SAN JOSE, California -- Where once Internet advertisers obsessed over banner ads, these days the buzz is all about keywords.
Spurred by buying from small businesses, sellers of sponsored keyword results -- the paid links that pop up in response to specific search queries -- have seen their business surge over the last two years.
But as more merchants look to snap up the same keywords, search-engine experts say they also appear to be pushing up prices.
Based on bidding activity at the two most popular paid services -- Overture (soon to be acquired by Yahoo) and Google's AdWords program -- the cost of delivering ads tied to certain search queries has skyrocketed in recent months.
"There are a lot of newbies coming on board, some of whom are seriously inflating the bid market," said Dana Todd, partner at the website services company SiteLab International, speaking at the Search Engine Strategies Conference this week in San Jose, California. Newcomers are also making it a more crowded place to play.
For companies that can afford it, the main appeal of buying keywords is straightforward. They allow a seller to get the attention of only the small minority of the population likely to be interested in their product.
Although some search engines, such as Ask Jeeves, sell terms for a fixed price, the largest services work through an auction system. Businesses place bids for specific words or word combinations. Whenever someone types those terms into a search engine, the links from the winning bidders pop up. Businesses pay when a user clicks on their links.
While it's a tough system to master, Allan Dick, general manager of Vintage Tub & Bath, a Hazleton, Pennsylvania, company that specializes in claw-footed bathtubs, believes that a good word-buying strategy can pay off well.
About two years ago, Dick began buying up keywords related to vintage tubs and accessories. Pleased by the initial results, he has since expanded and currently manages several hundred keywords.
"We've never been so busy," said Dick, who credits keyword advertising for contributing much to the company's 18-fold increase in revenue over the past three years. Other than keywords, he does virtually no other advertising.
Stories like Vintage Tub & Bath's aren't uncommon among small businesses. According to Craig Wax, director of advertiser marketing at Overture, it's fairly typical for small businesses to have active bids on anywhere from 50 to 500 keywords. Some large businesses, meanwhile, maintain bids on more than 5,000 terms.
Still, as more players get into the keyword game, budget-conscious businesses are finding the best terms are unaffordable.
Tonie Hansen, marketing director for Mailblocks, had to apply some creativity to find word combinations that fit her budget. The company, which sells Web-based e-mail that filters out spam, didn't want to pay more than 25 cents for each. Most obvious keywords that contained terms like "e-mail" and "spam" were costlier.
If prices continue to rise, some search-engine experts believe businesses' current love affair with keyword advertising won't have much future.
"Right now, it's hot," said Shari Thurow, marketing director at Grantastic Designs. "But eventually, it's going to get too expensive for people."
Thurow remembers one client, for example, who wanted to purchase terms linked to accounting software. Keywords that sold for as little as $1 or so per click two years ago, Thurow said, were now selling for upward of $10.
Thurow believes commercial websites need to focus more on so-called "organic listings" -- industry-speak for search-engine results that aren't bought and paid for. If they pay attention to their design, generate a healthy volume of traffic and provide relevant information, most sites can rank high on search-engine queries without having to spend heavily on keyword advertising campaigns.
Brian Whitehead, e-commerce specialist for the website FaucetDepot.com, had much the same observation. While his company, a spinoff of a plumbing wholesaler, has purchased a few faucet-related keywords, he is more concerned about the architecture of the website. By creating separate pages for individual products, and employing other design tricks that appeal to search engines, he said, the site shows up well in regular queries.
Coming up high on regular search-engine results has other advantages too. People tend to click on them more often than sponsored results, at least on those sites at which paid listings are clearly labeled or shunted to the side of the page.
Of course, even organic listings don't always come free. In order to rank high in regular searches, site owners commonly shell out thousands of dollars to "search engine optimization" services, or SEOs. These consultants examine code, site structure, linking, content and other aspects of site design to improve search-engine ranking.
While it may seem like a lot of money to generate a free search-engine result, Geoff Karcher, of the Karcher Group, an SEO, believes such expenditures are worth it in the long run.
"Pay-per-click stops as soon as your budget stops," he said, "whereas organic listings go on."
