Bidding drives keyword prices up

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Words are worth more than before on leading search engines, according to many marketers.

Because search engine keywords are bought under an auction model, the popularity of search marketing—now estimated to represent about 25% of the total online ad spending for 2003 of $6.3 billion—has meant skyrocketing prices. In some cases, those prices have become prohibitive. That has prompted some marketers to spread out their spending, buying keywords at second- and third-tier search engines where keywords cost less.

More than two thirds (68%) of respondents to Jupiter Research’s Bi-Annual Search Marketing Survey, published in February, said high prices for desired keywords was their top problem in search marketing. Another 60% of respondents said heavy competition for top rankings was their main issue.

Of course, competition varies by keyword and by category, and cost per lead fluctuates depending on what a company is marketing.

"Some categories have heavier competition than others," said Niki Scevak, an analyst at Jupiter
Research. "That’s not to say the prices are too high, though," he said. "As long as the ROI is positive, people will keep bidding," he said.

One advertiser agreed. "It doesn’t matter what it costs if you have a good Web site and good salespeople, and you can convert those leads," said Thomas Fanelli, VP-sales and marketing at Coastal Computer Corp., which develops service management software. While Fanelli admits certain keywords have "gotten to be much more expensive than I ever thought they would be," he is willingly paying anywhere from $10 to $14 a click for "HVAC software," one of the more valuable keywords among the 180 or so he uses.

"Keywords like this are so valuable," Fanelli said. "Even if it costs us three times that, it would still be worth it."

Nevertheless, many marketers have started to balance their search term purchases, using second-tier search engines to supplement the two main players, Google and Overture. Second-tier companies, such as FindWhat and Looksmart, have more affordable prices. Pay-per-click costs, for example, can be 20% to 25% less expensive for popular keywords.

The downside is that these smaller search engines don’t garner as much traffic as Google and Overture.

Coastal Computer’s Fanelli spends about 50% of his budget on Google, 35% on Overture and the remaining 15% at FindWhat. He runs 30 to 40 keywords on Google, 60 to 70 on Overture and about 80 on FindWhat.

Looksmart is taking advantage of the competitive pricing advantage in order to promote its business even more. "During tax season, we went to tax advertisers and showed them head-to-head comparisons of our prices and Overture’s," said Dakota Sullivan, VP-marketing at Look-smart. "If we can convert at around the same rate as Google and Overture, and advertisers can pay 20% to 25% less, then we’re the attractive option."

Paying less for less

Jupiter’s Scevak said paying less doesn’t necessarily get you more. "The quality of the traffic from the second-tier distribution partners is lower than Google and Overture," he said. "The CPC prices in turn are lower."

But Craig Pisaris-Henderson, chairman, president and CEO at, disagreed. While he admitted traffic and awareness are the company’s biggest challenges, he said his high-quality audiences come from several longstanding, well-known distribution partners.

Looksmart’s Sullivan makes a similar argument. His company, he said, has a reputation for carefully handpicking distribution partners, installing controls and criteria for partners included in its distribution network. "We’re convinced the niche we need to occupy is high-performance traffic at a better price," he said.

Besides, search is becoming more like any media buying, Sullivan said. "You won’t just buy Cosmo or Seventeen," he said. "You’ll buy both. And you’ll shift around your buy as you see results."

Jupiter’s Scevak said there is room for players such as Looksmart and FindWhat, even though Google, Overture, MSN, AOL and Ask Jeeves account for more than 90% of search queries on the Internet.

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