July 28, 2003

A recent feature in the Financial Times drew attention to an increasingly popular and attractive form of revenue generation for search engine providers; one that may be little known to many users of search engines.

US Bancorp Piper forecast the revenues from this activity will grow from US$2billion by the end of 2003 to over US$6billion by the end of 2007. Currently 90% of such revenues are generated in the USA. Even by the end of 2007 it is estimated that over 70% of such revenues will still be generated from the USA.

How does key word sponsorship work? Search engines sell the sponsorship of key words to the highest bidder for a specific time period. So, when a search is initiated using that keyword, the advertiser's site appears at the top of the listing of sites derived from the search. Most search engines deploy this subtle form of revenue generation.

Revenue is shared between the site and the company powering the sponsored search. Each time the user clicks through sponsored search links to an e-commerce site, the advertiser pays a small sum. While there is no standard revenue split or distribution between the site and the search engine, anecdotal evidence suggests splits range from 50%/50% search engine provider and the site to 20%/80% search engine provider and the site.

The benefits to the search engine providers and the advertisers are manifestly apparent. It is a new and much needed source of distribution mechanism for the web, which has consistently disappointed forecasts of its velocity of profitable commercial development and revenue exploitation, since inception. It should additionally provide some further impetus to e-commerce.

The benefits to advertisers are equally obvious. The pay offs should be quicker, if only because the click through rate will be quicker, as they are relevant and specific to the searcher. Are there any benefits to the user? For those seeking information, which will result in an e-commerce transaction, this may be more rapid and efficient than an otherwise less structured search.

Do searchers have grounds for regarding this form of sponsorship as "adnoxious"? Certainly, some of the smaller search engines do not specify that the search was paid for, though the larger search organisations do disclose the fact that the search was sponsored in their search results.

There is the temptation by search engines not to rank search results entirely in the order of relevance but to give some prominence based on advertiser revenues. If revenues soar, as forecast from this form of advertising, that temptation will grow. Longer term such conduct would devalue the quality of the search and the reputation of the search engine. The clear leader in this form of revenue generation is the USA. It has the largest constituency of Internet users.

The quality of US Television was ruined early on in its life by the advertisers. Who watches much US Television(!!) We have to hope that the search engines do not allow the web, a very valuable very valuable tool for knowledge enrichment, to be debased by a surfeit of sponsored searches.

Article by Bob McDowall
Source: Bloor Research

        

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