*GoTo.com Affiliate Program Pays Web Sites by the Search

Search engine GoTo.com this week unveiled a pay-per-click affiliate program that offers site owners two cents for every visitor they send to www.goto.com.

Affiliate programs are partnerships in which online marketers pay commissions to Web-site owners who send them customers. Under GoTo.com's program, the search engine offers site owners a GoTo.com co-branded search field to place on their sites and then pays site owners for every Internet surfer who uses the search field.

“Web searches are the second most used tool on the Internet and the activity that visitors most frequently leave sites to perform,” said Jeffrey Brewer, president/CEO of GoTo.com, Pasadena, CA.

GoTo.com is willing to pay for visitors because it also makes its money on a click-through basis. Under GoTo.com's business model, merchants bid for keywords –currently anywhere from a penny to $2.70, depending on the category. Whoever bids highest for a given search word comes up first on the results page when that word is used in a search string. Merchants then pay the bid amount for every person who clicks through to their site from a GoTo.com results page. GoTo.com also notifies advertisers when they are outbid and gives them a chance to up their bid and maintain their rank. The company said it doesn't allow companies to bid for competitors' trade names.

“Most of our customers are direct response businesses,” Brewer said. “They track the conversion rate of the leads that we send them. They look at the cost of customer acquisition that they have through other channels. They look at the lifetime value of a customer and [then they] do the calculation [to determine] what the lead is worth.”

The downside of GoTo.com's business model for consumers is, in some ways, its upside. Since whoever can pay the most for a click-through gets the top spot on a results page, the serendipity of other search engines disappears. And, theoretically, the marketer with the highest margin — not necessarily the most relevant offering — wins. However, GoTo.com is less likely to return dead links and no-name sites.

“It pushes down the garbage,” Brewer said. “Whether or not a business is willing to pay to reach a consumer turns out to be a really good indicator of whether or not that proposition is going to be valuable to the consumer. Businesses with the highest margins are the most efficient and well-run companies and, therefore, most likely to have the most relevant offering.”

Launched in June, GoTo.com said it has 4,000 advertisers, including Barnesandnoble.com, eToys, Virtual Vineyards and Multiple Zones International. Web-hosting service providers are currently paying the highest click-through rates on GoTo.com. The company said its site had 3.7 million unique visitors in November.

Unlike Yahoo, searching is not a loss leader for GoTo.com, Brewer said, noting that his company makes money only when people leave the site (it accepts no banner advertising).

“GoTo.com actually is a portal,” said Melissa Bane, senior analyst at The Yankee Group, Boston. “They are very much a doorway and they're sending you someplace else.”

The Yankee Group now calls Yahoo, Excite and other former search engines media sites, she said. “They don't want you to leave their Web site. They'd like you to stay forever [to generate CPM banner-ad revenue].”

More than 1,000 Web sites have signed up for GoTo.com's pay-per-click program since it launched in December, said Brewer, who predicted the program will rival affiliate pioneer Amazon.com's program with more than 100,000 partners within six months.

“A search engine is a much more horizontal offering and will be relevant to a far broader range of topics than a bookstore or a CD store,” he said. As a result, affiliates will likely be able to drive more traffic to GoTo.com than they could to a bookseller or a CD merchant, he said. “Amazon.com has kind of paved the way for us by introducing this [affiliate program] concept to people.”

GoTo.com is paying its affiliates in $25 increments. The program is being administered by Be Free (www.befree.com), which administers bookseller Barnesandnoble.com's affiliate program.

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