Online Ad Market Grows, Keyword Prices Fall

By Exclusive Concepts Blog Team

Marketers are spending more online every year and analysts are making predictions about how big it will get. Universal McCann forecasts that internet spending, excluding search, will increase 10% next year. Aegis’ David Verklin predicts that the percentage of companies’ advertising budgets placed in online will nearly double in the next 3 years:

The prediction…during the opening day of UBS’ 2005 Media Week conference in New York, echoed the strong bullish outlooks for online ad spending issued by other prominent ad executives, forecasters, and industry analysts, suggesting that the Internet was poised to close in on TV and newspapers as the No. 3 medium in Madison Avenue’s so-called media mix.

The growing importance of online in reaching consumers is not surprising considering the growth of broadband recently projected by eMarketer. In 2000 just over 5 million US households had broadband, but eMarketer predicts that the number will exceed 69 million by 2008.

But if the competition for online ad space is increasing, why are keyword prices falling? In November of 2005 the average keyword price was $1.46 per click, 11% less than the November 2004 average of $1.64. Fathom Online’s Gregg Stewart attributes the lower average to the expansion of profitable keywords:

buyers are increasingly sophisticated, and therefore, less likely to rely on the generic keywords that Fathom’s index captures. In other words, he said, marketers that started with generic keywords appear to be “migrating to more specific terms.” For example, some online marketers have started adding city names to their keyword buys.

So while the generic keywords are still competitive, advertisers are seeing the value in bidding on more specific terms as well. As a result, search advertising revenues have increased this year. Google’s third quarter revenues increased 96% from last year to this year.