Prices fall on pay-per-click search ads

Seasonal trends caused a 15 per cent drop in the prices advertisers had to pay search engines in May for certain keywords, according to a report from search engine marketing firm Fathom Online.

The price drop marks the first decline in keyword prices since August 2004, when the company started monitoring the prices for a series of 500 keywords spread out over eight verticals. Advertising rates during that period on average rose 2.6 per cent.

Also known as 'pay-per-click' plans, search keyword ads offer advertisement space next to search results based on the keywords in the query.

Advertisers bid against each other in an auction style process with the highest bidder getting the top spot on the results page. They pay only when a user clicks on the advertisement.

The downward trend is a response to market events and seasonal trends, according to Gregg Stewart, senior vice president for channel management and marketing at Fathom Online. "We see search reflecting the power of the consumer-driven marketplace," he said.

The finance and mortgage sector saw a 30 per cent price drop following a rise in mortgage and loan rates in the US.

Finance and investing showed the second largest drop with rates declining by 11 per cent. This was a response to weak performance by stock markets over the past months, according to Fathom Online.

Travel advertising declined by six per cent now that consumers have largely finished booking summer holidays.

With a seven per cent rise, the automotive sector was the only one of the eight sectors tracked where prices increased.

Fathom chief executive Chris Churchill insisted that the overall price drop is temporary and does not reflect the financial performance of the search market, adding that the rate volatility indicates that the keyword search market still is immature.

"In general we expect search prices to continue to increase," he said.

Google and Yahoo dominate the search keyword market with their respective Adsense and Yahoo Search Marketing (formerly Overture) programmes.