Keyword Ad Prices Falling, But Why? (GOOG)

| About: Alphabet Inc. (GOOG)

The Stalwart submits: According to analysts, keyword prices continue to tumble:

For the fourth month in a row, the average keyword price decreased compared with the same month in 2004. The average price in October was $1.45, or about 6 percent less than in October 2004, according to Fathom Online's latest monthly keyword price index, reports Mediapost (via MarketingVox). Month over month, the average price remained nearly flat, increasing one cent from September's $1.44 - whereas in 2004 the average price rose 14 percent between September and October.

The mortgage category accounted for the largest decline from October 2004, falling 15 percent to $3.68; consumer services fell 10 percent to 86 cents; and broadband fell 8 percent to $1.63. Consumer retail and automotive both decreased 6 percent, to $0.45 and $1.30, respectively.

The bear-market in pay-per-click keywords has been going on for sometime, though I don't fully know what it means. On a search-engine, like Google, prices are set via auction, and the higher a company bids, the more frequently their ads will appear in searches for said keyword. But because we're talking pay-per-click and not impressions, the actual price should be a function of how valuable the average visitor is to any given site.

If mortgage-related keywords average $3.68, then it must mean that the average visitor to the average mortgage-related site will yield a little bit above that in profits. The game then is to create a good enough website/products so that the average visitor can be converted into more than that in profits. Since mortgage keywords are going down, it must mean that companies are finding it harder and harder to monetize click-throughs, or that said click-throughs, when monetized, are less profitable than in the past. The reasons for this could vary from a flattening interest-rate spread, to inaccurate ad-service from Google.

It's interesting that click-through prices are down across the board signaling that per-visitor profitability is down across the board (it's also possible that the analysts use a price-weighted, or frequency-weighted basket of keywords, and thus a decline in a couple of popular big-ticket categories can bring down the whole index).

One thing that's clear is that this long term decline hasn't hit the bottom line of the search companies, yet though we make no guesses as to future performance. Given that the search engines are surprisingly dependent on a handful of search terms a sharp decline in mortgage-related keywords may kill two birds with one stone.


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