Pay-for-placement or pay-per-click is a search engine category pioneered by Overture (Goto.com). Goto burst onto the scene with a successful 1999 IPO, following on the heels of solid venture backing by, among others, idealab's Bill Gross. Until recently, Goto has met with considerable skepticism from analysts - in particular those who consider themselves consumer advocates or aficionados of web search. Most of us have felt that while paid placements might be desired by advertisers, there is no reason for the consumer to use a pay-for-placement search engine. Who would deliberately seek "tainted" search results? And if no consumers used the search engine, the reasoning went, the whole project would fizzle, just as Open Text's attempt to charge for rankings did back in the summer of 1996.

Recall, too, that Altavista launched a pay-for-placement program in April, 1999, but then backtracked.

Long after Open Text's pay-for-placement flop (it's now a successful intranet company), it appears that the time may be ripe for pay-for-click search engines. Advertisers are increasingly interested in what they have to offer, and there is diminishing resistance on the part of consumers. The timing of these changing attitudes is unsurprising: e-commerce didn't come of age until the monster holiday season of 1999.

Given the strong incentive for advertisers and leading search ranking auctioneer Goto.com to see this model succeed, the following proposition won't surprise many: pay-per-click search engines are here to stay because the folks with the money want them to stay. I'm going to go one better than that, however, and propose that they're here to stay because they offer real value to a segment of consumers and many business owners. The idea that paid search results are "tainted" may give way to a willingness to transact commerce more directly. Moreover, many now realize that just because something isn't obviously paid for on the Internet, doesn't mean that it isn't paid for. This method is just more up-front about it.

How it works

Here is how Goto.com works from an advertiser's perspective. Advertisers register search keywords or keyword combinations, along with a title and description, much as they would with any search engine. The key difference is that placement in the search results is "purchased" by the advertiser rather than determined, as they are with most search engines, by complex formulae relating to relevance or popularity.

Contrary to popular belief, relevance is the golden rule at Goto.com. Spammers who want to buy in categories unrelated to their site's content have their submissions rejected. It's important to take care at first to ensure that one's listings get past the editorial process. From there, it gets easier, as the advertiser has the opportunity to adjust bids up or down to control the flow of site traffic and to spend their budget more or less quickly.

Admittedly, everything has its price. Webhelp.com has built a company quickly by buying traffic, in large part from Goto.com. Webhelp's listings appear under so many keywords it's absurd. But one supposes their rationale is that their service offers help on "any search query." And, of course, they're dropping a bundle on advertising with Goto.com, and overbidding in many categories.

Goto.com is apparently taking steps to tighten the relevancy requirements for submissions. This is good for both searchers seeking relevant results and advertisers seeking more receptive customers post-click for a better return on their per-click investment.

A good thing? How so?

Most of the benefits of this, granted, do lie on the side of the site-promoting webmaster or corporate advertiser who is actually doing the bidding. But these are so substantial that they need to be taken into account. First of all, unlike most search engines, there is no complex process of spidering web sites, ranking pages for keyword, title, and content relevancy, link popularity, or site popularity. It's a pure market model. A pure market model has its shortcomings, but one major advantage is a reduction in mystery. There are no hidden prices.

Let's face it. To get ranked high in search engines nowadays takes a lot of time and patience - so much so that companies must devote considerable staff time to it, and small webmasters must devote inordinate amounts of their personal time to it. It's this personal sacrifice that creates, in part, a huge market for automated services which promise to get high rankings for people. The regular search engines may not be pay-per-click, exactly, but make no mistake, an economy surrounds them. Indeed the how-to-get-ranked-high-in-search-engines industry has attracted legions of snake oil salesmen and a few responsible practitioners.

Listen to any site owner who has garnered top listings in most places through conscientious methods of self-promotion and hand submission to engines: the majority of such services are unnecessary. They are preying on the mystery which surrounds the field. Rather than being masters of the science of search keyword relevance, many search engines and directories are more like a game or maze, and those with money can, it is believed, pay to find their way through the maze. Leading directories Yahoo! and Looksmart are quite up front about this, charging a hefty fee for express processing and consideration of a potential listing. Looksmart's fee is $199.

Unfortunately, many efforts to master the search engine game can be counterproductive. Learning about search engines is vitally important, but the best way to stay out of the engines' doghouse while taking advantage of some automated tools may be to use a responsible service like Robert Woodhead's free Selfpromotion.com. Woodhead acts like a search engine submission "coach" and offers extra tools if you "donate" $10 or more.

A market model in the age of e-commerce can actually be quite beneficial to smaller businesses. Because they can bid so precisely on particular keywords, advertisers can count on some highly targeted clickthroughs. Targeting to reach your customers, and not just some random audience, is what the new economy is increasingly about. Feedback is swift. Advertisers receive quick responses to the questions that matter to them: "are people clicking on my link, and how much did the link cost?" That can quickly be compared to the assessment of how much the business stands to make from the average visitor.

Depending on one's business model, the average new prospect could be worth considerably more than a paltry few cents. In that case, advertisers have choices. Goto might be one of the best ones, and the comparison of alternatives is highly quantifiable. Have a look at Squirrelnet's interesting analysis of why Goto advertising may be much more cost-effective than banner advertising on Yahoo. Based on today's clickthrough rates, it'll cost an advertiser at least $1.00 to get a clickthrough on a high profile site like Yahoo. On Goto, the average click costs 14 cents (but for many advertisers it might easily be half that).

