Search-engine companies offer what traditional advertising channels can't: software tools that let advertisers control their campaigns. Google Inc. last week introduced the latest offering in this category, called the AdWords API, which lets developers create programs that interact with Google's AdWords search-engine marketing system.
Using the API, advertisers can integrate AdWords with their own systems, such as databases for inventory management, that could then, for example, automatically trigger an online ad for an overstocked item. Or they could build apps that monitor ad clicks or add text to ads.
With search-engine marketing, the action revolves around words. Search-engine companies auction keywords to the highest-bidding advertisers. The top bidders see their ads placed alongside the search results that correspond with the keywords, and pay only when a Web surfer clicks on their ad. Others offering search-engine marketing include America Online, Ask Jeeves, Microsoft, and Yahoo's Overture Services subsidiary.
Some businesses, particularly those that sell exclusively online, are convinced that search-engine marketing guarantees a return on investment. "We not only devote a majority of our marketing budget to search-engine marketing--pay per click specifically with Overture is a high percentage of it--we use a company called Avenue A to help us manage our search campaigns," says David Redlich, director of sales and marketing and co-founder of ReStockIt.com, which sells discount restaurant, janitorial, and office supplies. "We have 50,000 SKUs. For us it's very important to target the specific products that people are looking for."
Advertiser tools, such as the APIs offered by Yahoo, its Overture subsidiary, and now Google, can provide a competitive edge. "In a dynamic marketplace, you don't want to be handling something manually when it could be the difference between making a ton of money and losing a ton of money," says Kevin Lee, CEO of search marketing firm Did-it.com LLC. "You need access to automation."
ReStockIt uses Overture's API to control its online ad campaigns. "With traditional media, it's very expensive to change, say, a postcard or catalog," Redlich says.
Advertisers plan to increase their spending on search-engine marketing by 41% on average this year, according to a December survey of more than 300 Internet ad professionals by the Search Engine Marketing Professional Organization. "We think there will be a marketing war," says Marianne Wolk, senior Internet analyst at Susquehanna Financial. "Google and Yahoo have both indicated that they'll spend at least $350 million in capital expenditures in 2005 as they roll out new variants of search globally." Search was a $5 billion market last year, about 1% of the total global ad market, Wolk says.
More companies are bidding on popular keywords, which drove word prices up 26% in 2004, according to the Search Engine Marketing survey. Lincoln Silver, VP of Internet marketing at Wine.com Inc., sees more competition in keyword auctions. "We're definitely investing in online search marketing, not only with the Googles and Overtures of the world, but also with comparison-shopping sites," Silver says. His company now bids on a few thousand keywords, up from a few hundred.
Lee believes those who join the fray now will fare better. Says Lee, "Just like any new advertising medium that comes on the market, you've got your earlier adopters and later adopters."