Search Terms for Sale

Search engine marketers are getting nasty in their bidding for keyword ads.

Those ads in the "sponsored links" section of your Web search can mean big bucks to the search engines. (You may claim never to click those ubiquitous text ads, but based on the revenue they’re generating for advertisers, somebody is.)

Google’s AdWords program and Yahoo’s Overture ad service let anybody bid for the eight or so coveted spots above and to the right of the standard search-query results. Note that both services also place text ads on the content pages of partner sites, which is called "contextual advertising."

Such egalitarianism in e-commerce is great, but an entire cottage industry has developed to manage advertisers' bid for desirable search words and phrases. (Both Google and Overture also give their advertisers tools to manage their bids). But the outside firms will help advertisers determine keywords to bid on, create compelling text ads (often in 30 characters or less), and design "landing pages" that close the sale. Bidding for search terms occurs on a cost-per-click basis, meaning that you--the advertiser--pay the service the bid amount every time someone clicks on your ad, regardless of whether they buy anything. Google and Overture may also get a percentage of the revenue the ad generates. While most terms are bid for a few cents per click, some with a strong technology bent sell for much more. "Internet firewall appliance," for example, may cost the winning bidder $8.

The bidding is "silent"--you don’t know what anyone else has bid for the term, but AdWords and Overture adjust the top bid so that it’s only one cent above the second-highest bid. This is leading to a game of keyword-bid one-upmanship: A bidder may make a statement by offering well above a term’s market value ($5 per click for a term that is selling for only $2.50, for example) knowing that they’ll only have to pay one cent over the previous top bid.

But savvy search-engine marketers have developed a defense for such aggressive bidding. "Bid trapping" was described by Dana Todd, founding partner of search-marketing firm SiteLab International, at this week’s Search Engine Strategies conference in San Jose. When a search-term bidder sees an exorbitant bid for one of the terms on their list, they simply bid one penny under that bid, which forces the original high bidder to pay the inflated price. The initial high bidder may respond by adjusting their bid to one cent below the second bidder, and so on until, in the true spirit of Adam Smith, the market finds its own price again.

Capitalism . . . Ain’t it grand?