Research report shows bright future for SEM

Share this article:

Piper Jaffrey Investment Research recently published a voluminous 425-page report titledĀ "The User Revolution: The New Advertising Ecosystem and the Rise of the Internet as a Mass Medium." Its findings include some interesting stats on search marketing that support the proposition that SEM has a strong future ahead.

The report pegs total search spend to rise from $15.6 billion in 2006 to $44.5 billion in 2011. This figure, reflecting an annual CAGR (Compound Annual Growth Rate) of 23 percent, is more than four times larger than earlier estimates published by other research organizations.

Why is SEM growing so quickly? The report cites four main drivers:

1. Increased usage of search engines as primary information access "portals," along with general increases in Net usage and online consumption. Interestingly, 41 percent of the report's survey respondents use search engines to navigate to Web sites; exceeding those who type the URL directly into the browser address bar (37 percent) or use bookmarks (22 percent).

2. Increased adoption of search by direct marketers formerly relying exclusively on offline marketing methods.

3. Growth of usage of local and vertical search properties.

4. Increased usage of SEM by large brand advertisers.

Piper Jaffrey also observes that the complexity of search marketing is increasing dramatically, driven by engine innovations such as the introduction of geo- and demographic targeting tools. These innovations increase the targeting options available to marketers, but make search campaigns (especially those with large numbers of keywords) nearly impossible to run manually, and are pressuring search marketers to increase their reliance on automated tools to take on a greater share of the workload.

For those of us who work at SEM agencies, Piper Jaffrey's provides evidence of steady growth in the past year. In 2006, SEM fees (including paid search, SEO and technology fees) were just about half a billion dollars, a 30 percent increase over 2005. This finding, however, does not necessarily indicate that SEM agency fees will continue to grow as quickly in the years ahead. In fact, SEMPO's recent "State of Search Engine Marketing 2006" report showed that more than two-thirds of marketers polled intended to insource both PPC and SEO services. This insourcing trend will likely accelerate competitive pressure among SEM agencies, furthering a Darwinian process that will cull underperforming agencies and reward those that deliver consistent efficiencies for their clients.

Frankly, I wish that more people on Madison Avenue read this report, because the traditional ad establishment continues to resist, ignore and undervalue search. You can read Advertising Age from cover to cover and come away from the impression that search marketing doesn't exist, and this condition is symptomatic of an industry that clearly doesn't understand search, doesn't think it's a form of advertising, and seems to believe "this whole scary Google thing" will someday go away. Even the IAB (Internet Advertising Bureau) continues to downplay the importance of search by failing to break out paid search spending when it reports overall online ad spending. And senior ad industry forecasters such as Universal McCann Robert Coen don't even count search spending, the most robust component of the online ad market today, when they make their projections.

When will Madison Avenue wake up to the fact that paid search advertising is the locomotive pulling the online ad train? Frankly, I'm not holding my breath. At a recent AdAge panel in New York, I practically fell off my chair when one participant from a major ad agency expressed a wish that the term "digital" could be abandoned, because it was, in her words "too scary." Frankly, an even scarier notion is that people with no real understanding of even the basics of digital marketing are running the show on Madison Avenue.

I wish I could say that this is changing but there's no evidence it is. The only thing that seems to excite traditional agency types is online video, because it resembles the tried-and-true, lost-and-gone, 30-second TV spot format. Unfortunately, nobody yet knows how to monetize online video, whereas the principles and methods for monetizing search traffic are well-known (although far too many marketers do not take full advantage of these methods, especially in regards to deploying an appropriate level of automation, analytics, and strategy capable of translating one's objectives into a profitable plan).

A few months back, a journalist wrote that "paid placement search marketing is "the dirty secret of online advertising" that "does not get talked about a great deal" by mainstream ad folks, and it's clear that this definition still holds true. Madison Avenue may be comfortable burying its head in the sand, but that won't keep the search-based ad revolution away forever. As the Piper Jaffrey report shows, the SEM juggernaut just keeps getting stronger and stronger.

This material may not be published, broadcast, rewritten or redistributed in any form without prior authorization. Your use of this website constitutes acceptance of Haymarket Media's Privacy Policy and Terms & Conditions