amazon made a strategic decision to “collect the tax and sue” in New York, though it hasn’t repeated that strategy anywhere else.

Surely North Carolina or Rhode Island should be able to identify some merchants who started collecting sales tax for those states after the Advertising-Nexus law was passed there. But they won’t say.

I’m not even going to be picky: I’ll include any merchant who changed their sales tax policy “near the time of” any PROPOSAL regarding an Advertising-Nexus bill, even 18 months before or at any time since, and even if the bill didn’t pass.

I’ve posted the question to several experts, who’ve all said the same thing: “That’s an interesting question.” Nobody has been able to identify a single merchant (other than Amazon in New York) who has begun collecting sales tax in ANY state, in a situation in which it could conceivably be argued that an “Advertising Nexus” proposal might have been a factor.

I would appreciate if you could identify any merchants you’re aware of, who have begun collecting sales tax for ANY state as a result of the “Advertising Nexus” issue being raised.

Ms. Skinner has not responded.

I’ve noted in other posts here that I believe that these laws are unwise, ineffective, and unconstitutional. They’ll eventually be stricken down by federal courts (but as legislators have noted, any taxes collected during that time would be kept by states). There are several much more effective, fair, and legally plausible strategies if states actually sought to force out-of-state retailers to collect sales tax. (Since those other strategies would actually be fair and effective, few legislators dare to propose them, and no lobbyists will support them.)

But given the precarious financial situation in California and other states, and my personal belief that out-of-state retailers should be required to collect sales tax for all states which impose them, I’d love to see some benefit from these laws. Seeing such benefits might reduce the sting from losing 26% of my advertising revenue on July 1.

But so far, the only effect of these laws has been the termination of advertising relationships with many thousands of web publishers (small businesses) in each state, shifting revenue away from states which enact “advertising nexus” laws, and thus reducing those states’ income-tax revenues while collecting no additional sales taxes.  Some of these small businesses have actually moved to other states, in order to retain their advertising relationships — thus shifting jobs, payroll taxes, and 100% of their income tax to other states.

Please prove me wrong: please identify any company which began collecting sales tax in any state as a result of any Advertising-Nexus Tax Law (“Amazon Tax”).

I was interviewed (in my home office) and featured in a news segment on KTVU-2 news last night; you can view the segment here (but you’ll need to wait through a 15-second commercial before seeing the 2-minute, 15 second segment).

I was also interviewed today (June 30) by KPIX-5 for broadcast on tonight’s news.

I’ll start by sharing today’s example (quoting directly from the merchant’s description of its affiliate program):

“…. Payments are made once the affiliate [publisher] has earned more than $100. If an affiliate fails to earn more than $100, they are never paid. Subsequently, payments of the balance are made roughly every 45 days as long as the balance is over $100. Payments are made only via PayPal. …”

This merchant sells a “web service” priced from $24 to $199 per month, and promises to share 50% of the first month’s payment plus 5% for each additional month, for the life of the account.  For the $24 monthly package, the publisher (affiliate) would earn $12 the first month plus $1.20 for each additional month.

To meet the $100 payment threshold quickly, the merchant’s advertising on the publisher’s web site would need to drive at least eight new customers.  (Even assuming a 100% renewal rate, the $100 payment threshold would be met after five months from six new customers, or after 12 months from four new customers, or after 19 months from three new customers.)

Why this is a Bad Idea:

First, most experienced web publishers (affiliates) have experienced payment defaults from one or more merchants (they’ve been “burned”).  Most publishers have also seen merchants shut down before the payment threshold could be met.  These publishers are reluctant to carry any new performance-based advertising, especially for merchants with “in-house” affiliate programs.

An absurdly high payment threshold is a big “warning sign” for these skeptical publishers.  Some publishers will even view this as a sign of hostility or distrust by the merchant, or as a sign that the merchant doesn’t consider the affiliate program to be important.  It can also be perceived as a signal that the merchant isn’t confident about its own ability to convert or retain new customers.

Most “in-house” affiliate programs set a payment threshold of $50 or less (often $25).  Even those amounts can be perceived as unreasonable, if a publisher isn’t sure how successfully the merchant can convert traffic drawn from performance-based advertising. That’s a huge reason why most publishers prefer to work with “affiliate networks,” which usually combine advertising fees from multiple advertisers to meet their payment threshold.

Lost Advertising (and Tax) Revenue: Within hours after the governor signed the bill into law, Amazon and Overstock terminated their advertising relationships with all Illinois web publishers.  Hundreds of other merchants are also expected to do the same (as they have in New York, North Carolina, Rhode Island, and Colorado).  This will shift hundreds of millions of dollars in advertising revenue from Illinois publishers to publishers in other states and offshore, thus shifting tens of millions of dollars of income-tax revenue from Illinois to other states and nations).

