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Search Engine Ad Term Prices Skyrocket

What Once Sold for Pennies Now Bumps $20 Per Click

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NEW YORK (AdAge.com) -- Holiday season competition among marketers to buy Internet search terms has become so fierce that some terms are selling for as much as $18.90 a single click, according to involved agencies.

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Search terms -- the words Internet users enter into search engines when they are seeking to find online information -- are the core element of the online search engine-advertising boom.

Boom-time pricing
Once sold for pennies per click, many search terms and phrases have now become a new kind of premium advertising vehicle, bringing prices that were unthinkable just two years ago.

Marketers bid against each other to secure rights to the terms for certain periods of time. Then their online ad links are displayed on the search results page whenever anyone enters that term in the search engine. The practice, which instantly pairs an advertiser's message with a consumer's related interest, has become the fastest-growing source of advertising revenue on the Internet. Marketers are expected to spend a record $2.6 billion on such paid search services in 2004.

80% price spikes
Because the method has proved to be such an effective marketing tool and also because record numbers of consumers are shopping online this holiday season, the price for premium search words and phrases has risen as much as 80% since last year, according to Rob Wilk, director of search engine marketing at Avenue A/ Razorfish Search.

The new level of importance large marketers place on search engine marketing was dramatically underscored in November when Hewlett-Packard's interactive global marketing chief revealed the company has bought the rights to tens of thousands of search engine key words and phrases.

Seasonable budget adjustments
Search-related media buying agencies say online marketers are developing the habit of increasing their search marketing budgets by up to 30% for the gift-giving season.

Minimum prices for key words start at 10 cents on Google's AdWords and Overture, the search engine ad management and serving systems. Marketers bid what they are willing to pay per-click for a search term, and then pay the search engine whenever someone clicks on the ad results for that keyword.

Popular brand words marketers are paying premium prices for this year include "digital camera," "mobile phone," "MP3 player" and "iPod."

$18.90 per single click
Among seemingly similar terms certain configurations can command a higher price. For instance, "holiday business card" was fetching $18.90 per click, while "business Christmas card," "corporate Christmas card" and "Holiday corporate card" were priced at $10.50 and "company Christmas card" was at $7.51.

Search ad authorities point out that neither the price nor the action of search engine advertising is static. Advertisers don't know the true value of a phrase until they experiment with it live and their search ad agency checks the return on investment of bids constantly. The real-time nature of search advertising lets marketers modify their terms at any time -- and it has become common for rival retailers to jockey against each other with rapidly changing search term strategies.

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