The State Of Search Engine Marketing 2007

Slowdown? What slowdown? The future looks bright for search, according to SEMPO’s annual State of Search Engine Marketing report. The survey of search marketers and advertisers says that search engine marketing spending exceeded expectations in 2007 and is projected to show continued robust growth over the coming years. “For us the story was the continued optimism around search,” said Gord Hotchkiss, SEMPO chairman and president, Enquiro Search Solutions.

What about all of the gloom and doom stories fretting about the economic slowdown impacting spending on marketing and advertising in general? Hotchkiss said that the increased growth in search marketing is happening at the expense of print magazine advertising, website development, and other marketing functions. “It shows that people are looking at reallocation of budgets—we’ve heard that anecdotally from clients as well,” he said.

The North American SEM industry grew to $12.2 billion in 2007, a 30% increase over 2006 spending of $9.4 billion. While the growth rate slowed from the torrid 62% increase in 2006 spending, total spend nonetheless exceeded earlier projections of $11.5 billion for 2007. And significantly, North American SEM spending is now projected to grow to $25.2 billion in 2011, up significantly from the $18.6 billion forecast a year ago.

The drivers behind the higher estimate are advertiser demand, rising costs of keywords and pay-per-click campaigns, an increase in the number of small-to-midsized businesses using search engine marketing, greater consumer participation in search, and increased interest in behavioral and demographic targeting of searchers.

The survey and research was conducted for SEMPO by Radar Research and Intellisurvey, which developed an SEM forecast model and conducted a detailed online survey of 867 search engine advertisers and SEM agencies.

The survey had three goals this year:

• To understand the size of the industry in order to help promote its growth
• To understand where marketer spending is going among different recipients (search engine media companies, SEM agencies, in-house) and towards which types of SEM programs (paid placement, paid inclusion, organic SEO, SEM technology)
• To identify key industry trends

Price increases in paid placement slowed, with fewer advertisers reporting increased prices from the previous year. In another sign of apparent strength for the industry, 75% said they could tolerate further rises in paid placement prices—however, within that 75%, the respondents also said they are approaching a spending ceiling.

Nonetheless, “almost no one said they’d stop using search,” said Hotchkiss. Should keyword inflation or the costs of hiring skilled search engine optimizers increase, search marketers said they would just figure out how to make search work better to hit ROI targets.

Where was the money spent? Paid placement took the lion’s share of the total, with 87.4% of 2007 spending, compared with 85.9% last year. By contrast, relative spending percentages decreased slightly in the other three categories from 2006, with organic SEO capturing 10.5% (down from 11.8%), paid inclusion .07% (down from 1.0%), and technology investment 1.4% (down from 1.3%).

The percentage splits of the groups spending the money in each of the categories showed little change from last year. In paid placement, search media firms directed 90% of the spend, compared with 3% for SEM Agencies and 7% for in-house organizations. The situation was similar with paid inclusion, with search media firms accounting for 90% of the spend and SEM agencies for the remaining 10%.

Exactly the opposite occurred with organic SEO, with in-house organizations responsible for 80% of the spend, compared with 20% for SEM agencies. In-house organizations dominated SEM tech spending as well, amounting to 57% of spend, with SEM agencies at 37% and leasing at 7%.

Hotchkiss noted that the trend toward bringing search marketing in-house seemed to be slowing. Last year, the SEMPO survey picked up on an increasing desire by organizations to bring search marketing functions in-house. “We still see overall, in an ideal world, a desire to control search in-house, but there’s also a realization that it may not be as easy as they initially thought,” said Hotchkiss. He said the two major obstacles organizations face in bringing search marketing in-house are the lack of skilled search engine optimization talent and the complexity of managing search marketing campaigns in a rapidly changing, fiercely competitive environment.

The survey also found that advertisers’ overall level of satisfaction with search marketing partners was quite high, suggesting that the industry is reaching a new level of maturity and sophistication. “We’re maturing,” said Hotchkiss. “The former unevenness [in performance of search marketing firms] is starting to even out a bit. Expectations are more realistic now,” he said.

SEMPO will be formally announcing the results of the State Of Search Engine Marketing 2007 later this week—more details when available will be found at the SEMPO web site.