• by Ross Fadner , November 7, 2004

The cost of keywords grew 14 percent on average in October, due in large part to sharp spikes in the consumer services and retail categories, according to the latest monthly keyword price index from search engine marketing agency Fathom Online.

The report said advertisers paid an average of $1.55 per keyword in October, an 18 cent increase over September's $1.37. This uptick was driven by consumer services and retail, where keyword costs increased an average of 78 percent and 52 percent, respectively. For goods and services, advertisers paid 96 cents in October versus 54 cents in September. The cost for retail terms also grew from 32 cents to 48 cents last month. For the report, Fathom Online looked at the 500 most popular keywords in nine categories, excluding brand names.

"Our clients had a hunch that prices were going up, but until now there hasn't been a benchmark to confirm it," said Matt McMahon, Fathom Online executive vice president of media and marketing. McMahon attributed the October price increases to the approaching holiday buying season.

In finance/mortgage, the highest-priced category, price increases corresponded with the interest rate drop on the 30-year mortgage. Marketers paid $4.31 for mortgage-related keywords in October, versus $3.17 in September. "The payoff for acquiring a 30-year mortgage is rewarding, so the keyword prices are often highly cost-effective for these marketers," McMahon said.

Other sectors showed slight decreases in pricing. Automotive keyword costs fell from $1.43 to $1.39 in October, and broadband/telecom costs fell from $1.89 to $1.78.

"It's interesting to see that the upward trend is not necessarily monolithic," said JupiterResearch analyst Gary Stein. "That is, not all keywords rise. The overall price rises, but different sectors perform differently." He added that marketers should use the price index to go back to their data logs to see how their bids compared with the market overall.

As patterns arise over time, McMahon said the cost averages will be helpful to marketers with search engine marketing planning and management. "The intention is to set a benchmark marketers can use in order to identify trends," McMahon said.

While that concept may seem similar to that of the Dow Jones Industrial Average, McMahon pointed to several key differences. "The search market is more volatile because it has less volume," he said, adding that the Dow also has hundreds of times more trading activity than the paid search market. "One advertiser entering or exiting the market could affect prices."