You're listening to the REI marketing nerds podcast, the leading resource for real estate investors who want to dominate their market online. Dan Barrett is the founder of AdWords nerds, a high tech digital agency focusing exclusively on helping real estate investors like you get more leads and deals online, outsmart your competition and live a freer, more awesome life. And now, your host, Dan Barrett.
0:39 All right, hello, and welcome to this week's episode of the REI marketing nerds podcast. As always, this is Daniel Barrett here from AdWords nerds.com. And look, you know where you need to go. If you want to get more leads and deals online for your real estate investing business. It's AdWords nerds.com, you can go there, talk to a member of our team, and we'll help you put together a marketing strategy for your market. Alright, folks, this week, it's just you and me. And we've been doing a lot of interviews on this show. I love the interviews that I do. As part of AdWords nerds or Rei marketing nerds, I should say, they are always incredible. They teach me so much. But this week, it's just going to be you and me, because I want to have a conversation about some of the changes that are happening in the online marketing landscape right now.
And if you are an investor, and you are doing any amount of online marketing, this is something that you have probably started to become aware of this year. And if you're not doing any online marketing is something you should be aware of. This is I think, one of the fundamental foundational changes that are happening over this current period, I think we are very much in a transition period in terms of how these online marketing platforms work. And I see a lot of people really profoundly misunderstanding what's happening. I see a lot of investors kind of flailing around trying to solve the problem, while being unaware that they are essentially asking the wrong questions. And they are thinking about these problems in a very ill defined way. And that's leading to a lot of confusion, a lot of frustration and a lot of angst in the real estate investor community.
I mean, if you look out right now, people who are running ads, doing online marketing, there are a lot of complaints, particularly about lead quality, and costs, the amount of competition that's going on, there's a lot happening. And if you don't have an understanding of the underlying systems, it's easy to get lost in all the details and all the sort of individual stories. So what I want to do over this episode, and maybe over the next one, as well, is back up and give you a picture of exactly what is happening in the online marketing landscape for motivated sellers, so that you can understand it. And that you can put together a strategy to help you adapt to it. Because I am being serious when I say I think this is a period where a large number of people who are in the market right now in terms of competitors, for online marketing leads and so on, I don't think they're going to be there. In the next five years. I think this is a period where we see a lot of people get knocked out of the game. And my goal is to keep you in the game. So let's back up. Let's talk about it.
And let's figure out exactly what's going on in our online marketing for Rei right now. And exactly what you can do about it. Let's start all the way at the beginning, which is understanding what kind of system we're in. Several years ago now, I took some classes in systems improvement that were taught by Dave Snowden. Dave Snowden was a complex systems researcher, he originally did a lot of work with Intel, and later went on to do consulting for the Welsh kind of health care system, David Welsh. And Snowden remains, I think, to me, one of the most brilliant people I know of, I've never met the man have only watched his videos and so on, read his materials, but he is a true polymath and a very deep thinker about systems and how to nudge those systems in the directions that we want. So the reason that I want to start with Snowden is because Snowden would say that the way you solve any problem first is by understanding what kind of system that problem is emerging from. And this is a step that's really critical.
It seems theoretical, but I promise you, if you get this step wrong, you end up flailing around in all these ways that don't actually help you at all. And so it's a really critical part of the process that most of us skip. So, to answer this question, I tend to use Snowdens framework which is called kinetin, which is still We'll see why NEFIN Can Evan is one of those mental models, frameworks or whatever, that has had a profound impact on my life, I think about it all the time, I use it as a lens to view all kinds of things like my business, my personal life, the economy, like my kids, like everything, it's widely applicable, and extremely useful if you ever want to look it up and learn a little bit more about it. But I'll give you the kind of 30,000 foot overview now, as we turn that lens on to real estate investing in the online marketing landscape. So Snowden would say there are four types of systems. All right, those systems are clear, complicated, complex, and chaotic.
Now, unclear systems, there is a very definite and well known relationship between cause and effect. Okay. So for example, if I, you know, push a button, and every single time I push that button, $1, pops out of the box, or whatever, magical box, okay, and I know every time I push the button, the dollar pops out, that happens every single time without fail. Well, that's a clear system. If I want $1, I push the button, right? I know exactly what to do. If I want $5, I push the button five times, I know exactly what to do. So clear systems are the domain of best practice, okay, if we want a certain outcome, there is going to be a best practice to follow a thing that we will always do. That's what clear systems are defined by. All right, everybody understands the rules, the rules are really change, we know exactly what to do to get the outcome that we want. Now, complicated systems are a little bit more well complicated, right?
