Divining the Future of Search Advertising

What does the future hold for search advertising? Thousands of people attending the recent Search Engine Strategies Conference in New York packed the conference hall to hear Danny Sullivan explore this very topic with executives from Google, Yahoo, AOL, MSN and Ask’s IAC.

A special report from the Search Engine Strategies conference, February 27-March 2, 2006, New York, NY.

A longer version of this story for Search Engine Watch members offers insights from the major players into new pricing models, new distribution channels that are likely to open up new opportunities for exposure in the coming months, and the lowdown on how serious click fraud is and what the advertising providers are doing about the problem. Click here to learn more about becoming a member.

The first question Danny posed focused on the astonishing growth of the search marketing industry in recent years. “Have we hit the ceiling?” he asked.

Gerry Campbell, vice president and general manager search and navigation at AOL, pointed out that with four major search ad networks (Google/AOL, Yahoo, MSN and IAC) advertisers now have more options than ever before. And, these options have created greater price variance in the market, providing savvy advertisers the opportunity to find increasingly better deals. He also explained that as Web content grows, so does the available ad inventory. “The growth rate might be slowing… but we definitely haven’t hit the ceiling,” said Campbell.

Tim Cadogan, vice president of search at Yahoo Search Marketing, said he feels that the market is still heavily dominated by smaller advertisers. However, as more large companies and consumer packaged goods (CPG) firms increase their level of search advertising a new wave of growth will occur. These companies are different from smaller firms in that they “view search advertising as part of a multi-channel strategy, focusing primarily on offline conversions,” added Cadogan.

The Role of Traditional Ad Agencies

Many in the audience took particular interest in Danny’s next question. “As the industry continues to grow and mature, what is the role of the ad agency in all of this?”

MSN’s David Jakubowski said that as the industry becomes more complex, agencies will become increasingly more important. Yahoo’s Cadogan described the industry as “an eco system with many different roles and room for all types of specialists. The value chain will keep expanding as the market matures.” AOL’s Campbell agreed, stating that “the industry is in the middle of a transformation.”

Meanwhile, Google is watching Madison Avenue very closely. Armstrong said that traditional marketing agencies now realize that search engine expertise is required to maintain a competitive advantage. To this end, agencies are looking to partner with or acquire firms that have strong search expertise.

IAC’s Speer added that, on the other hand, “Madison Avenue brings some valuable skills and experience to our young industry. Things like cross-channel integration and reporting.”

Integration with the Marketing Mix

Next, Danny turned the panel’s attention to the bigger picture, asking “now that search is part of the marketing mix, will we ever see the day when search is the primary driver… the lead channel?”

Everyone agreed that the role and importance of search advertising will vary greatly from advertiser to advertiser. They pointed out that many companies today are utilizing search marketing as their primary means of lead generation or customer acquisition. Even if it isn’t the primary channel, search marketing is now a required, core competency for all marketers.

And, search’s piece of the marketing pie will only continue to grow – at what rate, though, remains to be seen. Consider, consumer behavior has been rapidly shifting from traditional media to online avenues for several years but, to date, media budgets have been slow to follow. Closing this gap represents both a huge opportunity and challenge for online advertising and search marketing in particular.

What about Image Ads?

At a more tactical level, Danny asked if we can expect to see image ads in search results anytime soon.

For starters, IAC’s Speer reminded the audience that Ask’s Branded Response product has allowed advertisers to add images for quite some time. He added that the product was recently scaled back to allow the company some time to figure out exactly where it makes the most sense to show images.

One interesting idea offered by AOL’s Campbell was whether trademark owners should be allowed to add a logo to text ads for branded searches. A timely suggestion based on the plethora of trademark infringement issues and lawsuits currently underway.

MSN’s Jakubowski explained that while an image might not add value to someone searching for “car,” or even “BMW,” a photo may be very useful to someone searching for “BMW 360i.” or something that is very specific in nature.

It’s clear that all the big players are exploring more graphical display possibilities, and they all agree that the use of images must add value to both advertisers AND searchers to gain acceptance.

Recent Successes & Biggest Challenges

Finally, Danny gave each executive a chance to discuss recent successes, along with the biggest challenges they face moving forward.

Speer pointed out that Ask’s biggest success has been not just surviving, but actually growing… despite having considerably less resources than the other, larger players. He feels that IAC’s biggest challenge moving forward is integrating search (and search advertising) across all IAC properties such as: Ticket Master, CitySearch and Lending Tree.

Campbell suggested that the value people find in AOL’s unique content and member services will continue to drive their competitive advantage. He believes the biggest challenge ahead is to think outside of the search box and develop new advertising solutions. “AOL is focused on consumer intent. Our goal is to provide advertising FOR users… not TO users,” stated Campbell.

“MSN is late to the party and our competitors have a substantial head start,” acknowledged David Jakubowski. Yet, he feels that MSN has recently “done a really good job of listening to advertisers and giving them more control, better targeting, a simple interface and integrated research tools.”

Yahoo’s Cadogan said his firm’s focus on social networking will continue to provide a competitive advantage. He said Yahoo’s biggest challenge is the fact that it was the first to offer pay-per-click search advertising (first as GoTo, then as Overture, and now as Yahoo Search Marketing). “Quite frankly,” he said, “our infrastructure, tools and the user interface need some work.”

Tim Armstrong closed by saying Google’s success stems from “staying focused on the user. Staying connected to the customer and constantly testing new offerings.” The biggest challenge is one shared by the entire industry, bridging the gap between online usage and online media spend. Google is focused on getting media dollars to shift online as quickly as possible.

The Future Looks Bright

Attendees of this session likely walked away with the impression that the future of search advertising looks quite bright. Yes, the growth rate may be slowing… but it certainly isn’t coming to a halt anytime soon. Media budgets are shifting as search is being integrated into the overall marketing mix. Marketing agencies and large advertisers are embracing this channel, and search networks are working on new distribution channels, ad formats and pricing models. All this creates opportunities for advertisers, agencies and specialists of all kinds.

Most telling was the fact that Danny was talking with executives from not one company, or two, or even three… but from the FIVE leading search ad networks. Clearly, search advertisers have more choices than ever before, and this increased competition means that the networks are under pressure to listen to their customers (both advertisers and users), continue to innovate and deliver better and better results. What a good thing!

Patricia Hursh is president and founder of SmartSearch Marketing, a full-service search engine marketing agency serving clients in consumer and b-to-b markets.

A longer version of this story for Search Engine Watch members offers insights from the major players into new pricing models, new distribution channels that are likely to open up new opportunities for exposure in the coming months, and the lowdown on how serious click fraud is and what the advertising providers are doing about the problem. Click here to learn more about becoming a member.

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