Although the Internet as we know it has been around less than ten years, the concept of linking advertising to searching has been around even less.

The closest anyone had come to linking the two before 1998 was running banner and button ads on the front page of search engines. In fact, that was how most search engines made their money. That's until a company called GoTo launched in early 1998. GoTo was just like a search engine, but with a twist - they put their search results up for auction to the highest bidder. This meant that people with Web sites could bid for premium placement on certain search terms. When a user typed in something like "pets" in to GoTo's search engine, the person who paid the most money to be associated with that link was displayed first. Every time the link was clicked, the webmaster was billed however much they had bid on the keyword or phrase. (Top bids on GoTo key phrases can range anywhere from a penny to several dollars per click. The most popular keywords generally don't go for any less than 25 cents.) The person who paid the second-most was displayed second, and so on, until there were no more paid results for that category. GoTo then used the Inktomi search engine to round out search results for unbid terms.

GoTo's Exploding Popularity
The popularity of GoTo quickly exploded, mainly due to strategic partnerships the company forged with highly-trafficked search destinations like MSN, AOL, and AltaVista. Today the company claims their search results reach 75% of all Internet users.

But why would people use a search engine where people paid for placement instead of relevance? The answer lies in the sheer size of today's search engines, many of which have been overloaded with spam. With paid directories, users know they will visit a Web site that is truly associated with their keyword. In addition, GoTo employs more than 60 human editors to review every link submitted by webmasters to make sure the site and keywords are relevant.

GoTo's progress made advertisers happy without causing a significant backlash amongst users of search engines. Big Web sites could spend large amounts of money to reel in targeted audiences, users got relevant, quality search results and even smaller webmasters could establish marketing budgets. GoTo's success has attracted competitors, but it has maintained its market leader. Its closest competitors are Sprinks (owned by About.com) and Findwhat. The latter has recently inked a deal to place its search results on Excite.

It's Not Easy Being Small

In spite of the growing consumer acceptance of paid results, the climate for small advertisers may not be as sunny as it first seemed. In early March 2001, every GoTo advertiser received the following e-mail:

Dear GoTo Advertiser:

Over the last 2 quarters, we have signed a number of big traffic deals with premier Web sites which has resulted in even more targeted traffic to your site. These traffic deals have increased our costs and as a result we're implementing a modest price increase. Effective today, March 1, 2001, two new price increases will affect the GoTo marketplace.

Pricing Change to Your Account:

The first change is a minimum bid requirement. As a result, all bids for new listings created after March 1st will need to begin at a minimum of 5 cents.

The second change is a minimum spend requirement. Effective March 1st all new accounts will be required to spend a minimum of $20 a month in clickthrough charges. Accounts with a monthly spend of less than $20 will be charged the difference between their spend and the $20 minimum…
The reaction from small-budget webmasters was immediate. "We can't afford to pay a minimum of five cents for every visitor who comes to our site - after all, 99% of them don't buy anything," wrote one webmaster on SitePoint.com, a popular Web development site. "We're a non-profit making literature site… we could pay one cent and pay for it through the odd Amazon affiliate link on our site, but 5 cents?"

"It's pretty disgusting how progressively all search engines start to have programs and you've to pay to be well listed," wrote another.

Investing in Higher Capacity Servers and Editorial Oversight
So why the sudden change? It's largely because companies have suddenly become fiscally accountable since the recent dot-com. Investors want to see returns, and they want to see them fast. By imposing spending minimums, GoTo can immediately start pulling in more cash, while at the same time avoid having to waste time on thousands of bids where webmaster are only paying a penny a click-through.

Jay Gallinatti, Executive Vice-President of GoTo.com's Advertiser Business Group, says the bottom line was simply money. "It's the cost of doing business… we need to get to profitability," he says. And while GoTo can now claim their results reach 75 per cent of all Internet users, that has also come at a price for the company. Meeting the technical demands of an AOL or a Lycos is an expensive proposition. You need servers and connectivity that can keep up with the massive infrastructure of major search portals. "The investment is significant," he says.

Danny Sullivan, editor of Search Engine watch, a popular online publication about search engines, says imposing spending minimums makes sound financial sense. Sullivan is widely considered the authority on the subject of search engines, and holds conferences on the matter worldwide. "Every search service is going to have to know how it intends to make money, and leveraging site owners is the leading way," he said in a recent e-mail. "Is it a real concern? Not much. The Internet has artificially allowed businesses to exist on a shoestring," he says. "If your business cannot afford the one time $199 fees that Yahoo and LookSmart request, then perhaps you shouldn't be doing business." Five cents, he says, isn't a big deal for most companies. And Gallinatti says GoTo.com is now taking aim at webmasters and companies who can spend at least $250 U.S. per year.

"It was a fair price relative for the service we're providing," Gallinatti says.

With the introduction of GoTo's spending minimums, every major search portal on the Internet now has a paid inclusion program of some sort. Most businesses must shell out $199 (U.S.) to be even considered for Yahoo!'s directory, an extremely lucrative source of traffic if accepted. The same goes for LookSmart, Excite, Altavista and Inktomi, a search engine that fuels the results of a number of portals including Canada.com. Even Google, widely considered the champion of the free search, recently introduced a webmaster advertising system.
This poses a problem for most small-time webmasters, many of whom can't afford to submit their site to one of these programs, never mind all of them. And while most search engines and directories still maintain a free submission service, they all admit that sites submitted via their free service might never be visited by a spider.

Hobbyists Losing Ground
Sullivan says he's concerned about these "hobbyists" and what will become of their sites. He believes a significant portion of these hobbyists "produce quality information as a hobby or in their spare time." It's important, he says, that these sites don't get lost in the shuffle. "We haven't yet seen provisions to better ensure they get listed, but these same people aren't really running businesses, so expending money on listing services is harder for them."

The problem, however, is that if webmasters can't list with paid directories, they have to rely on search engines for traffic - and most everyone knows that that search engines are in dire straits. A July, 1999 study published in Nature magazine reiterated what webmasters had been screaming for years: that "search engines do not index sites equally, may not index new pages for months, and no engine indexes more than about 16% of the Web. As the Web becomes a major communications medium, the data on it must be made accessible." Compare that to a service where an army of human editors reviews every link and its pertinence, and it's no wonder frustrated surfers might change their surfing ways. So if webmasters can't get any traffic from search engines, and don't have the money for paid search services, where do they go?

Is Pay-for-Placement Inevitable?
If webmasters want any sort of search traffic at all, they might soon have little choice but to choose paid search services. "At some point it gets impossible… to keep up with the volume of new content on the Web," Gallinatti says. And while that's bad for search engines, that's good for GoTo. "We want to be the small advertiser's best friend," he says.