There might be several more factors, rather than just pushing a button, maybe I've got to push the button in a certain way or at a certain time, there might be levers to pull on the machine, right? There might be dials in what's happening is that the number of things we've got to think about as multiply. Now in complicated systems, there is a relationship between cause and effect. And we do basically understand it but because there's so many things going on, we've got a lot more to think about. A good example of this is taking aspirin if you have a headache, okay? Generally, if you got a headache, you might want to take aspirin or ibuprofen or whatever, right, you might want to take a painkiller to help with your headache, that's generally a good thing to do. But there's some things you got to know first, for example, if the person with the headache is a baby, taking an adult dose of aspirin might kill them. Similarly, taking too much aspirin might kill you even as an adult, right? In fact, there's a lot of overdoses on over the counter pain medication every single year. So I can't just say, Hey, if you have a headache, take aspirin.
If I want to be safe, and I want to be responsible, I've got to know well, how old are you? You know, what's your weight? Right? Do you have a certain kind of heart conditions? Right? There's a lot of stuff we got to know first. Well, that's complicated systems. Okay, there is no best practice, because it's not always give the aspirin to the person with a headache, like in the first system to clear system who was always push the button to get the dollar. Here, there's a lot more we need to know first, and we can usually get the outcome. But there's a lot of elements involved. That's a complicated system. Now, complicated systems are the domains of good practice, not best practice, they are good practice, we have general rules for what we want to do. But we have to take into account the context, we have to take into account the context. Now complicated domains are generally where you ended up hiring an expert, your body is a complicated domain.
That's why you go to a doctor to help you with serious problems that are occurring with your body because there's a lot going on, you didn't go to school for learning about medicine they did. So they know more about it than you. And generally if you go to a doctor, you can get the outcome that you want, but not always. Okay, that's a complicated domain. Now, complex domains, which are the next domain in our, our exploration here, find by having many, many elements, many, many interacting pieces, which not only affect each other, but they actually change the rules that define their interaction. So for example, the economy, the stock market, that's a complex system, right? Generally, yes, price goes down, people sell price goes up people buy, but also vice versa. And also, there's all these different players that are interacting in a million different ways that affect how those prices work, whether the price is going up or going down and Also, the more people take a certain action, the more it changes what other people do, right?
So you get Wall Street panics where a bunch of people start selling, and then everybody else sees that and there starts to be this like wave of anxiety through the market, and all of a sudden everybody's selling, and then you get a crash. Right? So we're not only having the individuals in the system affect one another, they're also kind of changing the rules, right, we can change the rules of how the stock market works. And so complex systems, there is no clear relationship between cause and effect. All right, there can't be it's too complex, there are too many pieces to keep in mind. All right, it doesn't mean there is no relationship at all, it doesn't mean we're in pure chaos. Here, what it means is that it's too complicated or too complex for us to figure out there is no buddy who can tell you exactly when to buy and exactly when to sell and always get the outcome that they want. Not only that, there's not even anyone who can get an outcome consistently, right, some of the best stock, you know, buyers and investors of all time, primarily lose money, they are primarily wrong, what ends up happening is their big bets pay off so big that it wipes out the rest, or you get someone like Warren Buffett, for example, who's had mostly downs in his career, but he's held on to these value stocks for so long, that the growth has, you know, exponentially increased.
And, again, the income, the good income, you know, ends up outweighing the bad. Alright, so, in complex systems, we can't really know the relationship between cause and effect. There's too many interactions, the rules change too much, it's impossible to know. Now, in the realm of complex systems, we don't have best practice, because it's not always you do x to get y. And we don't have good practice, because it's not most of the time you do x to get y. Well, we have our heuristics or rules of thumb, general practices that often work, but we also need to be highly attuned to our environment. Because survival in a complex system is ultimately about not over committing in any one direction. But about feeling out where things seem to be moving. It's almost more of an intuitive process. Although we can use data to help this decision making process right. Ultimately, it's about almost this like weird, a amorphous living thing where we're trying to sense our environment. Snowden will say it's called probe sense, respond, you sort of poke the system with a little experiment, see what happens. That's the sensation sense the, whether it's positive or negative in its reaction, and then go a little bit more in the positive direction and a little bit less in the negative direction and continue to find your way through.
