Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Youssef Squali - Jefferies & Co.
Youssef Squali - Jefferies & Co.
Couple of questions, I guess going back to the online acquisition channel; I’m still not clear exactly what happened. Did you just suffer from poor performance based on, quick yield as you said earlier, because my issue with that is paid search is something that you get returns relatively quickly on.
So, you probably would have stopped spending money and moving in to a different channel that was better performing or was it something that maybe Google and Yahoo did with the algorithm to change in midstream. So, any kind of clarification on that would be helpful.
Then secondly, gross margins were down 140 bps and sequentially got 240 bps year-on-year, can you just clarify what’s behind that and what’s baked into your annual guidance? Thank you.
Gary Lauer
Hey, Youssef, it’s Gary. Let me take the search question and then I’ll let Stuart talk about the margin question. On search, we saw several things. First of all, we typically operate on Google and Natural Search, Organic Search in the number one position. We believe there were some algorithm changes in the last quarter.
We were operating two and three. I think today we’re number two. We’re doing some things that we think will help influence us back into the number one position. That’s important because, when we’re bracketed number one in Natural or Organic as well as paid, which we buy, we do find that our conversions are much better on the paid side. So, there is one element that we think we know.
Secondly, watch this carefully during the quarter and yes, frankly, we expected to see better conversion than we did, especially from the secondary search sources, Microsoft and Yahoo, for example, who got their own sets of challenges as we know.
We had some of that, but not as much in Google. What we did find was that, we weren’t converting as much as we have historically and certainly we’ve heard commentary from some of these search engines publicly that they believe that there has been more comparison shopping and not as much transacting in most of the categories. There maybe some of that here as well.
We’ve also taken some other steps in terms of looking to change some of the language that we advertise with. We’re landing visitors now and what we call more contextual space. So, for example, if you key in New York health insurance, Youssef, we want to land into an area that’s relevant to New York, not just kind of the vanilla eHealth experience, for example.
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