Search Marketing on a Steep Growth Curve: Report
A new annual study commissioned by the Search Engine Marketing Professional Organization (SEMPO) has determined that online marketers in North America spent $5.75 billion on search engine marketing (SEM) of all types in 2005, and should spend $11.1 billion by 2010.
That projection, contained in SEMPO’s second annual State of the Search Marketing Industry survey, is considerably higher than other growth forecasts for total SEM spending. For example, JupiterResearch predicts that SEM budgets in North America will reach only $7.5 billion in that time.
Conducted last November by Radar Research LLC and Intellisurvey, the SEMPO report contains the responses of 553 industry participants from both search advertisers and SEM agencies.
The $5.75 billion spent on all forms of SEM last year includes both paid search ads and search engine optimization (SEO), Web design efforts to raise an advertiser’s natural ranking within search results pages. That total was up from $4 billion spent on SEM in 2004.
Most of the money was spent on paid search advertising, in which companies’ ads appear on results pages to match relevant search terms. Paid placement accounted for 83% of that SEM spend last year, or $4.7 billion. While four out of five companies responding to the survey said they engage in search optimization, only 11% of the total–$643 million– was spent on SEO. By contrast, 76% said they ran paid search ads.
Paid inclusion, under which Web operators pay a fee to have their pages included in an index or directory, still made up 4% ($246 million) of all SEM spending in 2005, even though it has fallen into disfavor with all the major search engines except Yahoo!
Spending on search technology, including both outsourced and in-house solutions, constituted less than 2% of total spending, or $90 million.
Where is that money going? The survey found that 95% of those polled said they advertise with Google AdWords, while almost 60% used Yahoo! Search Precision Match. About 46% of respondents said they bought paid search ads on both Google and Yahoo! About one-third said they are running search ads on MSN Search, which revamped its North American search program in the middle of 2005.
As to where those increased SEM budgets are coming from, most respondents said they were shifting funds from other marketing and Web development programs. Only 30% of advertisers said they had created new budgets for SEO in 2005, and even fewer said they had instituted new budgets for paid search. Most of the funds for SEM growth are being taken from money allocated for affiliate marketing, Yellow Pages advertising, e-mail marketing, direct mail and TV spots.
“This report confirms our belief that search engine marketing has almost single-handedly revived a flagging online advertising marketplace,” said Kevin Lee, chairperson of SEMPRO in a statement.
Looking ahead, two-thirds of advertisers reported that they plan to manage all their SEM efforts themselves in 2006 rather than outsourcing to an SEM agency or optimization firm. According to SEMPO, this puts the burden on agencies of proving that they can add value to an advertiser’s campaigns by showing demonstrably improved return on investment for SEM spending.
