Jupiter Research and SEMPO (the Search Engine Marketing Professional Organization) have released results of separate surveys providing one of the most detailed looks yet at current practices and advertiser spending in the search marketing industry.
Both reports attempted to quantify where search marketing budgets were being spent and who controlled that spending. Beyond that, each report looked at the SEM industry with a different focus.
Jupiter Research Search Engine Marketing Agency Constellation
Jupiter's primary goal was to understand the relationships between marketers and the search marketing agencies that they worked with. The report sought answers to four key questions: How many marketers are using SEM agencies, and how satisfied are they with these agencies? How much are marketers paying SEM agencies, and which fees structures are they choosing? Which key attributes differentiate SEM agencies? Which SEM agencies have emerged as leaders in paid search and organic optimization?
Jupiter conducted a formal review of fourteen search marketing agencies, and a survey of 538 search engine marketers to explore strategies, attitudes and expectations of market-driving companies regarding SEM practices.
A key finding was that 31% of search marketers use an agency to manage their SEM campaigns. However, those marketers account for 51% of the total spending on paid search, a significant increase over the past 18 months.
The report also said that there's an widening gap between "sophisticated" and "unsophisticated" search marketers, and that over time the sophisticated marketers will dominate the industry.
A hallmark of a sophisticated firm is its use of technology. "The SEM agencies that have built their own bid management and campaign tracking tools, and that use extensive data to create campaign strategy, are typically able to generate better results for their advertisers," said Jupiter Research Associate Analyst Nate Elliott.
Who are the leading agencies in the search marketing field? According to the Jupiter Research report, Decide Interactive/24/7 Search, Did-It.com, Impaqt, Performics and AvenueA/Razorfish Search are closely grouped for top ratings in paid listings management. iProspect and Impaqt were the top ranked vendors in organic optimization.
SEMPO's State of SEM Report
SEMPO's survey looked at many more factors than the Jupiter report, attempting to understand both the current size of the search marketing market, and how budgets were divided among different types of activities. In the past, similar studies have focused primarily on the paid placement market. SEMPO looked at all aspects of search marketing, including paid placement, organic search engine optimization, paid inclusion and search engine marketing technology platforms.
The SEMPO report's methodology was similar to Jupiter's, drawing conclusions from a survey of 288 search engine advertisers and marketing agencies as well as in-depth interviews with 31 leading industry experts.
A key finding was that advertisers in the U.S. and Canadian market will spend $4 billion dollars this year on search marketing programs. That figure comprises payments to search engines and search-related media companies, search engine marketing agencies as well as in-house expenditures.
The report breaks down advertiser spending for 2004 in several areas. $3 billion is expected to go to "search media" companies such as Google, Overture, FindWhat and Kanoodle. $618 million will be spent on SEM-related in-house expenses within advertising corporations.
Search marketing agencies and tool vendors get a much smaller share of the spend, with $380 million to agencies and $30 million in SEM technology licensing fees.
The report also looked at spending by type of activity. Marketers will spend (including both in-house and external media, service and licensing expenses) $3.3 billion on paid placement campaigns, $492 million on organic search engine optimization, $182 million on paid inclusion, and $72 million on SEM-related technology services.
The figures for organic search optimization and paid inclusion show that there's still a strong demand for "traditional" SEO activities. This suggests that pressure on editorial listings will continue to be strong, and may in fact get stronger as paid placement costs continue to rise.
This raises the question of whether Google and the other major search engines will continue to essentially ignore the traditional optimization community while lavishing attention on paid advertisers and those willing to participate in paid inclusion programs. There's now clear evidence that the traditional SEO community is a powerful force in the overall mix of search engine marketing, and as keyword inflation with paid placement programs continues to rise, traditional SEO is likely to become even more important.
Other notable findings from the SEMPO report include:
Keyword inflation continues apace, but ROI is still acceptable to most search marketers. Advertisers said on average they have witnessed bid prices rise 26% in the last 12 months for keywords they commonly buy but said they could tolerate on average another 33% increase in the price and still make a profitable transaction.
Brand awareness was overall the #1 objective advertisers set for search marketing programs, just beating out sales and lead generation initiatives. This finding is surprising, given the widespread perception that most search marketing is transaction-oriented, with conversion (sales, registrations, etc) being the ultimate goal.
Advertisers plan to spend more next year. On average, advertisers said they plan to spend 39% more on all search marketing programs (organic SEO, paid placement, paid inclusion and SEM technology) in 2005 compared to 2004. SEM agencies were much more optimistic, forecasting a 79% increase in spending on average.
Search marketing is poaching funds from traditional advertising budgets. Only 41% of advertisers reported that SEM budgets were newly created funds for this purpose; the rest said SEM budgets were coming in whole or in part from shifts away from traditional or Internet marketing programs. The biggest losers were paid listings on shopping directories, email programs, web display advertising and print magazine and newspaper ads.
The shift away from shopping directories is surprising, given the amount of traffic growth the major shopping search portals have experienced this year. I wrote about this strength in my series on shopping search engines earlier this month.
Search marketing is a higher priority for advertisers at smaller companies. 50% of advertiser respondents said that senior executives from considered the company's search marketing initiatives a "high priority." The number drops to 32% with companies with staff sizes larger than 500.
In contrast to Jupiter's findings, the SEMPO report found that most advertisers plan to manage the majority of their search marketing spending in-house rather than using an agency. On average, advertises said they would outsource 28% of their spending on paid placement and 29% of their organic SEO through agencies. Large advertisers were likely to outsource more, but still intended to direct most spending for both organic SEO and paid placement toward in-house efforts.
The click fraud issue is on the radar of search marketers, but it's not yet perceived as a major issue. About 25% of respondents have tracked fraud as a problem and of those, 6% say it's serious. On the opposite end of the spectrum, another 25% do not believe click fraud is a problem. 45% said that they are concerned but not tracking actual fraud.
A Bright Outlook
Both reports see a bright future for the search marketing industry, with plenty of room for growth. "Ultimately, it's going to be good news for agencies because it is so complicated," said Rick Bruener, who conducted the SEMPO research.
"As search marketing grows in complexity and advertisers increase their search budgets, we expect the market for SEM agencies will continue to expand," echoed Jupiter's Elliott.
Jupiter's findings are summarized in a press release; the complete report is available only to Jupiter Research clients.
A summary of SEMPO's findings is publicly available on SEMPO's web site. A complete copy of SEMPO's research is available to all SEMPO members and research participants.
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