Search Sits for Its Annual Portrait

It’s natural, at the turn of a new year, to take stock of your progress in life: to see how far you’ve come over the past 12 months and how much you’ve grown, and perhaps to predict what may lie ahead. And what’s true for people is just as natural for the work they do—especially when that work is in a still nascent industry. That’s why the Search Engine Marketing Professional Organization (SEMPO) took the time at the end of last year to send North American advertisers and ad firms its second annual questionnaire about yearly growth in the search engine marketing (SEM) field.

Produced with the aid of Radar Research LLC and Intellisurvey, “The State of Search Engine Marketing 2005” finds that marketers in Canada and the U.S. spent $5.75 billion on all forms of SEM last year. That figure takes in money spent on both paid search ads and search engine optimization (SEO) of Web pages for better “organic” search results rankings; it also includes paid inclusion—advertisers who paid a fee to have their pages indexed by search engines, without ranking guarantees—and the money spent on search-related technology and outsourced services.

The $5.75 billion total is almost a 44% increase over the money those same advertisers laid out for SEM in 2004. And the SEMPO survey concludes that total SEM budgets in North America will hit $11.1 billion by 2010—a higher projection that most other industry observers are ready to make. For example, JupiterResearch predicts that SEM budgets on this side of the Atlantic Ocean will reach only $7.5 billion by the end of the decade.

But according to Kevin Lee, co-founder of SEM firm and current SEMPO chairman, one of the most interesting findings in the report isn’t how big search marketing can get: It’s how big SEO already is. The survey found that 80% of the advertisers polled reported using SEO in 2005, compared to 76% who said they engaged in paid ad placement, and about 40% who said they used paid inclusion tactics during the year.

If you’re surprised that slightly more advertisers chose to optimize, it might be because in terms of budget spending, paid search kicks the daylights out of SEO. That $5.75 billion? About 83% of it went for sponsored search ads: $4.7 billion spent on keyword bids. By contrast, advertisers laid out only $643 million, or 11% of the total spend, to get their pages noticed naturally and ranked higher by the search engine spiders.

Kevin Lee, co-founder of SEM firm and SEMPO chairman, says the disparity is analogous to the gap between marketers’ spending on media ads and their spending on public relations. “Clearly, much more is spent on advertising than on PR, but integrated marketers can argue that both are equally important—that recognition in the press can be as important as an ad,” Lee says. “I think something of the same can be said here.” There’s also a natural limit to the number of optimizers you can sic onto your Web site, whereas a list of keywords and search ad campaigns can grow as big as a marketer’s interest and budget will let it.

Lee believes the SEMPO survey shows a strong undercurrent of interest in optimization, perhaps helped along by the impression that keyword prices are climbing and may eventually impair return on investment. “Some data in the study indicates that advertisers might be nearing their pain points in search term bidding,” he says. “Having spent some time increasing their spend levels on paid search, marketers may be coming back to the idea of getting reasonable good position in organic search without having to pay so much for it.”

Advertisers polled for the survey—as opposed to advertising firms—had an interesting take on the benefits they expected from their paid search ad campaigns. While sponsored listings have conventionally been used as a direct marketing technique, 62% of advertiser respondents named increasing or enhancing brand awareness as their top aim from pay-per-click ads. That’s greater than the proportion of advertisers who named direct online sales of products, services or content (60%) or lead generation (58%) as their primary goals from paid search ads.

Larger advertisers polled—those with more than 500 employees—were even more sold on search branding than the average respondent. Seventy-seven percent of the larger ad marketers said they engaged in paid placement to increase their brand awareness among consumers. Only 49% of these big advertisers said they did it to sell directly online, although 70% said lead generation was a key search ad objective.

Lee suggests that these findings may not refer to conventional ad branding but simply to catching consumers earlier in the purchase cycle than the point of actual online sale. “It’s that early-stage communication where you’re trying to convince somebody that your company is reputable and can do a good job,” he says. “Every marketing manager has in mind not only those customers who have done their due diligence and are ready to buy, but all the people who are just starting to research a purchase. For search marketing, ads to that group fall under the heading of ‘branding’.”

