John Scott compares the quality of AdWords leads to leads from word of mouth:
Running an Adwords campaign has brought in a few customers, but the number is minuscule in comparison to our #1 source of new customers: Referral by existing customers.
It's a hard fact to accept. You see all that search engine traffic, and it looks like a pot of gold, but it isn't. A lot of window shopping, even for those uber relevant terms like "buy links".
AdWords is good for gaining mindshare and building links, but many of the AdWords clickers are of the one off variety. You keep paying for the traffic but do not build much momentum for the price (unless you create content tailored for links). Many business models reliant on AdWords will die if those ad buys don't convert into more meaningful relationships.
I have one client that outranks his main supplier for their name on MSN, ranks just below them on Google and Yahoo!, and yet is wondering why sales are not higher. Our site also outranks most competing sites for long tail keywords. What happened to sales? Yahoo! puts many ads above the fold, and Google gives the main supplier an extended sitelinks enhanced listing. That drives down the organic listings for the core search terms, which makes the ads more important.
Some competing businesses sell a wider array of products from more manufacturers, and gain many repeat purchases due to their branding and wide array of product selection. Service businesses do not scale as well as ad based businesses and other easy to automate businesses, but if there is no relationship building in the transaction it is hard to compete with businesses that sell their commodity products as a tailored personalized service.
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