Text ads bring in the cash

The search engines learn to rely on pay per click advertising.

(September 18 2003) One of the main reasons for the dot com crash was the fall in ad revenue. The regular banners were in on way able to bring in the revenue needed to finance costly Internet portals and search engines, and important search engines and directories like Excite, Infoseek/Go and Snap were -- at best -- reduced to shells built around technologies developed elsewhere.

It is ironic that in the age of high tech wizardry it was the plain text ad that ultimately saved the search industry -- text ads disguised as search results that is.

It is certainly true that search sites are getting better at telling users that these search results are in fact advertising, but given that a large proportion of searchers do not notice this and that the ads presented often are relevant to their needs, people do click on these links.

Reuters reports that Yahoo! expects revenue from sponsored search queries to more than double by 2006. Yahoo's chief financial officer Sue Decker says that annual revenue from sponsored searches is expected to grow from about US$2 billion now to $5 billion world wide in 2006.

Whether she is right or not is not the issue here. The main point is that Yahoo! believes it has reason to expect such a growth. This also explains why Yahoo! is buying the Overture pay-per-click text ad search engine, and also why Microsoft is in the process of building a new search engine. This is where the money is.

Danny Sullivan reports that MSN.com now will include Overture sponsored results in two separate areas of result pages: above the main results and in the right hand column.

Sceptics may argue that the search engine is heading for another crash. Ultimately visitors will learn to filter out text ads in the same way as they stopped looking at banners.

Maybe. But it should be remembered that it is easier to mentally block out graphic text ads, as they are visually quite different from a text based search engine result. Your eyes are immediately drawn to text that contains words relevant to the topic or the product you are looking for.

Moreover, this is not a bad thing. As long as the text ads are relevant and leads the searcher to the products or services they are looking for, they will probably not be too annoyed.

Both Overture and Google have understood this, which is why they put so much effort into ensuring that the ads are relevant to the query at hand. One of the reasons MSN has added Overture results in the right hand column of result pages is that they would like to test out more ads to ascertain their popularity and hence their relevance. More relevant ads will be moved to the top, even if the advertiser has paid less for the ad than the top bidder, Sullivan reports.

By marking the ads as "ads" or (at least) "sponsored results", they gain the trust of the searchers who know the difference between ads and regular results. The message is: You may skip them if you want to.

Finally, this increase in revenue will ultimately benefit the searchers as the search engine companies invest much of the money into research and development.

The reason for this is simple: They have finally learned that searchers first and foremost are looking for relevant results, and in order to deliver such results, they must invest in new technologies.

You can say a lot about capitalism, but sometimes it just works.

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