ClickZ has an interesting article today that outlines the rising costs of online marketing.

Jupiter Research estimates that a total of $7.6 billion will have been spent on various forms of online advertising by the end of 2004, a twenty percent increase over online spending in 2003. Europe will see a growth of thirty-five percent over 2003 numbers by reaching $2.8 billion.

Not surprisingly, the majority of those advertising dollars went to the search engines to purchase keyword and contextual text ads. Programs like Google's AdWords and AdSense and Yahoo!'s Overture PPC programs allow both large and small businesses to target Internet users when they are actively searching for products online.

The growth in PPC advertising is expected to continue at a dramatic rate through 2005 as more and more businesses discover the effectiveness of this type of advertisement. The question that comes into play is whether or not that level of growth can be sustained. On one hand, keyword based advertising presents a virtually limitless inventory. There are so many subtle variations of words and phrases that are used in search that a creative advertiser can nearly always find new phrases to bid on. On the other hand, the most effective phrases are usually discovered very quickly and the prices for those phrases can skyrocket when more than one company competes for the top position. Rising ad prices lower margins and many small businesses simply don't have the stamina to survive a bidding war.

What will be required of business owners is the foresight to find and hire competent ad managers. Simply building a list of keyword phrases and setting up bids isn't going to be enough to create success as the level of competitors grows. Small businesses in particular will need to pay close attention to their margins and will need to dedicate significant resources toward testing and refining campaigns to keep margins high enough to justify ad costs.

Seeking out second and third tier advertising outlets is one way to go. Smaller ppc players are often ignored by the larger businesses, as they have larger budgets and can more easily swallow the high costs that are associated with competitive phrases at the major outlets like Google and Overture. Small businesses that take the time to advertise with engines like Espotting, FindWhat, Enhance and Kanoodle often find lower prices and strong traffic sources.

Ultimately, ppc advertising is one of the best ways to weed out the frugal spenders from those simply attempting to buy their way to the top. Companies that are willing to put forth the effort of testing and refining their campaigns will be able to increase ROI, allowing them to run long-term campaigns that provide a steady stream of new customers.

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