SEM tool provider AdGooroo today released a report that explores ad coverage per keyword among the big three engines in Q1 2009; it’s a hypothetical proxy for search revenues. The report concludes, among other things, that Yahoo has gained advertiser share and coverage (largely at Microsoft’s expense) during the quarter:

The biggest surprise this quarter, however, is a possible comeback for Yahoo!, which had been losing ground to Live Search since September. AdGooroo tracked a 10 percent increase in active first-page advertisers during the first quarter, suggesting that Yahoo! may have finally hit its stride. This coincides with a four point increase in advertiser share which appears to be at Microsoft’s expense. It would not be surprising to see strong numbers coming out of Yahoo! this month.

Here are some high level takeaways and charts from the report:

• Approximately 42 percent of Google keywords contain no ads throughout the course of a given month; 13 percent have only one ad; 15 percent have ten or more ads.
• Live Search is similar to Google in that keywords tend to have either no ads (33 percent) or a full page of them (30 percent have seven or more ads).
• Yahoo! search results pages tend to have the most ads. Only 18 percent of Yahoo! keywords displayed no ads, while 41 percent of keywords displayed eight or more.

We’ll see how accurate these data are and whether they are a reliable barometer of search revenues on April 21, when Yahoo reports quarterly earnings. There are indications here and there that Yahoo’s search share may have grown somewhat in recent months.

According to data released yesterday by the IAB/PwC on Q4 and full year 2008 online advertising revenues, performance-based advertising and search gained while other segments declined slightly or were flat. Overall, online advertising grew 10.6% in 2008 to reach $23.4 billion. US online ad revenue in Q4 was $6.1 billion, up from $5.8 billion in the third quarter of last year. Especially noteworthy for the readers of this blog, search ad revenues comprised 46 percent of Q4 online ad revenues, up from 42 percent a year ago.

Here are a selection of charts from the report:

For all the talk of the collapse of display, usage remained constant in 2008 vs. 2007. By contrast, rich media and video lost share and so did classifieds, which has continued to lose share over the past four years. Also worthy of note is the big jump in performance based ads vs. CPM pricing. What that means is that more marketers were buying display advertising on a PPC basis. It also reflects the strength of search marketing at a time of economic uncertainty.

On a related note, eMarketer publishes some of SEMPO’s numbers regarding the breakdown of spending in the search market in 2008:

SEMPO’s survey data and projections indicate that $13.5 billion was spent on SEM last year. This is a broader category than the IAB’s search category; it includes technology and SEO-related spending. It also includes fees and costs not reflected in direct ad spending. The IAB and SEMPO numbers don’t line up but the different definitions of the market could help account for the relatively sizable discrepancy between the IAB 2008 search revenue number ($10.5 billion) and SEMPO’s SEM spending figure ($13.5 billion).

SEMPO’s new report, due to be released this week, cuts its forecast for search advertising. The results are based on a survey of almost 900 agencies and search marketers. According to the Wall Street Journal, the report scales back previous growth projections considerably:

[SEMPO] says North American search marketing spending will increase only 9% to $14.7 billion in 2009 from $13.5 billion a year ago. Its previous estimates, made in early 2008, called for the industry to grow at more than twice that rate this year, from $15.7 billion in 2008 to $18.8 billion in 2009. The new forecasts call for the industry to reach $19.8 billion in 2011, down from a previous estimate of $25.2 billion for that year.

But even as the economy hits search spending fairly hard, other media are faring worse. Search, widely regarded as the most efficient form of online advertising, is still benefiting from advertiser and agency budget shifts to online:

Search is continuing to steal from traditional ad budgets, according to the survey. More than a quarter of advertisers reported that they were shifting budgets into search marketing from print magazines. Nineteen percent said they were shifting their budgets into search from print newspaper advertising.

The paradox of these shifts is that they express a simplistic view of consumer behavior, which has become increasingly complex and relies on many sources of information and ad exposures, both online and offline. However, many marketers are starting to see with greater clarity the convoluted consumer path to conversions. Search remains perhaps the critical component of online advertising; however a search-only strategy is somewhat myopic.

Here’s an excerpt from findings from Atlas’s (Microsoft’s) recent “engagement mapping” report entitled The Long Road to Conversion: The Digital Purchase Funnel:

The large number of ad exposures consumed prior to purchase may come as a surprise to marketers who are used to discussions of frequency that revolve around site  or campaign metrics. Measuring only the last ad in a  conversion history conceals the true length of the relationship an advertiser has with each consumer. When we focus our view on individual converters’ histories and apply the funnel concept to their ad consumption, we discover that their histories are much longer and richer than typically assumed. These results confirm other research showing that advertising reaches consumers from multiple advertising campaigns and across channels . . .

Yahoo’s increasingly integrated search and display platforms are consistent with this more sophisticated consumer behavior model. And the SEMPO report apparently does find some interest in search retargeting accordingly.

