• by Ross Fadner , January 6, 2005

Search engine advertisers on average paid 24 percent more for keywords in the fourth quarter than they did at the end of September 2004, according to estimates being released today by Fathom Online. The price hike, one of the steepest since Fathom began publishing its so-called Keyword Price Index (KPI) earlier this year, may have been influenced by increased demand during the fourth quarter holiday marketing season, or it may have simply been organic price inflation as more advertisers enter the marketplace and increase their bids for top placements on search engines.

"People thought they were seeing 5 percent to 10 percent increases per year. We've seen a 24 percent increase in the fourth quarter alone," noted Matt McMahon, executive vice president, media and marketing, for search engine marketing firm Fathom Online, which conducted the report as part of its monthly KPI.

What is clear is that the fourth quarter price surge was driven by dramatic keyword increases in the retail, consumer services, and travel, categories, which saw 81 percent, 151 percent and 52 percent surges, respectively. The data doesn't reveal whether the increases are more attributable to the season or simply increased competition, McMahon said, but "certainly we can infer that the holidays are a big factor." He said February 2005's KPI would shed more light on this issue.

Interestingly, the automotive and telecom-wireless categories actually saw slight keyword price decreases, while the telecom broadband and finance-investing categories have not changed on average since September. The finance-mortgage category has the distinction of being the costliest; advertisers had to shell out $4.79 per keyword in December, versus $3.17 in September.

McMahon said advertisers in these categories are no more or less likely to use a search engine marketing firm versus advertisers in the categories that received drastic increases.

In December, average keyword costs increased a slight 2 percent despite a record online holiday shopping sales of $23.2 billion, according to a recent survey from Goldman Sachs, Harris Interactive and Nielsen/NetRatings.

Fathom Online's chief opined that advertisers purposefully set their bids early. "Savvy consumer advertisers clearly bid aggressively early on to ensure their holiday buying positions on the search engines, "Chris Churchill, CEO, Fathom Online. "If the performance of those words was carefully tracked and analyzed, their conversion rates to leads and sales should have given them a significant return on their investments."

Fathom noticed marked decreases in the price of buying retail-related keywords in the days following December 20, which is the last day many retailers guarantee shipping before Christmas Day. McMahon said the decreases in retail continued through New Year's Eve. For the month, the retail category saw an overall three percent decrease in keyword prices.