Less friction, better customers

In short, Goto.com seems to be offering a service to advertisers well in line with the most successful business models in the e-commerce world. The benefits of e-commerce are generally seen to lie in the reduction of friction between buyers and sellers. A bid-for-clicks auction model accomplishes this in two ways.

First, the bidding mechanism is live and updates one's search ranking immediately. An advertiser can buy what he wants (targeted traffic) instantly, and can generally buy more or less of it as he or she chooses depending on goals and budget. Here's a thought: the advertiser could double their bids on a Tuesday, or a Sunday, if they prefer to get more hits on slow days! There are many other possibilities here - the point is to emphasize the flexibility offered by the system.

Second, friction between customers and e-commerce or e-content sellers is reduced. If you sell chocolate bunnies, and expect a couple dozen folks a week might search under the term "chocolate bunnies," you can pretty much have those customers eating out of your hand for a couple of pennies a click. Advertisers only pay for clicks, ensuring that the customer at least makes it onto their web site to see what other delights await. A far cry from ad banners, which consumers increasingly ignore.

For consumers: mixed benefits, but not all bad

Ok, fair enough, so all of this benefits the folks doing the bidding, and the search engine company which runs the keyword auction, but is there any benefit to consumers or web searchers?

It depends.

If you're looking for a museum or nonprofit organization, you probably aren't going to have much luck finding it at Goto.com. Its primary uses are commercial. At the same time, more of the world is commercial than we realize. Public sector organizations and private sector organizations, for example, now compete for the same "customers." Some forms of entertainment compete with others. Would it be so foolish for a museum, nonprofit group, or public radio station to advertise on a pay-per-click engine? Not if their bean counters found out that they could get $50 in donations for every dollar they spent on clickthroughs. At a nickel a click, a little goes a long way.

A lot of the traffic that comes through Goto, we're told, is by way of metasearch engines. This does seem like the pay-for-click engines' ace in the hole, ensuring that their advertiser's listings make it into search results from a variety of sources. Currently, Goto is included in the metasearch results of Metacrawler, Ixquick, and others. This also gives Goto.com advertisers something to think about. While a #3 ranking on a Goto keyword ranking may be "good enough," bidding a few extra cents for the #1 spot may pay off in more than just Goto hits. It may also create a greater likelihood of a top five ranking on the metasearch engines. A recently-announced agreement with metasearch engine Mamma should contribute to that trend. Incidentally, advertisers pay for clicks generated through metasearch engines, just as they would if traffic flowed directly through Goto results.

Goto's competition

There are five or six competitors to Goto.com, but it towers over most of them. An emerging second-place competitor in the category is Findwhat, a pay-for-click search engine that has picked up serious momentum recently. They already have significant revenues from click-based advertising in several industry sectors. As with many such search engines, their biggest challenge was in getting enough consumers to use the search engine so that advertisers would actually get clickthroughs. A major breakthrough for FindWhat was its recent deal with Go2Net to have Findwhat results included in metasearch results for Metacrawler and Dogpile, the #1 and #2 metasearch services in the world. That will deliver the hits to Findwhat that it may need to mount a credible challenge to Goto.com. Unsurprisingly, Findwhat's CEO seemed upbeat about the company's future when I talked with him recently.

Some other search engine companies vying to get noticed in the pay-for-placement category include Kanoodle.

General adoption of pay-per-click

Nothing says that a portal or search engine which relies on advertising dollars has to be a pure play focusing on pay-per-click results. Increasingly, all the majors are going to adopt various aspects of this approach. Some companies already offer keyword-based advertising, which is not the same as pay-for-placement, but offers advertisers similar targeting while maintaining the integrity of search results (integrity in the sense of being faithful to the search algorithm). This method places keyword-targeted advertising "near" the search results. Metacrawler and Direct Hit are examples of search engines which offer keyword advertising. Keywords are a rich potential source of income for search engines, and a reasonable opportunity for targeted campaigns for the advertiser. From the advertiser's perspective, however, participating in a search results auction is likely to provide more reliable clickthroughs than buying banner space near the results. Surfers might be more inclined to click on the search results rather than nearby banners.

So are we going to see Altavista or Yahoo search results contaminated by paid rankings? Not likely. They have too much invested in relevance-based or category-based search. But the general trend is clear. More portals and search engines will begin gravitating towards a pay-for-placement approach. About.com is planning to announce a program in this category in April. They're calling it a "sponsored links advertising initiative."

The power of frictionless commerce is motivating the shift. Advertisers like About.com and Yahoo are taking steps to manage their unsold advertising inventory through an auction process. Significant additional revenue can be brought in without discounting too heavily and without needing to resort to high-priced and cumbersome advertising sales.

Relevance revisited

While many may lament the increasing commercialization of search engines and the difficulty in finding relevant research materials as opposed to advertisers' products and services, it is increasingly the case that advertisers' products and services ARE relevant to what a great many people are looking for. If it weren't, the trillion-dollar e-commerce industry would not exist today. The consumer demand is there. There is therefore no cause for finger-pointing at Goto or other pure market-oriented bid-per-click advertising models. Content and commerce are indeed blended on the web, and the blending carries over to practically any commercial web venture, even when the front end or content side of the package may indeed be "about something."

Many may find the high-octane bazaar of Goto.com, where advertisers wear their budgets on their sleeves, distasteful. But given today's culture - millions happily tune into a game show named Greed, and have diminishing patience for what Edmund Burke called the "decent drapery" of life - there is likely to be widespread receptiveness to Goto.com's direct approach.