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13:33 One of my favorite metaphors for navigating a complex system is finding your way across a stream. So you can walk across the stream, it's not so deep that you can walk across it and there are stones in the water that you can stand on that are going to support you but you can't see them there too, that the waters too dark too moving too quickly, you can't quite figure out where the rocks are ahead of time, what you can do is you sort of put your foot out and you probe around to see where you can find a rock, you test it to see if it'll hold your weight. And then you shift your way down to that rock. And then you start that process over again, you start feeling around in it all the directions for where's the next rock that's gonna get you closer to the other side of the stream. And in that way, you are going to wind your way kind of erratically across the stream, you might go a little bit left a little bit right, you might veer left for a while and then veer right for a while.
But sooner or later, you're going to make progress and you're going to get across that is the metaphor for finding your way through a complex system. And then finally, we have chaotic systems where there is no cause and effect. Everything's exploding. You cannot plan there's no point because it's too chaotic. What you have to do is act it almost doesn't matter what you do. You've just got to go go go. That's a chaotic system. I'm telling you this because many investors go wrong with online marketing in precisely the same way and they do it very early. which is that they think that Google ads or Facebook ads or SEO, whatever you're doing, they think it's a clear system. If X then Y, push the button to get the dollar. And this is the kind of investor that thinks like, Okay, well, all I need is the right keywords in my Google ads, and I will get a bunch of deals out of it. All right. That's what they think. If I just put the right keywords in, I'll get the deals out. If I'm not getting the deals, that means the keywords are wrong. Right, I must not have picked the right keywords.
If I had the right keywords, I would get the deals. That's a clear system. I didn't get the dollar out of the boxes, because I didn't push the button. Because there's best practice, right? That's what they think. The problem was Google Ads was never actually a clear system. It was a complicated system. Okay. There was cause and effect that was understandable, but you needed to hire a doctor for it, which would be the equivalent of hiring someone like us, right? You're hiring a Google Ads Manager, okay, that person is going to know more about the bidding strategies, and we know whether it puts your bids up and down. And all the little tips and tricks inside the account in online marketing was complicated for a really long time. Right? It wasn't clear, it was really never clear. But it was complicated. And it was manageable. And you could hire someone who was an expert, and they would kind of do the thing. The problem now is that Google ads and Facebook ads and SEO, those things haven't been complicated for a while.
They are complex. Okay, we have gone from a complicated system to a complex system. And that is a profound change. It is a profound change. And I'm telling you, the reason that I'm belaboring this point is if you don't get this, you're never going to make it. Okay, you are not going to make it in this environment unless you understand this thing. And no one will tell you this, almost no one thinks about this this in this way. But I promise you, if you can understand this, you will understand these environments in ways that your competitors never will. Here's what I mean. Why did we move from a complicated system to a complex system? Well, for one, Google ads is a market. Okay, it's a mark, there is no price for a given keyword. Instead, it's like keywords are stocks and people are buying or selling them. And the more people that want to buy a keyword, the higher the price becomes, okay?
So Google ads is more like the stock market than it is like your body in a lot of different ways. So that makes it complex. Secondly, we had the rise of machine learning algorithms in the running of these campaigns. So Facebook, Google, etc, they all moved to a system where mostly people don't set their own bids for keywords anymore. Right. Mostly what people do is they use algorithms, maximize conversions, maximize conversion, value, Target, return on adspend, maximize clicks, et cetera, maximize conversions with the target cost per action, like whatever it is, people are using algorithms, the computers are setting the bids. And generally people are doing that, because they got better results out of it. Early on to maximize conversions bid algorithm would fairly significantly outperform a human manager setting the bids, particularly for most people who weren't really actively managing their stuff, right? If you're managing your stuff yourself, and you weren't in there, setting your bids every single day or week or whatever, then the algorithm is going to do a much better job generally, and getting you more leads getting them for less.
