Overture Services has doubled its minimum bid price for paid search listings in the United Kingdom, and now U.S. marketers are bracing for a similar hike.
As the commercial search provider prepares to announce fourth-quarter earnings Thursday, search engine specialists and marketers are speculating that the search kingpin will shortly raise the minimum bid price for paid listings from 5 cents to 10 cents in the United States, a move that could push out smaller advertisers over time.
The company already hiked rates for marketers in the United Kingdom from 5 pence to 10 pence in the last week, according to Overture spokesman Al Duncan. He would not comment on any similar upcoming changes for U.S. advertisers.
The Pasadena, Calif.-based company auctions search-result placement to about 73,000 advertisers; bids for a text link typically start at 5 cents and can go as high as $50. When Web surfers visit sites that host Overture results and click on the links, advertisers pay the company a price per click and Overture in turn shares that revenue with its distribution partners.
But because Overture has faced a growing threat from rival Google and others, the company has had to strike deals that grant partners a greater share of the revenue pie, financial analysts say. As a result, the company is hunting for new ways to boost profits for itself and distribution partners, which include Yahoo, MSN and AOL Europe.
"Its average cost-per-click rate is brought down by millions of (penny bids)," said Safa Rashtchy, senior research analyst at U.S. Bancorp Piper Jaffray. Raising the minimum bid "would have a positive impact on averages."
The company last raised its bid price little more than a year ago, from 1 cent to 5 cents. After that move, Overture's average bid rate went up from 19 cents to 36 cents, according to Rashtchy. Financial analysts use the average bid price as a means to gauge the health of the company's ad network.
Overture has been on a roll. Wednesday, the company said it broadened a deal to provide pay-for-placement search results for AOL Europe's Web sites. AOL Europe is a division of media giant AOL Time Warner. Yahoo is also testing a new layout for search results that packs more paid listings from Overture onto the page, a move that could increase revenue for both companies. In addition, Overture has been successfully courting news and information Web sites including CNN.com and ESPN.com in an effort to get them to adopt paid Web search as a new alternative source of ad revenue.
By upping its minimum bid price, the company may be helping to weed out smaller advertisers that may be dead weight to its network, industry executives say.
Still, some search engine marketers are not happy about the prospect of new rates at Overture.
"It's another great reason to call them 'Overcharge,'" said one industry executive who asked to remain anonymous. "If you're talking pennies when you're looking at thousands of advertisers, that can create a significant amount of revenue for Overture and a fair amount of added expense for some of the smaller advertisers," the executive said.