February 7, 2003 12:00 PM PST

Overture boosts ad rates

In an anticipated move, Overture Services doubled its U.S. minimum bid price for advertising placement in Web search results, after introducing a similar increase overseas and amid mounting cost pressures in acquiring new customers.

The pay-for-performance ad company raised its minimum bid price from 5 cents to 10 cents. U.S. marketers have been bracing for the increase ever since the company doubled rates in the United Kingdom last week, as previously reported by CNET News.com. The Pasadena, Calif.-based company has not made a formal announcement about the rates, but it posted them on its Web site.

Overture could not be immediately reached for comment.

Overture puts up search-result placement for auction to about 80,000 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 in the company's race to expand and beat out search rival Google in signing up distribution partners, it has had to give up a larger share of its profits to customers, which include Yahoo, Microsoft's MSN, America Online Europe and Terra Lycos.

In its fourth-quarter earnings report Thursday, the company said its traffic acquisition costs grew by more than 140 percent to $124.8 million for the year, compared with $51.9 million in 2001. As a percentage of revenue, traffic acquisition costs were 62 percent in the fourth quarter of 2002, ended Dec. 31, compared with 51 percent a year ago.

The company is aiming to offset those costs, along with the expense of planned overseas expansion, by raising rates to advertisers.

By upping its minimum bid price, the company may be helping to weed out smaller advertisers that are deadweight to its network, industry executives say. The company last raised its bid price little more than a year ago, from 1 cent to 5 cents.

Hollis Thomases, president of digital marketing agency WebAdvantage.net, said that the move won't have a huge effect, but it will clearly make search advertising more expensive.

"You can still play in the sandbox. But with each of these price increases, someone with a limited budget--their dollars don't go as far."

 

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