Will PPC ad costs go up over time?

[Rick]

As the mainstream starts using PPC ads like Google and Overture, do you think this will drive up the prices across the board? Seems like basic supply and demand. If supply stays constant, as demand increases, price should go up.

[James]

To put it simply: yes.

[ozgression]

Yes, I think so too...

[chromate]

Not necessarily. It WILL get more competitive generally. But near the top prices will pretty much always reach a natural limit where the cost of running the ad meets the revenue generated as a result of the ad.

[ozgression]

That is true, however, but the lower you are in the rankings, the less traffic you get. Since people want traffic, they will be prepared to bid the price it takes to beat the current #1. I don't really think they try to justify prices (alot of keywords have prices I could never justify).

Bids prices have skyrocketed on Overture and Adwords over the last 12 months (for popular terms and even some obscure terms) and as the industry consolidates into a few main players (eg the small ppc's die or get acquired by the big guys), the alternatives will dissapear.

[chromate]

There's no point in paying more than an ad's worth, it's just bad business.

I think the smaller companies are where we will see the PPC increases as the advertisers spill over from the likes of Google and Overture.

[ozgression]

There's no point in paying more than an ad's worth, it's just bad business.

Yes, it's bad business, but as more and more business come onto the web, they will be prepared to pay more to rank higher (regardless of the ROI they will get). To prove this point, I recently heard that a mid-sized company paid someone $10,000 to set up accounts on Google Adwords and Overture for them... not to run the account, just to set it up. The same company will probably have the money to throw away in test campaigns etc.

Also, larger companies will begin to justify their bid prices through looking long term eg. big hosting companies may make a sale every $100 spend on a search engine. It can take them (sometimes) over a year to make that money back from the client, but as far as they are concerned, if they keep that client for 3-5+ years the extreme bid prices they paid will be justified. It also adds to their books another client and makes them look impressive to investors and potential acquirers.


I think the smaller companies are where we will see the PPC increases as the advertisers spill over from the likes of Google and Overture.

I don't, for the simply reason these companies don't (generally) have the volume to satisfy current clients, let alone sastisfy defectors from the "big 2". To prove this point, enhance.com recently bought $150m worth of parked (expired) domains from which (i assume) they will be sourcing traffic.

I think the trend for small businesses will be more towards obscure (more specific) keywords.

[Chris Choi]

I think yes and no. Yes but very slowly.

It seems like alot of people do not use PPC the right way
or have good conversions. You will get competitors but
often times, they drop out because they lose money so
alot of markets won't be affected much.

[jonbraswell]

I think the price of cpc advertising will definitely begin to rise very soon. It will eventually have to hit a breaking point and drop significantly, though. As the margin between advertising and profit closes in, less people will want to buy the ads.

People also may become 'immune' to the text ads just as they have with the image ads.

[chromate]

Yes, it's bad business, but as more and more business come onto the web, they will be prepared to pay more to rank higher (regardless of the ROI they will get).

I don't think it will be regardless of the ROI. The whole reason they're running the campaigns in the first place is to get a ROI, be it monetary or otherwise. Maybe they will over-spend to begin with. But when they find it's losing them money, they wont continue running the campaigns at the same bid prices.


To prove this point, I recently heard that a mid-sized company paid someone $10,000 to set up accounts on Google Adwords and Overture for them... not to run the account, just to set it up. The same company will probably have the money to throw away in test campaigns etc.).

Possibly. But there will be a limit to their stupidity in terms of the bid price they're prepared to pay. I don't think there are many companies that run expensive ad campaigns without monitoring the ROI.


Also, larger companies will begin to justify their bid prices through looking long term eg. big hosting companies may make a sale every $100 spend on a search engine. It can take them (sometimes) over a year to make that money back from the client, but as far as they are concerned, if they keep that client for 3-5+ years the extreme bid prices they paid will be justified.

But again, the ROI is worth it to them. In your example, the web hosting company is still making back more than they're spending on the campaigns, as a result of the campaigns. There will be a limit where they start to lose money because they're paying too much.


I don't, for the simply reason these companies don't (generally) have the volume to satisfy current clients, let alone sastisfy defectors from the "big 2". To prove this point, enhance.com recently bought $150m worth of parked (expired) domains from which (i assume) they will be sourcing traffic.

Advertisers use the smaller advertising companies to supplement larger campaigns. As it gets more competitive, I would expect this to increase as advertisers try and get the edge over their competitors.


I think the trend for small businesses will be more towards obscure (more specific) keywords.

That's true. We're already seeing this. Example, the DentalPlans.com affiliate prog have just released a list of 900,000 dental related keywords!

[joeychgo]

since im a publisher - I say - I hope so :)

[chromate]

Me too! lol :)

[Yoda]

That stands to reason, I think. It also stands to reason that, as ad-serving technology becomes more intelligent and efficient at matching ads with the most appropriate pages, click-thru rates should improve somewhat. It's hard to see web users as a whole screening out Google's custom-styled text-based ads the way pop-ups have been.

[Cutter]

I think you guys are missing a few points here on why prices will continue to rise.

First, just because you bid the most doesn't mean your #1 (on Google Adwords, at least.) Top position is factored by CPC x clicks. This means ads with good copy and relevance get ranked higher. For the people playing the Adwords affiliate game this is ciritical.

Second, how well the landing page converts. Once bidders figure this out they can pay more per click and still stay profitable.

Third, will CPC ever max out? In certain areas yes, in other areas no. Inflation and money-printing means prices will keep rising. Once big corporate advertisers start entering the arena things could really heat up. More money in the pockets of Adsense supported sites, less money in the pockets of small businesses who get most of their leads from Adwords.

I run Adwords campaigns, but I am hedging against rising prices by #1 opening Adsense sites and #2 focusing my skills on copy-writing and converting designs.

[chromate]

First, just because you bid the most doesn't mean your #1 (on Google Adwords, at least.) Top position is factored by CPC x clicks. This means ads with good copy and relevance get ranked higher. For the people playing the Adwords affiliate game this is ciritical.

I don't really see why this would make people bid more. You seem to be saying, in fact, that it's not all about how high you bid, it's what you do with your ad?


Second, how well the landing page converts. Once bidders figure this out they can pay more per click and still stay profitable.

That assumes that advertisers will get better at creating conversions. Which, I suppose to an extent is true. But, at risk of sounding like a broken record, there's still gonna be a limit. :)


Third, will CPC ever max out? In certain areas yes, in other areas no. Inflation and money-printing means prices will keep rising. Once big corporate advertisers start entering the arena things could really heat up.

I think most of the big businesses that could really benefit from web sales are already in the loop, aren't they?

As I've said, all this stuff will push the prices up, but in time they will max out in ALL areas. This is no different from magazine ads. If the magazines were to charge too much for advertising, then no one would advertise. There's always going to be a limit to how much people can pay for advertising and it still be profitable.