February 2008: Search Marketing, the Behemoth Online Advertising Format

Industry Stats & Data by eMarketer

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Search marketing continues to dominate the online advertising space with a sustained growth of about 40% yearly since 2004. To put 40% share into context, no other online ad format (display ads, classifieds, rich media/video, lead generation, email and sponsorships) contributes much more than half that amount.

eMarketer estimates show search soaring from a mere $299 million in 2001 to nearly $6.8 billion only five years later in 2006. Projecting out five years after that, to 2011, all signs indicate even larger growth, rising to not quite $16.6 billion—nearly $10 billion more in that relatively brief timespan.

Behind this gold rush is a rare phenomenon in marketing—namely, that of considerable customer satisfaction. Generally, Internet users see paid search and contextual advertising as relevant enough and non-intrusive. That acceptance is why people click on these ads and why advertisers increasingly spend to woo their clicks.

Another factor supporting search ad spending is what happens after the click. Since advertisers can more readily track the results of a search marketing campaign than one using online display advertising, search can become self-supporting, especially for retailers, with the cost of each click translating to cost-plus-X dollars in sales.

Other contributors to search spending growth are brand marketers and the relationship consumers have with brands. When an offline ad campaign drives awareness, even if only partially, many people tend to search online to find out more about the product or service. Therefore, brand marketers need to factor search advertising into their overall campaigns to support efforts in other media. Even if a user does not click on an ad, their seeing the ad is basically a free impression for the advertiser.

As vast as search advertising spending might be, its growth is leveling off. After a 27.5% increase in 2008, annual growth will subside to around 10% by early next decade. The declining growth is due to several factors. One is the vast size of the US search market, in which even large dollar gains equate to smaller percentage gains. The other is the economic slowdown, which over time will reduce shopping—both for homes and smaller items—and therefore people will search and click less.

Search marketing depends critically on its audience—where people are clicking, money will follow. That is why search engines compete for the user’s goodwill, whether it be with more relevant and complete search results, add-ons for daily living such as e-mail or, as in early December 2007 with Ask.com’s AskEraser option, by giving the user easy-to-use tools to protect his or her privacy.

The competition takes on even fiercer overtones because one company, Google, dominates the market. It draws far more search users and search requests—and therefore search ad revenues—than all its rivals put together. An eMarketer estimate shows Google raking in 75% of US paid search advertising in 2007, up from 60% in 2006. With No. 2 Yahoo! collecting a mere 9% share with the other search engines splitting 16% of the pie.

But with over $8.6 billion going to search engine advertising in 2007, that 16% stake equals nearly $1.4 billion. And with search spending nearly doubling to almost $16.6 billion in 2011—and still the biggest form of online advertising—even relatively small slices can represent significant revenues.

Search marketing is all about consumers. And where they go the money follows. If a search engine serves up a text-link ad and no one clicks on it, does it still make someone money? The central position of the search audience in monetizing search marketing means that the search engines and the advertisers both rely on the users’ continuing to click.

Find out more about eMarketer’s Search Engine Marketing: User and Spending Trends Report

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