As to where those increased SEM budgets are coming from, most advertiser respondents told the SEMPO study pollsters that they were shifting funds from other marketing and Web development programs, most often naming affiliate marketing, Yellow Pages advertising, e-mail marketing, direct mail and TV spots as the media getting shorted. Only 30% of advertisers said they had created new budgets for SEO in 2005, and even fewer (27%) said they had instituted new budgets for paid search.

Lee says this is typical of the way budgets are handled by the average online marketer. “Relatively few of them are pure direct marketers, so you don’t find many who give carte blanche budgets to SEM—‘As long as I’m getting leads for $50, I’ll money all day long’,” he says. “They’re usually taking from one pocket and putting it into another. What we’re seeing is an evaluation of the relative ROI of these different marketing expenditures.”

Other findings from SEMPO’s “State of the Industry” search snapshot:

* Big names rule: No surprises where advertisers and ad agencies turn first for paid placement: Google (95%) and Yahoo! (59%). The pair lead the paid-search pack, followed by MSN (29%), MIVA (28%), Ask Jeeves (24%), (15%), LookSmart (13%) and Kanoodle (14%). For contextual ads—linked not to search terms but to the content on Web pages— equal numbers of respondents (46%) said they used Google’s AdSense product and Yahoo!’s Content Match.

* Price elasticity: Four out of five advertisers said they could afford a moderate increase in keyword prices, even though 75% of advertiser respondents (and 100% of ad agency respondents) said they paid more for their common search terms in 2005. Among advertisers who said they can spend more, most say those price increases must be 30% or less over the coming two years.

* Click fraud—is it out there?: Two in five advertisers and almost one of every two agencies say they checked for fraudulent clicks in their paid search ad programs in 2005. Sixteen percent of advertisers say it’s a “serious” problem, and 42% say they’ve been victims. But the report’s findings don’t constitute a confirmation of click fraud as a real threat in search marketing: One-third of both advertisers and ad firms say they are not tracking click fraud, although they are concerned about it; and 38% of advertisers reported that they “don’t know” if they’ve encountered illegitimate clicks on their search ads by either competitors or Web operators and affiliates.

While the 16% who claim to have run into bogus clicks is almost three times the proportion who said so in last year’s SEMPO survey, the increase may not reflect an actual rise in fraud. “That’s a hard finding to interpret,” Lee says. “It’s difficult to be sure if more people are experiencing click fraud, or if they’re simply more aware of it and on the lookout.”

* Going local: More than half of all respondents said they have at least tested local search. Of those, 23% reported that it “works great”, 31% found it “okay” and 13% were “unimpressed”. Google AdWords Local Targeting was the most popular program, used by 79% of advertiser respondents and 83% of agencies. Yahoo! Search’s Local Match product was used by 53% of advertisers and 67% of agencies; MSN Local picked up business from 27% of advertisers and 18% of agencies. In general, ad agencies were more likely to turn to the large search engines, while advertisers were more willing to spend with Internet yellow pages directories for local marketing.

* In versus out: When asked who would manage their paid-placement and search optimization programs in 2006, two out of three advertisers said they plan to keep their search marketing in-house rather than outsourcing to an agency. Those results seem counterintuitive: As keyword lists expand, as major new search features and tools are added, and as search algorithms adjustments lead to almost continual optimization, search marketing is becoming more complex every week and should grow beyond the core competence of all but the biggest and most technically savvy marketers. Nevertheless, only 11% of advertisers expect to outsource more than half their SEO work in 2006, and only 13% say they will send more than half their paid search work to an outside firm.

Lee suspects that these findings may be skewed because so many respondents were search professionals within their companies. “They have a vested interest in keeping search in-house, because it means their jobs,” he says. “Senior executives, in my experience, are more willing to ask whether search marketing is so important that it should be outsourced.” He’s asked Radar Research to cluster the responses to the in-house/ outsource questions by organizational level.

That might be the way, Lee says, to find out if the chief marketing officer and the marketing manager differ on who should handle the increasingly complex and increasingly important job of search marketing.

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