Is Search Advertising Dangerously Overpriced?

Thread Title:
Rise in Online-Advertising Prices
At Search Sites May Be Overdone
Thread Description:

Dow Jones' Riva Richmond thinks they may be..

But worries about ad-price softening have weighed on shares of Google and Yahoo recently, despite strong fourth-quarter performances from the two companies. Google's stock is down 17% at $179.98 from a high of $216.80 set Feb. 2, while Yahoo is down 20% at $31.91 from its 52-week high of $39.79 set Dec. 3.

The concerns arose, in part, from complaints about high prices by online retail giant eBay Inc., one of the largest buyers of keyword ads, at its annual meeting with financial analysts last month. The comments came on the heels of a disappointing earnings report for the fourth quarter, when eBay lifted its marketing spending to attract Christmas shoppers.


How can they be overpriced?

The price is set by auction bidding. This guarantees the search engines make the most money while selling as much ad inventory as possible. The ppc bids may be too high for a specific company to make a positive ROI on it like ebay. But obviously there are companies buying the ads and making money since the money keeps on rolling in.

Years ago people were amazed that lawyers were willing to pay over a $100/click for a medical term. They said it was overpriced, until they found out the average lawsuit settlement was over $1 million.

> But obviously there are com

> But obviously there are companies buying the ads and making money since the money keeps on rolling in.

No, thats not always the case. I've seen markets where the flow of new companies coming in with a bag of money to buy reach are so high that none of the large companies in the space want to follow up. When the avg. CP reaches $2-3 on a $19 product you know that PPC-vertical is dead - at least untill the newcomers back out with their VC money

in my experience those tend to be short term bumps

I agree Mikkel, that happens from time to time, But since those bids are not sustainable, those new players will either lower their bids or go out of business. I have personally experienced your example. It is really annoying when an inexperienced affiliate starts driving up the bids. Expecially when they are participating in you program and you know there is no way they can make money.

Overall, I feel the marketplace stills has room to grow. I do think a few areas are overinflated, but they will correct themselves. One new group of players are B2B companies. The general industrial marketplace have large profit margins and PPC has had little penetration into this market so far.

Repeat orders and/or customer

Repeat orders and/or customer retention is a factor.

* Huge Selection, Great Deals on *

I will wait until a credible adwords buyer complains. Any company that auto bids "_______, Huge Selection, Great Deals on _______" and then complains about the high costs is just whining.

Real ads I just checked:

Lunch. Huge selection, great deals on Lunch.
Wives. Aff. Everything to do with Wives.
Awe. Everything to do with Awe.
and even
Toejam. Great deals on Toejam Shop on eBay and Save!

Buying leads

Repeat orders and/or customer retention is a factor.

Absolutely. A few years ago I would purchase targeted email lists that were up to $2.50 per qualified email/contact (Golfers). Eventually, I figured out that it would be better to lose a litte or just break even on many sales so that I could collect contact information.

Certainly, the big players know this as well.

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