Paid-performance text advertisements seem to have come from nowhere to be one of the cornerstones of the web economy over the last few years.
While established web portal companies including Ask Jeeves Inc and Yahoo! Inc are admitting that their ad sales are being propped up by paid placements, the companies that aggregate these ads are blowing away earnings estimates at a time when profit warnings and layoffs are the order of the day.
Overture Services Inc leads the market for aggregating these text ads. Using the system, advertisers say how many cents they are willing to pay to have their links appear next to a keyword, and pay when a search engine user clicks on the link.
Overture splits the revenue with portals that carry its listings and yesterday reported its sales rocketed 138% and its net income 88% in the third quarter, as the number of paid introduction click-throughs it facilitated increased by about half to 500 million.
Likewise, on Monday Overture’s largest public competitor, FindWhat.com Corp, reported revenue up 102% and pre-tax net income up 348% for the same period. FindWhat said its paid introductions numbered 60.8 million up 69% on 2001.
Overture reported net income for the quarter to September 30 of $16.9m on revenue of $172.7m, while FindWhat reported income of $1.8m on revenue of $11m. FindWhat has 18,500 advertisers on its books, compared to Overture’s 73,000, and fewer larger portal partners. FindWhat recently predicted 40% annual revenue growth in 2003.
The success of these firms is ascribed to the performance-based payment model. Unlike banner ads and the unpopular CPM payment model, if an advertiser does not get a click, they do not pay. This has made paid listings popular among thousands of medium-sized business, which has driven volumes up.
Last week, Yahoo!, which uses Overture’s listings service, said its advertising business grew 22% in the third quarter, only the second period of growth after over a year of shrinkage, primarily a result of an increase in revenues from small-to-medium sized companies realized through Yahoo!’s sponsored search services.
Ask Jeeves also credited paid listings, which it is provided with by privately held Google Inc, for part of the growth of its web revenues. The company last week highlighted strong performance of paid listings as one of three items that helped its advertising business during the third quarter.