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Search Ads: Pay However You'd Like

  |  May 5, 2006   |  Comments

A maturing industry must explore different pricing options.

If search is about anything, it's about user choice and initiative. As marketers know well, a visit to a search engine is quite often a hand-raising moment. "I'm interested in cashmere sweaters… or gardening… or body modification," the searcher telegraphs. As a marketer of apparel, or seeds, or piercing jewelry, you've got to be there to take advantage of that opportunity.

For too long, taking advantage has required one participate in an environment that's markedly devoid of choices, at least when it comes to pricing. Way back in the day, GoTo (then Overture, now Yahoo Search Marketing) set up an auction-based pay-per-click (PPC) marketplace. That's the way it's (largely) been ever since. Well, at least until recently.

Don't get me wrong. The auction-based PPC model has been tremendously successful. It's what's enabled the marketplace to get to the point at which we're at now. Search is not only hot. It's necessary, for marketers in a variety of categories and business sizes. That's why I'm so pleased diversification of search pricing is becoming more widespread, too.


Late last month, Yahoo rolled out flat-fee pricing for local ads, called Local Featured Listings, after having considered such a model for years. So long as the company gets enough Featured Listings for a given category in a given location, sponsored search listings (even locally-targeted ones) will disappear entirely from Yahoo Local results pages.

That's a pretty big commitment to a new model. But it mimics what many local advertisers understand and are seeking: an online equivalent to the Yellow Pages. When you buy an ad, local businesses will know exactly what they're getting. They'll receive a certain placement on a certain page and it's guaranteed to appear every time someone comes to that page.

Various Yellow Pages providers, most recently Verizon, have offered their advertisers flat-fee deals in the past, but they were always just buying pay-per-click ads on these businesses' behalf. The implementation -- the fact that the way you pay influences what you get -- is also key.

Cost Per Action

I had the pleasure of meeting this week with Snap.com CEO Tom McGovern. We got onto the topic of pricing models as Tom was going through the history of the company with me. Yep, I'm familiar with Snap.com portfolio company Idealab and the fact the aforementioned GoTo was a spawn of that incubator, too.

Snap is trying to take the search pricing innovation further by pushing a cost-per-action model. Sure, that "action" could be a click, but it could also be a subscription, a purchase, or other actions of value to the advertiser.

"The advertiser gets to decide what's important," Tom explained. "They decide the business goal." Makes sense to me.

In Snap.com's model, the company feeds the conversion data back into its system and begins to rank more highly-converting sites more highly in its results, figuring users who are taking action must have found what they were looking for. There are some potential issues for advertisers there, of course, but CPA would eliminate click fraud and it aligns pricing with advertiser goals. I expect we'll see more of this in the coming months.

Agency Changes

Advertisers and SEM agencies are also growing accustomed to different pricing models, if a recent chat with iProspect CEO Fredrick Marckini (a former ClickZ columnist) is any indication. Fredrick said his company's clients are getting more comfortable with the idea of paying iProspect a percentage of the gains the agency achieves. Of course, that incentivizes the agency to accomplish more. Previously, Fredrick said, advertisers were afraid iProspect would make too much money.


What's missing here? Yes, traditional cost-per-thousand pricing is still nowhere to be seen in search. Sure, Google's trying it for site targeting, but that's only on its contextual AdSense network. I can imagine search engines beginning to offer something like this to CPG companies, or others that currently don't have much incentive to pay for a click. After all, people probably aren't buying toothpaste or bleach online, so how do you back into an appropriate cost-per-click?

It's refreshing to see all the changes occurring in a maturing marketplace. Pay-per-click has served both search engines and a wide variety of advertisers very very well over the past few years. But it's time to expand beyond the click to bring aboard the laggards, and to give the pioneers some refreshing options.

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Pamela Parker

Pamela Parker is a former managing editor of ClickZ News, Features, and Experts. She's been covering interactive advertising and marketing since the boom days of 1999, chronicling the dot-com crash and the subsequent rise of the medium. Before working at ClickZ, Parker was associate editor at @NY, a pioneering Web site and e-mail newsletter covering New York new media start-ups. Parker received a master's degree in journalism, with a concentration in new media, from Columbia University's Graduate School of Journalism.

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