We’ll explore the findings of the SEMPO report in more detail after we have a chance to review it.

eMarketer’s latest report named Search Marketing Trends: Back to Basics says that in the realm of search marketing budgets, SEO budgets will increase in the next five years, while paid search budgets will decline relative to the overall marketing budgets for companies.

MediaPost reports the growth for SEO campaigns will increase from 17.7% in 2009 to 20.3% in 2013. At the same time, growth for paid search campaigns will decline from 15.9% in 2009 to 11.3% in 2013. Growth for both SEO and paid search both will decline between 2008 and 2009, due to the economy.

Here is a chart with those percentage breakdowns:

Search marketing will continue to grow over the years, reaching $23.4 billion by 2013, up from 12.2 billion in 2008. SEO spend will grow from 1.5 billion in 2008 to 3.85 billion in 2013, while paid search will grow from 7.7 billion in 2008 to 14.7 billion in 2013. By 2013, SEO will account for more than contextual ads, which will be earning just 3.6 billion, compared to SEO at 3.85 billion.

Here is a chart with the dollar breakdowns:

Efficient Frontier today released the findings of its quarterly analysis of U.S. paid search activity. The report was based on an analysis of 92 billion impressions and 600 million clicks across a portion of Efficient Frontier customers during the fourth quarter of 2008, which includes some of the world’s largest brands. According to the report, Google has maintained its hold on the search advertising market with 76 percent market share, and Yahoo continued to increase its presence, gaining 3 percent market share year-over-year.

Despite the economic downturn and reports of the erosion of other marketing channels in 2008, the index of Efficient Frontier customers included in the Q4 report saw a minimal 8 percent decrease year-over-year, while the retail sector saw a 9 percent uptick in spending year-over-year, an indication of the strength of the search marketing channel.

Additional search engine marketing trends

• Small advertisers in the U.S. accounted for a greater decrease in search advertising spend than larger, more established brands
• Overall impressions for search engines are down 6 percent year-over-year
• Overall click-through-rates (CTRs) in search were relatively flat year-over-year, gaining only 2 percent
• Overall search cost-per-click (CPC) is down 5 percent year-over-year
• Automotive industry spend declined 15 percent, due primarily to lower impression volume, reflecting weakness in consumer demand.
• Financial service spend declined 20 percent despite impressions being up by 5 percent reflecting high customer demand for financial services, with but fewer qualified conversions
• Retail spend increased 9 percent, reflecting the strength of the channel in price comparison and shopping efficiency, particularly for more established online brands
• Travel and Entertainment spend decreased 24 percent, primarily due to reduced traffic volume, which is down in by 18 percent in the sector year-over-year

The full report is available by request from Efficient Frontier’s web site.

I have been hearing from many people in the search industry that the recession won’t impact the search space as much as other industries. In fact, many people feel that search will grow, while we see other industries take huge double-digit declines. I am skeptical about the search industry not taking a hit, in fact a major hit. So when I see search companies release data, I take interest.

Alan Rimm-Kaufman, who is incredibly data driven, posted an aggregate data analysis of his client’s Q4 2008 versus 2007 search ad spend. Let me bullet point the key metrics for you:

• PPC Sales: showed a growth for 35% of Kaufman’s clients but a decline for 65% of his clients in the 4th quarter of 2008 vs. 2007
• PPC budgets: 25% of Kaufman’s clients increased their PPC spend 2008 Q4 vs. 2007, while 75% pulled back PPC spend

Those results don’t seem overwhelmingly positive to me.

However, a SearchIgnite release (PDF) claims retail search spend is up 33% so far in Q4 2008, compared to Q4 2007. This is specifically retail, but still, overall search spend is up 33% for this company who manages over $350 million in paid search annually.

There are many predictions and theories for 2009 and search ad spend. Personally, I am a pessimist when it comes to the economy and I am overall worried about this industry’s growth, like I am other industries.

Brad Geddes the other day wrote a piece here named Beat the Competition by Anticipating Traffic Changes that might help some search advertisers through these more difficult times.

SEMPO is launching its 5th annual State-of-the-SEM Market Survey, and if you’re a practicing search marketing professional, they’d like to hear from you, whether you are a member of SEMPO or not. Last year, close to 900 respondents answered the SEMPO survey, and the results always paint a fascinating portrait of our industry. This year, obviously, the focus will be on the economy and how it has (or hasn’t) had an impact on the industry.

Not sure you want to take the time? As an incentive, SEMPO is offering an iPod Touch and a free pass to SMX West, or one of the SES conferences. Ready to play? Take the SEMPO survey here.

Overall online ad spending in the US was up almost 13 percent compared with Q2 2007, but down slightly (0.3 percent) from Q1 2008. Online ad revenues for the second quarter were $5.7 billion, compared with $5.8 billion in Q1. Revenues were $11.5 billion for the first six months of 2008 vs. approximately $10 billion during the same period in 2007, according to the IAB.

Search took a bigger share (44 percent) of the pie than it did in the first half of 2007 (41 percent). Otherwise the first six months of 2008 look quite similar in most respects to the first half of 2007. The question now is: how will a souring economy impact Q3 and Q4?

