The Internet search service, which displays results on a pay-for-placement basis, changed its minimum bid rates from 1 cent to 5 cents for new listings, effective March 1. Businesses bid for placement in the company's search engine--based on desired keywords such as "online gambling"--and listings can cost as much as several dollars for every time a Web surfer clicks on the link.
Kyle Yamnitz, founder of EdScope, said the rate hike could cost additional hundreds of dollars each month to advertise his company, which develops educational Web sites. He said he currently pays roughly $225 per month for the keyword "lesson plans" but will likely have to pay about $1,125 at the higher rate based on the average number of times visitors "click through" to his site.
"This move really hurts the small businesses on the Internet like myself who run high-quality resources but cannot afford to pay 5 cents per click," Yamnitz said.
The highest-priced listing for the search term "domain hosting" costs the advertiser $3.51--a cost range that's only shared with four other advertisers for this keyword. Roughly 50 advertisers pay for the lowest-priced placements in the 1-cent to 2-cent range.
The move comes as the company wins major portal deals with such online forces as Walt Disney's Go.com, AOL Time Warner's America Online and Terra Lycos. This week, the company quietly debuted as the default search service for a newly resuscitated Go.com.
The price hike also underscores the pressure Net companies are under to bolster profits. Slowing ad sales and shrinking ad rates have caused many major Internet companies, such as Yahoo, to revise earnings estimates and seek alternative means for improving the bottom line.
"We've recently signed a number of big traffic deals, and these deals have increased our costs," said Jaynie Studenmund, chief operating officer for GoTo.com, who added that this is the company's first price increase since its founding in 1997. "We plan to continue to offer our advertisers the best source of targeted traffic on the Web."
For existing advertisers such as Yamnitz, their terms are grandfathered, or carried over, until Sept. 1. But if he needs to make an adjustment to a bid for an existing keyword, he must jump to the 5-cent minimum.
GoTo.com, which has a total of 37,000 advertisers and 7 million paid search listings, also increased the minimum amount the advertiser must spend with the company to $20.
"Most of our advertisers spend over $20 a month, but if you spend less there's now a service fee for the difference," a company representative said.
FindWhat.com, which also runs a pay-for-listing search service, said it has no plans to raise its minimum bids. The company, which offers about 2 million listings, has licensing deals with InfoSpace services Metacrawler and Dogpile.
In contrast, Google, a relative newcomer among search services, lets advertisers buy only text-based ad space, not search listings. The company said that its "Adwords"--a do-it-yourself ad placement service--appeals to small-time advertisers because it's based on a fixed cost of about $10 to $12 per every thousand people who see the ad. Google said viewers click on such ads about 2 percent of the time, much higher than the industry standard for banner ads.
Yamnitz said he may turn to such services after Sept. 1, the deadline for GoTo.com's grandfather clause. "This move likewise decreases the value of GoTo.com's search engine. The only listings will be from the larger companies with deeper pockets, yet not necessarily better sites, and fewer of them."