State of the Search Marketing Industry 2004

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.

A longer version of this story for Search Engine Watch members describes additional findings from the SEMPO report, including how search marketing budgets are poaching funds from other types of advertising, attitudes and concerns regarding the paid listing click fraud issue, and a finding that stands in opposition to one of the key findings in Jupiter's report. Click here to learn more about becoming a member.

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,, 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.

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.

Want to discuss or comment on this story? Join the Quantifying Search Marketing Spending discussion in the Search Engine Watch forums.

A longer version of this story for Search Engine Watch members describes additional findings from the SEMPO report, including how search marketing budgets are poaching funds from other types of advertising, attitudes and concerns regarding the paid listing click fraud issue, and a finding that stands in opposition to one of the key findings in Jupiter's report. Click here to learn more about becoming a member.

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About the author

Chris Sherman is a frequent contributor to several information industry journals. He's written several books, including The McGraw-Hill CD ROM Handbook and The Invisible Web: Uncovering Information Sources Search Engines Can't See, co-authored with Gary Price. Chris has written about search and search engines since 1994, when he developed online searching tutorials for several clients. From 1998 to 2001, he was's Web Search Guide.