The State of Search Engine Marketing 2006

Search marketing is thriving, according to SEMPO’s annual “State of Search Engine Marketing” survey, with North American advertisers spending $9.4 billion on search engine marketing in 2006, a 62% increase over 2005 spending.

SEMPO collected data on spending trends on paid placement, paid inclusion, organic search engine optimization (SEO)and SEM technology platforms. The survey drew 587 respondents from both agency and in-house advertisers, and was conducted in November and December 2006 by Radar Research, LLC and Intellisurvey.

Where is the money being spent? Organic search optimization is still the most popular form of SEM, with almost three-quarters of advertisers using this method, with paid placement a very close second at 71%, even though total spend for paid placement was greater, accounting for 86% of total spending, up slightly from 83% last year, at $8 billion.

By contrast, even though the most popular form of SEM, organic SEO accounted for just $1.1 billion in spending, or 12% of the total, also up slightly from last year’s 11%. Paid inclusion continued its decline, down from 4% last year to 1% of total spending, or $94 million this year. SEM technology platforms account for the remainder, at 1.3%, or $122 million in spending.

And no surprise: Google’s AdWords is the most popular search advertising program, used by 96% of respondents, followed closely by Yahoo Search Marketing, with 86%. Microsoft turned out to be a real dark horse last year, however, with 68% reporting they are using the company’s new adCenter program, up from just 29% in the previous year.

What’s search marketing being used for? Last year, the SEMPO study found that the majority of search marketers (62%) said branding was the primary objective of search marketing campaigns. Nearly as many, however (60%), said that selling products was a key objective. This year, direct sales was the top choice, at 58%, followed by brand awareness at 57%.

Despite this, less than 21% track or measure branding impact, but 73% track increased traffic volume, 71% measure conversion rates, and 68% track click-through rates.

Other key takeaways from the report:

• 75% of advertisers said they could afford a mild increase in paid placement; the remaining 25% say they have topped out in cost per lead spending
• SEM continues to poach budget from other marketing channels, especially offline marketing programs
• In-house marketing programs continue to grow, portending further consolidation on the agency side of the business

Another interesting finding was that for the first time, a majority of senior executives (52%) consider SEM a high business priority. Kevin Lee, member of the Board of Directors of SEMPO and chair of its Research Committee, said “This is important for the continued success of the industry, and a great sign.”

Lee also said, “One thing that I feel is important to note (and suggests additional study) is that in-house SEM professionals who cared enough to take the survey may have different opinions about SEO and paid search than their superiors.

What about the future? Spending will grow to $18.6 billion by 2011 in North America, according to SEMPO, and will start to plateau about then as the industry matures. Growth will be driven by strong advertiser demand, rising keyword pricing, and perhaps most importantly, a second wave of small-to-midsized businesses discovering the effectiveness of search marketing. Vertical and local search will also show strong growth.

This is the third annual State of the Search Marketing survey released by SEMPO. I covered the first two reports over at Search Engine Watch, for 2004 and 2005.

The report is available for download at the SEMPO web site.