Search Spending Fell Less in Q2 2009: Report

Posted on by Chief Marketer Staff

Spending on search engine marketing (SEM) may be nearing the bottom of the decline that has plagued the channel for several quarters now, according to a new quarterly analysis by SEM agency Efficient Frontier of a fixed basket of the accounts it manages.

The Sunnyvale CA-based firm found that spending on pay-per-click advertising “stabilized” in the second quarter of 2009 at only 3% less than the spend in Q1 2009, adjusted for seasonal variances. While year-to-year spending levels for the quarter were down 21%, that was a “mild improvement” over the 23% year-to-year drop of Q1 2009.

Lower demand and increased advertiser attention to efficient search marketing also caused return on investment (ROI) from the SEM accounts under review to reach new heights. Efficient Frontier found that ROI for the second quarter of this year was almost 30% higher than it was during the same quarter in 2008. The increase in quarterly ROI follows a trend that originated in Q4 2008 and continued last quarter, the study found.

The study was the latest in a series of quarterly reports on Efficient Frontier’s Customer Index, a fixed sample of clients across multiple industries who have spending data covering six consecutive quarter or more.

Quarterly costs per click—the amount of money an advertiser pays search engines each time a user clicks on an ad—were down year over year for all three major search engines (Google, Yahoo Search and Microsoft Live, relaunched as Bing last June), indicated weak demand for most search terms. But those CPCs ticked upward slightly from the first quarter of the year, suggesting that demand may be returning.

The state of paid search marketing is closely tied to the state of the economy, the report points out. Consumers search most, and thus click search ads most, when they’re preparing to purchase; and marketers often tailor their search programs in response to very granular consumer metrics. The agency expects third-quarter 2009 to look very much like Q2, both in the economy at large and specifically in the search marketing sector.

Other findings put forth in the Q2 2009 U.S. Search Engine Performance Report from Efficient Frontier:

The June launch of the new Bing “decision engine” increased Microsoft’s share of search ad clicks by 5% over the previous month. That brought the company’s share of the total SEM spend for the month back up to the level of Q3 2009. Pay-per-click gains on Bing were most notable in the finance and travel sections, with increases of 17% and 10% respectively. Bing’s paid clicks in the retail sector were flat for the month, however.

The broad stabilization of the SEM market concealed some differences among advertiser sizes. Large advertisers spending more than $200,000 per month on search ads matched the total marketing in paid-ad spending during Q2 2009, while mid-sized advertisers –those spending $50,000 to $200,000 per month, actually increased their spending, taking advantage of the lower prices and lessened competition to grow their click share. Advertisers who spent less than $50,000 monthly on search marketing continued to cut spending as they have for the last year, concentrating on the most effective search terms to boost ROI.

Within specific vertical sectors, Efficient Frontier found the automotive sector showed strong increases in both search spending and ad impressions during the second quarter and only slight decreases in the clickthrough rate and slight increase in cost per click. But the agency’s basket of accounts does not include either General Motors or Chrysler, U.S. car companies that sharply cut back their ad spending this year.

The retail sector saw a large increase in impressions during the quarter—165% of the level in Q2 2008—and although click-through rates declined, indicating lots of comparison shopping and relatively little buying, a small rise in CPC suggested growing demand for search terms.

Search spending in the finance sector fell off between Q2 2008 and Q4 because of close links to the performance of the stock market and showed improvement in Q2 2009 for the same reason. Ad impressions served were 163% of what they were a year ago, but that increase was accompanied by a large falloff in clickthroughs. According to Efficient Frontier, those increased clicks came from consumers doing research without purchase intent or from those not qualified to buy.

In the travel sector, waves of consolidation and competition have squeezed out many small aggregators and cut revenue per booking, eroding the cost tolerance for search. As a result, quarterly SEM spending in the vertical has fallen by 31% in the last year and costs per click have declined by 22%
With accounts that spend more than $750 million annually in global search marketing, Efficient Frontier says it has the largest SEM spend under management in the world.

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