Companies swarming to have their names and ads appear next to Internet search results have created a burgeoning marketplace for search words, phrases and brand names.

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Companies swarming to have their names and ads appear next to Internet search results have created a burgeoning marketplace for search words, phrases and brand names.

Progressive Insurance pays $8.08 each time somebody clicks on its ad after searching the phrase car insurance. Laptop sells for $2.02 a click, while franchise goes for $5 and Internet service provider for $6. Financial help fetches $5.76, although financial advice brings in only $2.72.

The prices for such words and phrases are set through auction-style bidding in which class-action attorneys have run up the word Vioxx to $16.50 a click, while mesothelioma, a cancer caused by asbestos exposure, goes for $39.08.

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With Americans conducting more than 4 billion Internet searches monthly, often while shopping for airline tickets, credit cards and millions of other products, companies are battling for top advertising positions on Google, Yahoo! and other search engines. The competition has become increasingly sophisticated as companies learn how much business they can generate through the ads.

Similar to stocks, the prices of particular words and phrases constantly fluctuate as businesses jockey for top positions.

But the overall market has exploded, with companies ranging from United Airlines to a suburban Chicago teddy-bear retailer spending an estimated total of $4 billion last year on Internet search ads. That’s up from less than $1 billion two years earlier, according to PricewaterhouseCoopers, which studies the market for the Interactive Advertising Bureau.

“It’s done wonders for our business,” said William Burr, owner of S&W Manufacturing in Bensenville, Ill., which makes industrial parts. “We don’t have any salespeople on the street because of that.”

Through an Internet advertising firm, S&W buys search terms such as leveling mount and spring plunger to entice potential customers to its Web site.

Companies such as S&W bid the maximum amount they are willing to pay per click for a particular word or phrase, although those bids are handled differently by the two dominant Internet-search advertising companies: Google and Overture, which is owned by Yahoo!.

At Overture, all bids can be seen, and ad listings are based on who bids the most. For each click, the highest bidder pays 1 cent more than the next bidder.

Google offers a different approach. It does not show bids, and ad listings are based on who bids more and which ads generate more clicks.

“The big brands win out on Google over the little brands,” said Stuart Larkins, vice president of partner services at Chicago-based Performics, which handles online advertising for hundreds of companies.

A retailer with $100 million of online sales will likely bid on 5,000 words, Larkins said. Yet travel companies and Internet giants such as Amazon.com and eBay may bid on hundreds of thousands of words, according to others in the industry.

Small attempts

Still, small firms find ways to get noticed.

Bruce Benton’s firm, Bearly Friends in Highland Park, Ill., bids on more than 1,000 words associated with new babies, romance, birthdays and anniversaries.

While Benton spends hundreds of dollars a day on the ads, he works with Carpentersville, Ill., online ad firm JumpFly to carefully choose terms.

A phrase such as birthday gift, which recently had a high bid of $1.70, could result in a lot of visits to his site, he noted, but few sales.

“I can run up thousands of dollars in clicks in one day, and that’s trouble,” Benton said.

He expressed frustration with competitors who aggressively bid up the prices of popular terms.

“It makes me want to go click it every time I can,” Benton said.

That has actually become an industry problem. Google warns in regulatory filings that click-through fraud could cause it to lose the confidence of advertisers and harm its business.

Google and Overture say they regularly give refunds to advertisers when fraudulent clicks are identified.

While competitors use some other devious tactics, such as “jamming” competitors by bidding 1 cent below their offers so they have to pay the maximum price, advertisers have become more scientific in how they approach the market.

Identifying bids

Companies use software to comb through mountains of data to identify the most cost-effective bids.

The prices of specific terms vary widely by industry.

Fathom Online, which tracks prices of the 500 most-often searched non-brand-name terms in eight industries, found in December that mortgage-related terms sold for an average of $4.79, while consumer-retail terms went for 58 cents. Across all eight industries, the average price was $1.70.

While large companies are using the ads to keep their brand names in front of consumers, smaller firms focus on simply steering traffic to their sites.

Northbrook, Ill.-based Lou Malnati’s Pizzerias, which operates a mail-order business that ships pizza, Eli’s Cheesecake and other Chicago fare, bids on terms such as Chicago pizza and mail order cheesecake.

Dawn Schultz, Lou Malnati’s marketing manager, said her company spends about $500 a month on Internet search ads but doesn’t try to compete with larger businesses by bidding on more general terms.

“We can’t really be in that category,” Schultz said.