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SEMPO: Advertisers Spent $5.75B on Search in 2005

Spending on search engine marketing in North America totaled $5.75 billion last year, vaulting from 2004's $4 billion, according to the Search Engine Marketing Professional Organization's annual survey released today.

The bulk of the 2005 spending (83 percent) went to paid search ads, according to the more than 550 search advertisers and agencies that participated.

Though most advertisers use organic search engine optimization, they spend less — $643 million in 2005 — because the medium is more cost efficient, the report said. Still, spending on paid and organic search rose in 2005, indicating that marketers realize they need to spend on both, said Kevin Lee, chairman of SEMPO, Wakefield, MA, and executive chairman of search marketing firm Did-it.com, New York.

“Perhaps marketers have realized that in the same way advertising and marketing co-exist, these co-exist,” Lee said.

SEMPO's survey, conducted by Radar Research LLC and Intellisurvey, further found that search marketing spending will keep rising, reaching $11 billion by 2010. However, advertisers and agencies think the market will start to plateau around 2010 as it matures.

Branding is the main objective of search marketers' paid placement programs, 62 percent said. However, 60 percent think that selling products is the top objective in search advertising. Larger firms, those with more than 500 employees, said they were more interested in driving leads and traffic than did smaller ones.

Though branding is one of advertisers' goals, only 24 percent said they measure the effect of search on their brand. Conversely, 80 percent of companies track whether their traffic increases from search, 74 percent measure conversion rates and 69 percent track click-through rates.

“For the most part, advertisers are still extremely focused on immediate, demonstrable ROI rather than longer-term metrics such as branding, site stickiness or correlating search behavior to other advertising programs, such as TV advertising,” according to the report.

Lee said that this reflects the difficulty of measuring branding, online and offline. But some advertisers and agencies are testing metrics related to branding, such as how long a person stays on a part of a Web site.

“There may be some movement there to look at the branding impact post-click, not just pre-click,” he said.

Meanwhile, advertisers surveyed were more interested in managing search engine marketing campaigns in-house rather than outsourcing to SEM agencies. Two-thirds said they intend to manage all of their SEM initiatives in-house, likely as a stopgap measure “as the SEM agency marketplace undergoes consolidation and contraction,” according to the report.

“Agencies must show demonstrable ROI to clients to improve advertiser satisfaction, which seems to be rather low currently,” the report said.

But Lee noted that many survey participants are in positions of managing in-house campaigns and may be more reluctant than other executives in the companies to outsource. Paid search campaigns have become so complex that most midsize to large businesses outsource the work, he said.

Ninety-five percent of search engine marketers advertise on Google AdWords, and nearly 60 percent have used Yahoo Search Precision Match. Forty-six percent use Google AdSense and Yahoo Search Content Match. One-third of advertisers are testing MSN's pilot paid ad program, MSN AdCenter.

Advertisers also said they would be willing to pay more for search keywords. Though keyword pricing rose in 2005, four out of five advertisers said they could afford an increase in keyword pricing this year.

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