Economics of Advertising

Search engine advertising is an industry that has exploded over the past decade, and is the main reason why a company like Google is worth so much money. According to internetstats.com, 80% of all Internet user sessions begin at a search engine, and 55% of all online purchases are made from sites found on search engines. In the first quarter of 2008 alone, Google generated $5.19 billion worth of revenue, the majority of which was from search engine advertising.

The question is, how valuable is search engine advertising to companies, and is it worth all the money they must spend on it? The answer is: very important. As a test, the CEO of a Bingo Card Creator website ranked fifth in a Google search for “bingo cards.” That ranking generated 6,000 unique visitors to his site per month. According to leaked search engine data from AOL, a #1 ranking would increase traffic to his site by 8.5 times, meaning the Bingo Card Creator site would generate roughly 50,000 unique visitors a month.

Search engine advertising is also appealing to companies because it is easy to track and measure how effective their advertising is; every click of the mouse is measured and often times companies advertising through search engines only pay per click. Unlike traditional forms of advertising where it is difficult to hit targeted consumers, with search engine advertising it is guaranteed that you are only appealing to people interested in your product.

There roughly 1.7 billion Internet users worldwide; the vast majority of whom regularly use search engines. It is a vital advertising battleground for industries across the world and will only become more competitive.

This blog post was written by Ware Cady, Stephanie Cohen, Jeanette Elliot and Woody Peek