There are two ominous trends developing in Search Marketing right now.

Trend 1: Prices Are Rising

On the one hand, there’s a longer term macro-trend where more dollars are flowing online which is pushing up CPC prices. You can see this first in the growth of online ad spending (from a recent Jupiter study):

And secondly in the growth in CPC prices (from Jupiter):

According to Jupiter, “Sixty-six percent of search marketers said high keyword prices were their biggest challenge in paid search.” Among agencies, 84% say it’s their biggest challenge.

More dollars are flowing online and driving up CPC prices. That’s the macro-trend.

Trend 2: Conversion Rates Are Dropping

On the other hand, there’s a shorter term micro-trend where consumers have less disposable income for purchases. As the economic downturn continues to crush the worldwide markets, consumers are tailing back spending. In other words, there are fewer conversions to be had.

Rising CPC prices and lower conversion rates are a double-edged sword for the advertiser.

Sheathing the Double-Edged Sword

There’s no getting around the fact that this is a bad situation for search marketers but there are products and best practices out there that can help. Getting back to the search marketing basics of ad copy testing and using an automated bid management tool will help keep your CPCs down and automatically lower bids on keywords that no longer convert.

On the conversion side, you can capture a larger share of the shrinking number of conversions to be had by using a landing page optimization tool and running large numbers of A/B and multivariate tests.

Omniture is also doing a multi-city tour both in Europe and across the U.S. to discuss these issues in detail. We will be giving specific recommendations on how to combat the double-edged sword of rising click costs and decreased consumer spending. Hope to see you there.
Good luck out there.