The search industry still has growth potential, particularly away from the top tier in the local arena and in specific verticals. But to take advantage of those opportunities, search players big and small will have to do something substantive to settle their click fraud and search privacy issues, and will also have to find a way to make search marketing easier for advertisers.
Those are some of the top-line conclusions of a pair of studies on the future of search engine marketing (SEM) from market research firm eMarketer. Published in two parts in late February and then earlier this month, the study finds that while Google and Yahoo! may be grab most of the spotlight, the growth in spending and usage is more likely to come from niches such as local search.
The first eMarketer study, focused on spending and metrics, reports that paid search ad spending can be expected to grow by 26.2% this year, and then by smaller annual increases through 2010: a 16.4% boost in 2007, 16.3% in 2008, 15% in 2009 and 11.8% by the end of the decade.
Those diminishing growth rates compare to much larger spending increases in search marketing’s early years: a whopping 174.3% jump in 2003, 51.4% in 2005, and 33.2% last year. Obviously, as Google CFO George Reyes pointed out in February, the law of big numbers applies, and the fast-growing search marketing industry is in for lower growth. And eMarketer projects that total paid search ad spending will remain very healthy, reaching $6.5 billion this year and $11.3 billion by 2010.
Those spending increases still represent healthy growth that any other ad channel would love to see, says eMarketer senior analyst David Hallerman, who authored the two reports. “Reyes’ comment is really on target and a good thing,” he says. “When paid search appeared at the beginning of the decade, it seemed like a fad. Growth is leveling off but at a really nice level, and healthy growth—rather than outlandish growth—is a good sign.”
The law of large numbers also will apply to the proportion of online ad spending that paid search will attract. While that dollar figure will remain high, its rank as a percentage of online ad spending will sat flat to slightly down, from 41.5% this year to 39.5% by 2010. Meanwhile, spending on rich media will grow from 11.5% of online ad budgets today to 18.5% in 2010, according to eMarketer’s projections. Rich media will see a 46.1% spending increase this year, and slightly smaller annual increases heading out of the decade to reach 25.3% in 2010—most of that due to the advent of online video ads.
Nevertheless, even with growth like that, rich media spending will only hit $5.3 billion by 2010—less that half the total outlay that paid search will attract in that year.
Low growth ahead will drive search engines of all types to concentrate on improving the search experience with better targeting and more relevant results, Hallerman says. He points out that 20% of Internet users now don’t use search—a market pool of new users that the engines could tap into with better products or services.
And as more users spend more time looking for content online, their needs will become more complex, and search marketers will expand their keyword campaigns to accommodate that growing complexity. “People learn from experience that their searches have to become more detailed and more refined,” Hallerman says. “For that reason, the bidding on keywords ahs to become more detailed and more refined too. That’s why the average number of keywords in campaigns has been on the rise, and it’s also one reason why search engine marketing might be the single most complex form of advertising around.”
Branding campaigns will also grow to include a search marketing component—either paid search ads or at least enough optimization to make sure a brand’s Web site ranks high in search results for its product categories. Part of the driver here will be increased Web traffic and awareness, but Hallerman points out that brand protection will also play a part. The more likely your competitors are to have an optimized Web presence and paid search ads, the more it behooves you as a marketer to make sure customers can find you, too.
The second half of the eMarketer industry report looks at search marketing’s major players and potential issues. Among the players, Google grabs the lion’s share of paid search spending in the U.S.—57.2% of the market this year, minus traffic and acquisition costs. That’s way beyond the 27% eMarketer predicts runner-up Yahoo! will command.
Part of Google’s dominance in the search marketing space comes from its talent for monetizing search. Data from comScore Media Metrix shows that Google had about 75.3 million unique visitors in October 2005, while Yahoo! had 68 million. Those comparable totals suggest that Google’s strength lies in getting its visitors to conduct more searches per visit than its competitors and thus see more paid ads per visit—and thus again, be more likely to click on those ads, earning revenue for Google.
“As [analyst] Charlene Li of Forrester Group said, Google is a one-trick pony,” Hallerman points out. “But it’s a helluva cute pony, and they’re riding it well.”
But that doesn’t make Google synonymous with the search industry. Twenty-eight percent of U.S. adult Internet users use only Yahoo!, MSN or AOL for their searches. And Nielsen//NetRatings figures show that in December 2005, 954,000 U.S. searches took place outside the Big Three of Google, Yahoo! and MSN—a 37.7% increase in small-engine searching from December 2004.
So even small marketers should not overlook the added reach that they get from advertising outside Google and its ilk, Hallerman says. Those smaller engines, including Ask.com, Miva and Kanoodle, can drive traffic at lower costs than the dominant players.
Meanwhile, for reasons of corporate strategy, Google will have to find ways to grow its revenue beyond the classical paid search model. They’re doing so by bulking up their offerings in local search, online classifieds and video marketing.
Local search in particular will grow to be a bigger proportion of paid search spending; eMarketer projects that by 2010, nearly one in every five dollars spent on paid search will go local, up from only 8.8% of spending this year. Local search ad spending will break the billion-dollar barrier in 2008, Hallerman says, reaching $1.27 billion.
But while the search engines are working to roll out products that will appeal to small businesses on the Internet, most notably pay-per-call features, still much of that local search spending will come from deep-pocketed national or regional businesses with local presence, such as retail chains that want to be found in local searches, Hallerman says.
So much for the primary growth drivers. When it comes to growth inhibitors and the search marketing industry, eMarketer spots two on the horizon. One is click fraud, which Hallerman says can be a stumbling block to getting advertisers to commit to more search marketing.
“If not brought under control, click fraud could challenge the basic business model of paid search,” Hallerman writes in the second half of the eMarketer report. “Disenchanted search advertisers would follow, leading to lower bids, smaller paid saerch campaigns and –among savvy marketers—greater investment in search optimization.” The report points to recent findings by the Search Engine Marketing Professionals Organization (SEMPO) that 42% of all online advertisers and agencies say they have experiences click fraud, and that 22% of those who’ve fallen victim say they were not recompensed by the paid-search provider for those bogus clicks.
The answer may be for the search engines to find ways to alleviate the pain by making their compensation processes more transparent. “[Click fraud] is going to be an ongoing problem, like e-mail spam,” Hallerman says. “I think the pressure from advertisers for more give-back will teach the engines that they need to be more responsive to advertiser problems.” In Google’s specific case, he says, the company may have to forego its penchant for a tech solution and incorporate more human monitoring of clicks to spot fraud.
And if click fraud threatens advertisers’ trust in paid-search marketing, privacy concerns could erode public faith in general search, Hallerman says. How big an issue keeping one’s searches secret becomes depends in part on whether the story develops media legs, he admits. If the recent court decision to deny the Justice Department access to Google keyword logs damps down future attempts to subpoena massive search databases, the problem might not flare up again. But in any case, Hallerman says, the public has a low-level concern that its search traffic might be made public. He cites a June 2005 survey by The Conference Board and TNS NFO which found that 57.8% of U.S. online households said they were “somewhat” or “extremely” concerned about their security when using search engines.
“This may not be an active problem today, but the seeds for long-term erosion have been planted,” Hallerman writes. If some portion of those searchers opted to reduce their online search behavior as a result of a high-profile exposure of their data, that could put a serious dent in the growth of the search marketing industry.
Fighting it out in the courts is one way to protect that growth potential, he adds. “But having no data connected to individuals (and their IP addresses) would be an even safer way for the Googles of the world to protect privacy, and their bottom line.”