December 29, 2003

More Businesses Are Turning to Paid Listings on Search Engines


For years Internet advertising was written off as ineffective. The most typical ad format - the rectangular banner at the top of the Web page - was simply too small to be creative, informative or otherwise persuasive.

So, it is no small surprise that the hottest form of online advertising is now paid listings on search engines - a mere two sentences that make a banner ad look epic in comparison.

Forrester Research, a technology consulting firm, expects search-based advertising spending in the United States to grow 47 percent to $2.8 billion next year from $1.9 billion in 2003, which is faster than any other form of online marketing.

The question facing the industry is how big can these small ads really be. The main purveyors now - Google and Yahoo's Overture Services - are rapidly trying to place these ads on other Web pages like news articles. And lots of other sites, like the Bizrate shopping engine and the Citysearch local information service, are refashioning their business models to focus on variations of paid-search advertising.

The main reason that search advertising has been successful is that it presents advertising that consumers might actually want to see. Someone searching for information on arthritis may well be as interested in ads by drug companies and chiropractors as the reports by medical foundations and information sites found by the search engines.

A less obvious driver of search ads, but perhaps as important in the long run, is that they sell themselves. Rather than negotiating with an ad salesman, the advertiser buys search ads on a Web site by entering a search term and price it is willing to pay. The highest-bidding ads are displayed, and the advertisers only pay when a user clicks on the ad to visit their Web page.

Now Overture and Google have hundreds of thousands of advertisers willing to pay for more clicks than even those highly used search engines can deliver. So they are both placing search ads on other Web pages. But advertisers are concerned that such advertisements are less effective if they are not on a search site, and may not be willing to pay as much for them. There are also some bugs to work out with the automated systems that pick which ads to go on what pages, the president of Overture, Ted Meisel, said.

One embarrassing example was the placement of ads by luggage stores on a Web page for a news article about a murderer who carried away his victims in a suitcase. "It's harder to do content targeting than we thought," Mr. Meisel said.


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