PPC costs on the rise!

Soaring profits found in search ads

LOS ANGELES — It's no wonder Google's profit shot up sevenfold this quarter: Prices are soaring for search ads — those simple text ads that appear next to Internet search results.

Advertisers pay each time someone clicks on an ad. Search ads used to be available for a nickel or dime per click. Now they're costing more than $1, some even $40 or $50.

Google and rival Internet giant Yahoo dominate the $8 billion market for search ads, which are sold in an auction setting. So far this year, Google has reported revenue of more than $4 billion, almost all of it from the sale of advertising. "It's a supply and demand marketplace," says Gregg Stewart, senior vice president at search-marketing consultancy Fathom Online. "As more advertisers get involved, that drives prices up."

Rates have risen 18% on average from a year ago, says Dave Lavinsky, who runs a site called TopPayingKeywords.com.

Soaring search ad rates helped Yahoo quarterly revenue shoot up 47% to $1.3 billion. Google's $381 million profit was fueled by a 96% revenue increase, to $1.6 billion, nearly all of it from search ads.

Advertisers love search ads because unlike mass-audience TV or print ads, they are targeted to people who are actively looking to buy. And advertisers only have to pay for an ad if a customer clicks on it.

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