Watching the Search Industry Grow

The explosive growth of the paid search market—from fledgling market to full-blown ad medium in just a few short years-- has come at the cost of a sense of history. The market is more difficult to gauge and predict because no one has a real quantifiable sense of how it has changed in the course of that amazing growth spurt. In a sense, nobody’s been taking snapshots since the baby came home from the hospital.

Well, now someone’s got a camera. Search marketing firm Fathom Online has begun compiling and tracking a “basket” of key words in some of the most important vertical markets currently involved in search engine marketing. The company hopes that plotting the price fluctuations in these seminal industries will eventually lead to better understanding of the cycles and progress of the SEM market—and perhaps greater cost efficiencies for companies that want to market through search.

Here’s how the index—termed by Fathom the Keyword Price Index, or KPI—works, in the view of Fathom executive vice president Matt McMahon. The company has chosen eight categories of consumer products or services. The categories are things average people search for both on- and offline: right now, they’re retail, consumer services (everything from healthcare and education to movie tickets and haircuts), automotive, travel and hospitality, financial and investment services, mortgages, and telecom broken out into wireless and broadband services. From those categories, Fathom has selected the 500 most popular search terms.

“By targeting these active industries and the top key words within them, we’ve tried to measure what fluctuations are happening out there in the broader paid search market,” McMahon says.

While Fathom tracks the numbers in dayparts or hours, taking prices directly from the major search engines, no one is releasing those stats right yet. McMahon says while the company is moving toward an intra-day pull, the company is still working on a reporting interface that would give its clients full access to all the data Fathom sees now. That interface should be ready some time in the first quarter of 2005.

“We know that marketers need access to the data but also that they need to be able to understand it,” McMahon says. “We’re trying to package it up for them nicely so that it becomes actionable.”

Some search engines such as Overture used to publish price-trend data for their key words as part of their quarterly financial reports; but they haven’t done so recently. Analysts and industry observers issue periodic estimates on average key word prices, but nothing that would reveal trends. “That was the need in the market that we saw for our clients,” McMahon says. “And then we thought the information would be valuable to the public, too.”

While Fathom tracks the numbers in dayparts or hours, taking prices directly from the major search engines, no one is releasing those stats right yet, and clients get a daily view of pricing. But McMahon says the company is moving toward both an intra-day pull and a robust reporting interface that would give its clients full access to all the data Fathom sees now. That interface should be ready some time in the first quarter of 2005.

“We know that marketers need access to the data, but also that they need to be able to understand it,” McMahon says. “We’re trying to package it up for them nicely so that it becomes actionable.”

Meanwhile, the company is releasing the KPI to the whole search industry in monthly installments. “We don’t want to inundate the market with too much information,” he says. “We want to gauge what trends are already out there. This information is very actionable, but we don’t want to create a frenzy. The data’s young, after only three months, and we’re waiting for a more robust data set.”

From the standpoint of market knowledge, one of Fathom’s biggest findings is that key word prices in the categories rise and fall daily, as new competitors for terms enter the market or, in some cases, pull back on their search marketing efforts. “One individual buyer can affect the market for everyone else,” McMahon observes. “There might be ten or twelve buyers, or as many as forty in a category. But typically, it’s the top three to five that are really pushing those prices up.”

Now for the tale of the tape. Key word prices for consumer services showed the biggest jump in November, increasing to $1.27 per term from $.96 the month before, for an average boost of 32%. Search marketing retailers also spent more per click. In November, they spent $.60 for the average keyword in the KPI, compared to $.48 in October. That’s an increase of 25% for the month, and an overall 88% increase for retail key words from September to November. By contrast, telecom broadband key word prices fell off 16% in November, and automotive prices dropped 3%, following a 10% decline in October.

Since Fathom began tracking prices, the KPI has shown a 21% increase in prices for the consumer categories, which McMahon correlated to the run-up to the holidays. Numbers in December and January will give a clearer picture whether that increased demand was indeed seasonal, or was part of a larger rising trend in key words.

“That’s the type of information that we need to understand as a market,” McMahon says. “I think we’ll all be better marketers as a result of finding that out.”