Unlike other states, Illinois didn’t assert immediate or retroactive effect, so Amazon and Overstock were able to give publishers a one-month “grace period” before these advertising relationships end.  (As a pessimist, I suspect that dozens of less-ethical merchants will deliberately delay their similar announcements until a few days before the law’s effective date).

Fleeing Businesses: As in other states, larger web publishers are planning their exodus from Illinois in order to avoid the law’s devastating impact.  Today, FatWallet announced that it will move out of Illinois, taking 55 jobs, and Coupon Cabin announced today that it’s exploring moving its offices to Indiana.

Carrion: Wal-Mart, Sears, and Barnes & Noble immediately invited Illinois web publishers to carry their advertising instead of Amazon’s.  But these companies offer lower advertising fees (and draw much lower conversion rates) than Amazon — and their web sites push customers into local stores (for which publishers aren’t paid any advertising fees).

In addition to their skimpy advertising rates, all three of these companies combined offer fewer than half as many products as Amazon, and provide much more limited product information. In my main niche, these three merchants combined offer fewer than 20% of the products which Amazon now advertises on my site.

Why Do I Care? I live and work in California, so the Illinois law doesn’t directly affect me (in fact, it might bring me a tiny slice of the advertising revenue lost by Illinois publishers). However, if California enacts its pending “Advertising-Nexus” bill, I’ll immediately lose the 26% of my total advertising revenue that comes from Amazon.

________

Update (August 2, 2011):

Both Coupon Cabin and FatWallet moved their offices and jobs out of Illinois, in order to maintain their advertising relationships with retailers without nexus in Illinois. The State of Illinois forced these companies to choose between staying in Illinois (with reduced revenue and layoffs, forced by the state) or taking all the jobs a few miles to a nearby state (and continuing to grow).

In both cases, the new offices aren’t very far from the old offices: FatWallet’s offices (and 55 jobs) moved about 5 miles from Rockton, IL to Beloit, WI, while Coupon Cabin moved about 15 miles from Chicago IL, to Whiting, IN).

While Illinois has certainly lost payroll taxes and corporate income taxes, employees didn’t have to move their homes: most employees can continue to live in Illinois while working in the other state, if they’re willing to accept both the increased commute cost (probably losing any public-transit options) and the income-tax hassles affecting folks who live in one state while working in another. Of course, employees living in Illinois won’t be allowed to “telecommute” (work from a home on some days), which will likely increase their commute costs further.

Over time, some current employees will move (to reduce commute expenses and tax hassles). When other employees quit, and as new positions are created, those jobs will go to local workers who live near the companies’ new offices in Wisconsin and Indiana.

A related note: As expected, California enacted its own “Advertising Nexus” tax law, and just as they did in Illinois and other states, Amazon and other out-of-state retailers terminated their advertising relationships with California web publishers. I’ve lost more than 26% of my advertising revenue, though I’m working hard to try to recover a small part of that lost revenue from other advertisers (all paying lower rates, and some less ethical).

Dear Mr. Cullen:

I’m confused by your use of the term “sales tax fairness” to refer to the Advertising-Nexus bills pending in the California legislature (http://news.bookweb.org/news/forbes-wonders-if-amazoncom%E2%80%99s-sales-tax-battle-losing-effort).  I was also surprised that you wrote about Amazon’s “threat” to terminate its advertising relationships with California web publishers as if it were a new development “this week.” Amazon’s letter is nearly identical to its June 2009 letter in response to the same “advertising-nexus” language (see http://www.abestweb.com/forums/showthread.php?t=120899).

These bills are not about “sales tax fairness” — they’re about pandering to California booksellers and other local businesses.  * * * * The state Board of Equalization has now concluded that if any of the bills were enacted, there would be no new sales tax collected, and income tax [revenues] would be reduced.

I strongly believe in “Sales Tax Fairness.”  I’m one of the few California taxpayers who actually report and remit use tax for purchases from out-of-state retailers.

Amazon and other out-of-state retailers should be required to collect and remit California sales tax.  The current situation is especially frustrating because the U.S. Supreme Court (in the Quill case) has provided a unusually clear blueprint to accomplish this — even without “physical presence” — but California abandoned that process and Congress has refused to act, so schemes like the “Advertising Nexus” language remain unconstitutional.

