When Tom Telford helped found a vacation rental management company, Blue Creek Cabins, in 2001, he wanted a quick and easy way to connect with people looking to rent the 20 cabins he and his partner managed in and around the mountains of picturesque Helen, Ga.
That is when he heard about a program called AdWords being offered by a new company, Google. Finding the system relatively easy to use, Telford selected a few keywords, like “Helen GA cabin rentals," and agreed to pay Google 60 cents every time someone performed a search and clicked on his ad.
Before long, the calls and emails started pouring in. “The results were phenomenal," said Telford, whose company is used by property owners to market their cabins. Encouraged, he invested more in his pay-per-click advertising efforts, which in time included similar programs offered by Bing and Yahoo.
By 2010, Telford had started a new management company, Cedar Creek Cabin Rentals, and was spending $140,000 a year on pay-per-click advertising to promote the 45 cabins in his charge. The programs had become increasingly popular and competitive, which meant that in order to retain his ranking in search results, he had to pay about $1.25 a click, double what he had paid initially. “The cost per keyword climbed dramatically over the years," he said. “And it’s still going."
And that is a problem. While Telford agreed to pay more for his keywords, he said he did not see a commensurate increase in sales. “For a while, I was spending more than I was getting," he said. “It finally hit me to ask, ‘Can I sustain this?’"
This concern has become increasingly common as online advertising has become a standard channel for large companies.
Attracting those additional advertisers has been great for Google, which reported a 42 percent increase in paid clicks, year over year, for the second quarter of 2012. But the heightened competition has driven up the prices for keywords and made it harder for small companies like Telford’s.
While about 96 percent of pay-per-click advertisers spend less than $10,000 a month, according to AdGooroo, a research firm that studies the pay-per-click market, big-budget advertisers spend hundreds of times more. In the first half of 2012, Amazon reportedly spent $54 million, and the University of Phoenix $37.9 million.
“AdWords can bleed many a small business dry," said Sharon Geltner, an analyst at the Small Business Development Center at Palm Beach State College in Boca Raton, Fla.
Asked if rising prices were driving small businesses away from pay-per-click programs, a Google spokesman released a statement saying that businesses needed to go where their customers were: “search, social media, earned media and more."
Many analysts agree. “AdWords is still doable and reasonably profitable for local businesses or those that have narrow niches and high barriers to entry," said Perry Marshall, the author of “Ultimate Guide to Google AdWords." “But you cannot put all your eggs in one basket. The ultimate goal for any business should be to drive as much unpaid traffic to their site as possible."
The increased demand for unpaid, or organic, search results has given rise to an entire industry specializing in search engine optimization, or SEO, with countless professed experts who promise to improve a website’s search ranking.
Telford said he was approached by dozens of such experts. “My competitors were inching up in organic traffic because I wasn’t doing anything," he said. “But I also wasn’t comfortable hiring an SEO expert, because none of them could explain exactly why what they were doing would work. It felt like they were selling me black magic."
Telford wanted a tool that could help him manage both his social media content and his pay-per-click expenditures, which he planned to continue on a much-reduced basis. After conducting his research, he chose to sign up for the services offered by a company called HubSpot, which is based in Boston.
Available online as software-as-a-service, HubSpot helps business owners set up a blog and optimize it to be recognized by search engines. The site, which has more than 8,000 customers, most of whom pay $200 to $1,000 a month, helps users populate and manage their Twitter, Facebook and LinkedIn accounts, along with any pay-per-click campaigns.
Even though Google is one of its investors, HubSpot cut back on its own pay-per-click expenditures after realizing that organic searches were accounting for 60 percent more traffic than paid searches.
“Most of our paid efforts shifted to platforms like LinkedIn, where we could target for the right kinds of job titles in line with our target customer profiles," said Dan Slagen, who is in charge of advertising at HubSpot.