Here are some IAB graphics reflecting the spending trends:

Most ad categories are flat or differ by a percentage point, except for Search and Classifieds (which includes yellow pages/directories). Those two saw gains and losses of three points respectively. The concentration of ad spending among the top online players remained consistent with 2007 in terms of percentage distribution.

Among the top spending industry categories, retail and financial services were down slightly in the first half vs. last year:

Expect those numbers to decline further in the second half, as weakness in both sectors gets (perhaps much) worse before things improve.

Overall, performance based advertising saw gains of 2 percentage points, while CPM pricing saw an equivalent decline in the second quarter vs. a year ago. I would also expect this trend to continue in the second half as advertisers look to the greater “accountability” of performance-based pricing from their online ad buying.

This will continue to benefit search in a relative sense, but no one will likely be spared the effects of the recession.

There’s more discussion of the numbers at Techmeme.

New figures out on search advertising spend from Efficient Frontier show Google continues to dominate the market, stats that will no doubt complicate the company’s goal to gain approval of its deal with Yahoo on search ads. However, it is interesting how in Japan, it’s a much more 50/50 market split with Yahoo, showing that Google does have weaknesses.

For the second quarter of 2008, Google had 77.4% of the search advertising spend according to data tracked by Efficient Frontier, which manages ad campaigns for a wide variety of large advertisers. The data covers 23 billion ad impressions and 390 million clicks. Google’s share includes a small percentage of contextual ad spend (which is not search), as does Yahoo’s. You can see these broken out in the share chart below for Q2 2008:

Over the past year, Google has continued to gain share of ad spend pulling away primarily from Yahoo (Note: I don’t have figures for Q3 2007 at the moment, so I’ll update later when they come in):

That drop is bad for Yahoo, since its Panama ad system, launched last year, was supposed to help increase the amount advertisers were spending with the company. Of course, the company has also had declining search share overall, so fewer impressions can also mean potentially less spending with Yahoo.

Keep in mind that Yahoo could have a declining share of the search spending pie yet still earning more money as long as the overall spend on search advertising is growing. And it is, says Efficient Frontier — but not to Yahoo or Microsoft’s benefit.

Instead, Google is getting more of the new money coming in than the others. Officially, Efficient says Google gets $1.10 of every new dollar spent on search. That’s complicated to understand, even after I talked with them about it. So stick with the bigger point — the others are seeing both declining share of overall search spend and a declining amount of actual earnings.

This is great for Google with the exception that the company is currently trying to win US government support for a plan to have Yahoo carry some of its search ads. The latest numbers hold no particular surprise about how dominant Google is, but they’re fresh evidence that you’ll no doubt hear Microsoft parroting in terms of why a Google-Yahoo deal would be bad for competition.

Another stat that might get trotted out is the cost-per-click figure. Google’s cost per click is well above the others, about $0.70 on average, with Microsoft around $0.60 and Yahoo around $0.50. Google’s CPC rate has actually dropped the past two quarters (as has Yahoo’s), but no doubt it will be argued (as it already has been) that a Google-Yahoo deal will just allow Google to "set" the market and make CPC rates go higher (officially, Google says the market sets prices). Here’s the chart (note that spend by financial services advertisers is not included in it):

Good news from Microsoft — for two quarters in a row, it has claimed the title of best ROI. The problem, of course, is that while advertisers might get better ROI, there’s a lot less search traffic for them at Microsoft to get it from:

Back to the competition aspect: just because Google’s dominant in the US doesn’t mean it plays that way out in all countries. In particular, Google is behind in China, South Korea, Russia and Japan. Efficient has spend figures for the latter, which show Google has just barely 50% of the Japanese market. The other half belongs to Yahoo:

Note that in Europe (excluding the UK), Google has over a 90 percent share. Fortunately for Google, the Yahoo ad deal is US-only, so it won’t have to face European regulators who likely would take a hard look.

Finally, many who worry that search spend will decline because of current economic woes should feel reassured that, on the whole, Efficient says spend is increasing. But some sectors are feeling the impact:

Overall:

• Auto spend rose despite the hike in gas prices.
   
• Financial spend after several drops is about the same as a year ago. Efficient said that a drop in mortgage-related spending is being made up for by spend by advertisers with credit products.
   
• Retail spend is about the same as a year ago. The Q4 2007 spike is likely due to the holiday shopping season.
   
• Travel is lower, even when looking back on a season basis to the same quarter last year.

For related discussion, see Techmeme.

IDC reports that overall Internet advertising has grown 27% year over year to $25.5 billion in 2007. The fourth quarter of 2007 grew about 28% over the fourth quarter in 2006 to $7.3 billion.

Google saw a dip in its share of the US market for the first time in two years, dropping 0.5 percentage points to 23.7% in the fourth quarter compared to the third quarter of 2007.

Despite the dip in share, Google’s estimated income for internet ad sales grew by 40% in the fourth quarter of 2007, though “its year-on-year growth rate in the quarter before had been 50%,” said IDC.