Guaranteed results; Net profits: Entrepreneurs are buying prime locations in search-engine results. should you?

Entrepreneur,  Nov, 2001  by Melissa Campanelli

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IN TODAY'S SLOWING ECONOMY, e-TAILERS are having to work tirelessly to get their businesses' names out in front of potential customers. Many are now experimenting with the controversial strategy of paid placement on search engines. Sounds good in theory--who wouldn't want a secure spot in the lead position in search results?--but with a few consumer groups crying foul, some entrepreneurs are wondering whether paid placement is really worth it.

Generally speaking, paid placement means a company pays a fee to a search engine to guarantee that links to its Web site will appear in the first few listings of relevant search results. Pioneered by GoTo.com, the strategy sidesteps the traditional way companies earn listings--by submitting their URLs and the categories they'd like to be listed in to search engines, along with a small fee. The search engines then place the listings in the directory based on unbiased standards--such as the autonomous groupings of editors or the results from software programs designed to rank related sites--with the most popular appearing first. In some cases, entrepreneurs even pay consultants to help their Web sites get higher rankings.

This objective approach is still being used, but an increasing number of companies are discovering the benefits of paying for placement. According to Danny Sullivan, editor of Search Engine Watch (www.searchenginewatch.com), an online newsletter, "Paid placement on search engines offers an incredibly easy way to gain very targeted traffic."

Getting Started

One of the most cost-efficient ways to pay for placement is to sign up with a company that provides search results to other sites, such as GoTo.com or FindWhat.com. Advertisers on such sites bid for placement in search results based on their chosen keywords. Their bids are based on the amount the advertisers will pay each time a customer clicks on their listings in the results from a search engine that uses one of the companies' listings.

While prices are based on bids, listings can run between i cent and sin per lead, with an average of about i6 cents per lead. Both GoTo.com and FindWhat.com also charge minimum monthly fees. Costs usually correspond to the popularity of terms and where entrepreneurs want their results positioned. For example, if an entrepreneur chooses a very popular term that will likely create a lot of clicks--such as "Viagra"--it will probably cost several dollars per click to be listed first. However, being tops under a less popular term, such as "aspirin," might cost just 10 to 15 cents per click. You can save even more money if you're content with being listed No. under "aspirin"--which may cost about 5 cents per click.

Another paid-placement option is to work directly with search engines. Yahoo!, for one, now leads off its search results with five paid spots. Google also features sponsored links--but styles them to resemble paid advertising. In addition, Excite has its own internal program that supplement listings from FindWhat.com as does AltaVista with GoTo.com.

Experts say companies that provide listings to search engines are the best bet for entrepreneurs, because the search engines are themselves likely to charge higher monthly minimum fees and involve ad reps. Plus, with a listings provider, your site shows up in many places on the Internet. GoTo.com, for example, claims its listings reach nearly 75 percent of the total U.S. Internet audience.

Behind the Controversy

Not everyone, though, is happy with paid-placement arrangements. Commercial Alert, for example, a Portland, Oregon-based national nonprofit anticommercialism group, filed a deceptive advertising complaint with the FTC earlier this year against eight search engines for placing ads in their results without clearly indicating that they were indeed ads. "[They] look like information from an objective database selected by an objective algorithm. But really they are paid ads in disguise," the complaint states.

Named in the complaint are seven search-engine owners: AltaVista, AOL Time Warner, Direct Hit Technologies, iWon, LookSmart, Microsoft and Terra Lycos. Some of those companies' search sites refer to their paid links as "Featured Sites," as opposed to "Sponsored Sites."

"These search engines have chosen crass commercialism over editorial integrity," says Gary Ruskin, executive director of Commercial Alert. "We are asking the FTC to make sure that no one is tricked by the search engines' descent into commercial deception. If they are going to stuff ads into search results, they should be required to say that the ads are ads."

Ruskin says that by concealing the fact that such listings are really just ads, search engines appear to be violating the federal prohibition against deceptive acts or practices. This omission falls within a line of deceptive advertising cases, in which the FTC sought sanctions against companies caught hiding the fact that ads were ads.