SEMPO, the Search Engine Marketing Professionals Organization, has released the results from its annual "State of Search Engine Marketing 2006" report.
North American advertisers spent $9.4 billion on search engine marketing (SEM) in 2006, up 63 percent over the $5.75 billion spent on search in 2005, and beating last year's estimate of $7.2 billion. Spending is projected to grow to $18.6 billion by 2011 in North America, driven by strong advertiser demand, rising keyword pricing and cost per click, a second wave of small-to-midsized businesses discovering the efficacy of search and better search technology. That's a significant increase from last year's projection of $11.1 billion in 2010.
Out of the total 2006 spend, $8 billion, or 86 percent of that going to paid search, and $1.1 billion, or 12 percent of overall spending to search engine optimization (SEO). Spending on SEM technologies, including leasing, agency solutions and in-house development, accounts for 1.3 percent of overall spending, or $122 million; and paid inclusion accounted for 1.0 percent of spending, or $94 million.
The spending does not correlate with adoption in each case, since most companies tend to spend decidedly less on their SEO efforts, but are committed to engaging in SEO at some level. More than 76 percent of respondents take part in organic SEO activities, and 71 percent do paid search. Participation in paid inclusion is waning, with less than 20 percent of respondents taking part, compared to 40 percent in 2005.
Measurement Now Matches Goals
Since SEMPO began conducting this report in 2004, a large number of search marketers have said that both branding and direct response (DR) were goals, with branding usually topping DR slightly in the polls. This year, DR caught up, and even beat out branding as the top objective, albeit slightly. Respondents could pick multiple responses to describe their spending motivation, and direct sales was the top choice, at 58 percent, followed by brand awareness at 57 percent.
This year also marked the first time a significant number of marketers have said they're measuring branding impact, instead of relying on DR metrics to support branding efforts. Only 21 percent are doing so, but it's a step in the right direction, said Kevin Lee, member of the board of directors of SEMPO and chair of its research committee. Very few are using longer-term metrics such as branding or site stickiness, or correlating search behavior to other advertising programs such as TV advertising.
"Year after year, there's been a cognitive dissonance between marketers saying they want branding, but are measuring direct response," Lee said. "Before, they were talking the talk. Now they're actually trying to attribute search's value to brand awareness."
The majority are still focusing on direct response metrics. More than 73 percent of respondents said they track increased traffic volume, 71 percent measure conversion rates, and 68 percent track click-through rates.
Search Poaching Budget from Offline Media
More than a third of advertisers (36 percent) report their funding for paid placement programs and organic SEO came from newly created budgets in 2006. The good news for search marketers is that search marketing is now poaching budget from offline marketing channels, instead of fighting for a share of the much smaller online budgets. Hardest hit was print magazine advertising, with 20 percent of respondents reporting a shift; followed by direct mail at 16 percent; TV advertising at 13 percent; and print newspaper advertising at 13 percent.
Search is not a threat to these offline media just yet, but if it continues on the current trend, it won't be long before offline media companies take notice, Lee said.
"It's material to us, but not to them -- yet," he said. "They're definitely taking notice, but they’re not feeling a hit."
Microsoft is gaining on Google and Yahoo, with 68 percent of respondents using MSN last year, up dramatically from the 29 percent of respondents doing so in 2005. Google AdWords continues to dominate, and is used by 96 percent of respondents. Yahoo was the second most popular search advertising program, with 86 percent of respondents participating.
Another development, which was also reflected in a recent study from Marketing Sherpa, was the increasing tendency for companies to bring some or all of their SEM efforts (paid and organic) in-house. That's a trend that began showing up in SEMPO's 2005 study as well.
"Search marketers need to prove their value to clients to continue charging at the levels they're used to," Lee warns.
Admittedly, the in-house trend could be a self-selection bias, resulting from more in-house marketers responding to the survey. "If you ask an in-house search marketer if they want to bring more in-house, of course they're going to say yes," Lee said. "But even if the bias is there, agencies need to be heeding this data. Those in-house marketers have the ears of their bosses, and can influence the decision to bring more in-house."
SEMPO plans to further segment the data to get a better idea of the extent of this trend, he said.
The industry-wide survey of 587 respondents was conducted by Radar Research and Intellisurvey in November and December 2006. Another report on the search industry, currently being conducted by JupiterResearch and the ClickZ Network, is collecting data until Friday, February 9. All search marketers are invited to participate in this short, 25-question survey, in exchange for a copy of the aggregated survey results, and a chance to win a $50 gift certificate from Amazon.com.
We report the top search marketing news daily at the Search Engine Watch Blog. You'll find more news from around the Web below.
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