By Charles Nicholls, CEO SimplicityDX Inc and Chair of The DX Academy, a think tank that researches how consumers buy online.
Search engine optimization (SEO) has long been the cornerstone of organic search success; however, a new concept is emerging that I think could transform the landscape of paid media: ad engine optimization (AEO).
While SEO focuses on improving webpages to rank higher in organic search results, AEO promises to optimize paid media campaigns for maximum return on ad spend, especially in a world where privacy regulations are reshaping digital advertising.
I’d like to describe the nuances of AEO and how to include it within a broader digital marketing strategy of aligning landing page experiences with ad content, fostering cross-functional collaboration and maintaining brand storytelling throughout the customer journey.
The Rising Costs Of Customer Acquisition
The landscape of digital advertising has undergone significant shifts, particularly in the wake of the Covid-19 pandemic. With the implementation of stricter privacy regulations, companies have found it increasingly challenging to target their audiences as precisely as before. I’ve seen this reduced precision leading to less effective ads, and along with increased competition, driving up both ad prices and customer acquisition costs (CAC).
Meta CEO Mark Zuckerberg highlighted this issue during a recent earnings call, noting that ad prices had increased by 10% due to heightened demand, particularly in the e-commerce sector. This trend is likely to continue as election cycles and major shopping events like Black Friday/Cyber Monday further intensify competition this year.
The implications of these rising costs are stark. Research from my organization indicates that brands are losing an average of $29 for every new customer they acquire—a significant jump from the $9 loss reported a decade ago. I think this escalating cost should have you rethinking your digital advertising strategy.
Utilizing AEO
Ad engine optimization offers one promising solution to the challenges posed by increasing customer acquisition costs. I have seen it particularly effective in the upper and middle stages of the marketing funnel, where customer acquisition costs can be the most challenging.
The mechanics of AEO revolve around the way ad platforms now operate. Platforms like Google and Facebook have automated targeting and now turn to algorithmic bidding engines to buy media and evaluate ad effectiveness. These algorithms not only assess the quality of the ad itself but also the relevance of the landing page to which users are directed.
Brands that align their strategies with these algorithms can significantly reduce their ad costs. Therefore, look to use engaging, relevant landing experiences to help lower ad costs since the algorithms reward those ads that deliver positive user experiences. Conversely, poorly performing ads and landing pages are penalized under this new model, driving up costs.
AEO In Action
Consider a recent A/B test my company conducted on Instagram and Facebook for a fashion brand. The brand split traffic from the same ad between two different landing experiences: a standard e-commerce product page and an AEO-optimized microsite. The microsite, self-tuned based on ad traffic using AI, outperformed the standard product page by a wide margin, nearly doubling revenue for the same ad spend.
It’s important to consider the context of the ad, the user’s intent and their emotional connection to the brand to help foster greater engagement. The algorithmic bidding engines will then recognize your successful engagement and lower the cost of ad placements, creating a “flywheel” effect where improved experiences drive more traffic and conversions.
Optimizing E-Commerce Pages For Paid Media
Most current digital ad traffic is directed to standard product and category pages, which are primarily designed for transactions. While these pages work well for paid search ads targeting specific products, I find they are less effective for broader customer acquisition efforts where user intent is less defined. As a result, more than 70% of traffic typically bounces without engaging.
Although it’s possible to optimize product pages for ad engines, many brands are hesitant to do so for two reasons. First, these pages are optimized for conversions, not discovery, and altering them could negatively impact conversion rates for direct traffic. Second, continuously updating product pages for each new ad campaign can be impractical, particularly for brands with extensive product lines.
Custom landing pages offer a traditional alternative, but they, too, have limitations. The process can be labor-intensive, and the sheer volume of ads—particularly on social media—makes it difficult to scale.
Overcoming Organizational Barriers To AEO Adoption
I see the primary obstacle to widespread AEO adoption as organizational. In many companies, marketing teams are responsible for advertising, while e-commerce teams manage landing experiences. This division can create barriers to optimizing campaign performance, for each team often uses different metrics to gauge success.
To overcome this, companies can look to adopt a unified approach, similar to how SEO evolved. Cross-functional AEO teams can be established with a shared focus on a common metric: revenue per click (RPC). This metric, which measures landing page efficiency, can help align the goals of both marketing and e-commerce teams, fostering collaboration and improving overall performance.
AEO As Part Of A Broader Strategy
Ad engine optimization should be considered part of a broader digital marketing strategy, particularly at the top and mid-funnel stages.
Social media, for instance, is an excellent platform for brand storytelling. However, when consumers click through ads and land on transactional e-commerce pages, the brand’s narrative often gets lost. Forrester analysts have coined the term “story-oriented commerce” to describe the importance of maintaining brand storytelling throughout the customer journey.
The future of online advertising does not have to be a continuous struggle against rising costs. By taking an end-to-end view of the advertising process, brands can unlock untapped potential and optimize their landing experiences for the ad platforms of today.
As privacy regulations continue to evolve, those who adapt their strategies accordingly will be best positioned for success in the digital marketplace.
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