Search Keyword Prices & Branding

By Greg Sterling | December 8, 2006

SEM firm Fathom Online has been reporting flat (or declining) average keyword prices for the past several quarters. But that doesn’t entirely make sense.

Paid search revenues keep going up, driven in part by an influx of new advertisers. If you have more advertisers and more revenues in search it would suggest more competition over keywords. That’s especially true if you recognize that 75% - 80% of search queries are for “generic” or “category” terms.

And as search becomes recognized as a branding medium (not a pure one but one nonetheless), you also should have large advertisers trying to “own” terms or categories associated with their products. Once the brand budget gets tapped and direct response ROI considerations are thrown out the window, the top slots will all get more expensive and flush out the direct response types — at least in selected high-profile categories.

These dynamics should be driving keyword price increases and inflation, which in turn will drive advertisers to other forms of online marketing. Now keyword prices have apparently jumped. I would expect that to be the new trend.

Here’s eMarketer-compiled data from Fathom and research firm InightExpress:

Recognizing that paid search will eventually become too costly for some traditional SEM advertisers Google is trying to build out other options for them. For example, here’s a quote from eBags.com co-founder Peter Cobb, from a November 6 WSJ article about Google’s recent print newspaper “alpha” test:

Peter Cobb, co-founder of eBags.com, said he is attracted by possibly targeting specific groups of consumers through newspapers and tailoring ads for cities where certain types of bags or luggage are more popular.

At the same time, eBags.com has seen the cost of Web advertising through Google — which is priced via competitive auction — triple or quadruple in some cases amid big increases in online ad spending by rival retailers. “Costs are going up online, efficiencies are decreasing — we’re looking for other opportunities,” Mr. Cobb said.

Greg Sterling is the founding principal of Sterling Market Intelligence, a consulting and research firm focused on online consumer and advertiser behavior and the relationship between the Internet and traditional media, with an emphasis on the local marketplace.