Q&A: Outlook for Search Advertising Prices

Will ecommerce firms pay more or less for paid search ads in the near future?

Google’s net profit in 2005 exceeded 30 percent of gross revenue. This is a huge profit margin compared to many other companies and industries. Yahoo!, MSN and are investing heavily for a portion of this paid search market. There are, additionally, specialized “vertical” search engines that themselves offer paid search advertising.

We asked Kevin McCarthy, vice president of search for ChannelAdvisor, whether these new efforts to the search market will translate in lower paid search advertising costs for ecommerce firms.

PeC: The search advertising market is getting more competitive. Will this help reduce search advertising costs for ecommerce firms?

McCarthy: Perhaps. Certainly Google’s profits margins are very high and Yahoo!, for example, is about to launch Yahoo Publisher Network, which is its own version of Google’s AdSense program. They key will be whether these other search companies can lessen Google’s 50 percent to 60 percent market share of all searches.

PeC: You don’t seem convinced prices will reduce.

McCarthy: I’m not. It really depends on the keywords. For many popular keywords the market has already peaked, whereby it doesn’t make economic sense to bid on them. For others, such as more sophisticated, extended keyword phrases, the conversion rate is higher and the bid prices are lower. It also depends greatly on the seasonality of the products being sold and advertised.

PeC: Do you recommend that ecommerce firms advertise on multiple search engines?

McCarthy: The key to us is whether smaller ecommerce companies have time to manage multiple paid search campaigns without outsourcing some or all of it. It’s a major effort to keep track of it all, especially if several search companies are involved.

PEC Staff
PEC Staff
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