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Another engine takes ads by the click

Another search engine approved an advertising model that could cause revenue to drop.

As Web sites struggle to define where their profits will come from, another search engine has adopted an advertising model that some publishers fear could cause Net ad revenue to take a dive.

Search engine site LinkStar Communications today adopted a new rate card that gives its advertisers the option to pay for ads every time a user clicks on them, rather than simply every time a user sees them. Just guaranteeing that a selected number of users have seen a given ad is the basis for advertising rates set by most Web publishers.

But last month, Proctor & Gamble reportedly struck a deal with search engine Yahoo to pay for advertisements on a "per click-through" basis rather than "per impression," opening a debate on how publishers should charge for ads. The number of users who click on ad banners is always lower, sometimes dramatically so, than the number of users who just see the ad, and many publishers fear that ad revenues could take a dive if advertisers insist on the per-click-through rate.

Most Web publications rely entirely on advertising for revenue because many Net users are loathe to pay for online subscriptions, and some are starting to feel the strain. Web Review, for example, posted its final issue this week, saying it couldn't afford to continue without any subscription revenue.

LinkStar is taking the middle road by offering its advertisers as an either/or option: The company will make up for the difference by charging clients more for click-through ads than for impression ads. For example, 25,000 impressions will cost an advertiser $1,000, while 25,000 click-throughs will cost $7,500.

LinkStar said it has already received significant interest from advertisers in the click-through option; 33 companies advertise on the LinkStar site.

"We decided to offer the option because we found advertisers wanted this," said Laura Ryan, sales manager at LinkStar. "But our search engine isn't our main revenue model." Unlike other search engines supported exclusively by advertising, LinkStar also promotes its own software online.

Some observers say Internet publishers will learn to adapt to new the pricing model. Other media, including television and print, sometimes allow advertisers to pay only for the number of telephone responses to an advertisement. And if Web sites charge higher rates for click-through ads, advertisers could end up paying just as much, said Keith Benjamin, managing director at Robertson Stephens.

"[With per-click ad rates], advertisers have a much higher price per click-through than per impression. The number I've seen suggests that 5 percent to 15 percent of total page views end up in click-throughs," Benjamin said.

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