Please, let’s stop wasting our time and energy quibbling over unconstitutional “sleight-of-hand tricks” aimed only at punishing Amazon and other out-of-state retailers (without collecting a penny in additional sales tax).  Instead, we should all be working together on the issue of Sales Tax Fairness. — Mark J. Welch

In the editorial, Mr. Cullen deceptively cited New York data regarding its collection of $70 million in additional sales taxes.  We all know, of course, that Amazon was “tricked” in New York by the secret, unexpected insertion of the advertising-nexus language into a retroactive budget bill, so that Amazon was caught “off-guard.” Amazon chose not to challenge the retroactivity provision, but instead opted to collect sales tax from New York customers while challenging the law’s constitutionality in court.

Amazon has made clear (since the spring of 2009) that it would respond differently in other states.  Amazon has warned legislators and web publishers (clearly and repeatedly) that it will terminate its advertising relationships with publishers in any other state which enacts this unconstitutional language into law. When North Carolina, Rhode Island, and Colorado enacted similar laws, Amazon terminated its advertising relationships with all web publishers in those three states, and doesn’t collect sales tax from its customers in those states.

The booksellers are angry that Amazon benefits from “sales tax unfairness,” and they’re right to be angry about it.  They should be angry at state legislatures and Congress, but pandering politicians have successfully duped booksellers into directing their anger at Amazon and other out-of-state retailers instead. The politicians don’t want to eliminate “sales tax unfairness,” but instead to manipulate the issue as a pretext to garner support from local business owners.

The result, so far: laws that punish Amazon and in-state web publishers (by interfering with advertising relationships), without addressing sales tax unfairness.

Google always strives to deliver relevant and useful links in its search results.  All search engines must deal with lots of unethical people who seek an unfair advantage. One specific strategy that has exploded in recent years is called “content farming,” which means creating web pages that include text content which superficially appears relevant and useful for specific search terms — but which isn’t useful to anyone.

We’ve all had the experience of searching for a specific phrase on Google, and clicking on a link that appears to provide the exact information we wanted — only to end up at a web page that doesn’t provide any information, but instead urges us to click on paid links and advertisements.  Many “content farmers” simply merge the relevant keywords together with snippets of text copied from other web sites which rank well for that search phrase.

Several years ago, Google’s algorithms added penalties for “duplicate content,” so that “copied” web sites would be downgraded or excluded from search results. Many “content farmers” responded by using a variety of automated “translation” strategies so that the text wasn’t identical to the source which was being copied (most simply, by substituting synonyms for randomly-selected words in an article, or by automatically translating words, phrases, or entire articles into another language and then translating them back).  When Google tweaked its algorithms to counter this strategy, spammers began hiring writers in third-world countries to write “original articles” that would appear relevant to Google’s algorithms (these articles are often incomprehensible to humans, and never useful to anyone).

It appears that for the Panda (Farmer) update, Google created a list of factors or elements which were commonly found on unsatisfactory pages in search results (and not on useful pages), but which weren’t already recognized by its algorithms.  These are measurable, quantitative factors that correspond to users’ perceptions of quality.  Google also manually downgraded some specific “content farmers” whose web sites provided little or no value for consumers.  After the upgrade, Google also made adjustments to restore the rankings of a few publishers who had been wrongly downgraded by the new algorithms).

The new algorithm doesn’t seem to have affected my sites; traffic from Google to my newest site has continued to grow by about 30% per week.  (Any increased traffic after the upgrade wouldn’t mean that Google “likes” my web pages more than last week.  In amusement-park terms, nobody gets to skip ahead in the line, but instead some naughty people were removed from the line and ejected from the park, though we expect that they’ll soon sneak back in.)

Ironically, one “side effect” from Google’s update (for me) has been an increase in “blog comment spam” (spammers post fake comments with links to unrelated web sites).  My blog sites probably rank better, this week, for the search phrases that spammers use to identify “blogs which accept comments.”  (These spam comments are not visible to my site’s visitors.)

Google’s official blog post about the “Farmer”/”Panda” updates:

• Google’s Blog
• Matt Cutts’ blog

Other discussion threads and articles about the Google “Panda” algorithm update:

• ABestWeb-1 and ABestWeb-2
• WebProNews
• TechMeme
• SearchEngineLand-1 and SearchEngineLand-2
• SearchEngineJournal
• Wired

Some lists of impacted sites : Sistrix and SearchEngineLand and Quora

Added March 6: Two more articles about the Farmer Update:

• SearchMetrics: “[B]ounce rates, visit duration, and social reach [are obviously factors]…. [P]ages that are genuinely visually attractive to a user … will be spared by the Farmer Update. Meaning that ranking is going to come down to how a user values a page, as opposed to just what content is on it.”
• ReveNews: Noting the impact on User-Generated Content (UGC) sites: “In the more extreme cases, [the downgraded sites] actually incentivized users to generate this content. And in doing so, they’ve essentially eroded the value that content is supposed have because it’s user-generated.”