Okay, so there's a real rational reason why everyone switched over to these algorithms. But remember, remember, remember, all right, the rule about complex systems, complex systems don't just have a lot of interactions. Those interactions change the rules of the system. They change the cause and effect relationships that were there. So those relationships shift and change, and they shift and change in an unpredictable way. It's not that it's hard to predict. It's that is unpredictable. So Google Ads became your Facebook to SEO to right all these guys say Google ads because that's my baby. That's what I primarily work in. But it's the same for all these platforms. They're all they all have the same economic forces acting upon them. So it's the same across the board. They all became what we call VUCA environments v you see a variability unpredictability, complexity, and ambiguity. So not only is everything changing, you can predict it, when it changes, it's very complex. And its effect in its effect is ambiguous meaning it's kind of hard to tell what's even going on in the first place.
All right. Now, what I mean by that is when everybody uses these algorithms at the same time, and all these algorithms are essentially bidding against each other, you get far different behavior in the market than you would get when humans are doing. You can imagine that if the stock market was completely, you know, and this is kind of the case right now, I guess. But if the stock market was completely staffed by computer programs that are bidding for people, rather than people, you know, on the floor of the stock exchange, doing the thing, where they're waving their papers, and the hair, you know, the air and all this stuff, it's a very different environment, when the computers are doing all that, because they're much faster, they've got more data. But also, they're a little unpredictable, it's hard to understand what they do. It's all a black box. So Google doesn't tell you why it's algorithm did anything in particular. So we're in this situation where everybody's still interacting.
But now we don't know why they're interacting or how they're interacting or what the rule set was. It's happening at a scale that's much grander and much faster than anybody could do at a human level. And that profoundly changes what you can expect to see, I'll give you an example. When I started doing this, let's say it was 10 years ago, more than 10 years ago. Now, when I started doing this, the highest cost per click I would see was about $15. I remember thinking that was quite high that I remember the first time I saw a $25 cost per click, it totally blew my mind. Okay. In the last month or so it's become fairly common for me to see $100 plus cost per click. And that's because everybody's having lead quality issues. So everybody has decided to spend more money to fill up their pipelines, which means that they essentially give their Google Ads campaigns more budget to spend, which allows those algorithms to spend more aggressively, they spend more aggressively on the keywords that tend to generate the most conversions, which tend to be the same small number of keywords that people put into their Google Ads campaigns in the first place.
They sell your house fast, we buy ugly houses of the world, which means there is all of a sudden, a lot of competition, and a lot of money going for a fairly small number of keywords, generating a fairly small number of impressions. And my friends, my friends, when you get high demand and low supply, you get high prices. Now here's the thing, the fact that there is high prices for these keywords does not mean they generate more deals. And this is where we start to transition a little bit into the world of game theory. It doesn't mean because they're expensive that they generate more deals. What it means is that people think they generate more deals. That's what people think, doesn't mean it's true. It means it's what people think, because that's what drives their actions. But as we said before, as we said before, we don't know the relationships between cause and effect in a complex system.
23:36 And another reason that this process has been happening and that Google is becoming more complex, and things are becoming more confusing, and people are acting more and more erratically. Another reason that we haven't even touched on is the way Google works under the hood. Because Google has been in a multi year project of slowly and systematically dismantling your ability to target certain types of leads with keywords that Google, Google used to it used to be called AdWords. Right? AdWords, that's what it's called. It's not called AdWords anymore. It's called Google ads. Okay. And my suspicion has always been that the reason they don't call it AdWords is because key words aren't going to be a part of AdWords forever. You think about what keywords are keywords are a targeting mechanism that people using Google and their targeting mechanism, because the way Google used to work is you used to get in there and tell Google who you wanted. tell Google how much to bid, tell Google how to structure everything you used to do everything Google Ads was a tool, you would hold the tool, use the tool.
And if you were good at using the tool, you would get a good result. And if you were bad at it, you would get a bad result. That's the complicated domain version of Google ads. Okay. And it makes sense but we're not in that domain anymore. We are in the complex systems domain. And Google does not want you to control who sees your ads. It doesn't want you to do your own targeting. It doesn't want you to do your own structuring of your campaigns. It wants to do that for you. And again, this is not some nefarious scheme. For the average person. The average business who doesn't know a lot about Google ads, doesn't know how to set it up and isn't going to manage it. Google can probably do a better job than they can. But for investors, for real estate investing, particularly, this has been a disaster.
25:44
Hey, guys, hope you enjoyed part one of this episode. It's just too good to limit to one show. Join us next week to hear the rest
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