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Search Ad Spending Improves--and Boosts Google Shares

Posted by: Rob Hof on October 12, 2009

Hit by the economy early this year, search advertising looks to be on the mend. For the second quarter in a row, two search marketing firms say U.S. spending on text ads on Google, Yahoo, and Microsoft’s Bing improved—or at least got less bad. The results bode well in particular for runaway search ad leader Google, which reports its third-quarter earnings on Thursday.
(Source: Efficient Frontier)

Analysts have been saying for months that as the economy improves, search advertising is likely to return most quickly among all other forms of advertising. It’s seen as the most measurable, and it’s also easy for marketers to increase spending literally overnight because it’s largely self-service, requiring no advance commitment. But Web companies from Yahoo to countless startups also hope that an uptick in search ads eventually will open up wallets for display, video, and other online ads.

SearchIgnite today said U.S. paid-search spending was down about 1%, or flat for all intents and purposes, from a year ago across all the search engines. But more encouraging, search ad spend rose 10% from the second quarter--much more than the usual 2% gain in the same periods in 2007 and 2008.

Another search marketing firm, Efficient Frontier, saw a similar pattern, though with different numbers, since it's measuring results for its own unique clientele. The company, whose report is out tonight, said U.S. search ad spending was up 5% from the second quarter, though it was down 5% from a year ago. "Search marketers are starting to get back in," Efficient Frontier CEO David Karnstedt said in an interview. "Traditionally, search has been a leading indicator" of a recovery in ad spending.

For SearchIgnite's customers, retailers led the way. In fact, they accounted for virtually all the improvement, with a 40% jump in search spend from a year ago, SearchIgnite President Roger Barnette told me. "Retail is a bellwether because people spend there before they resume spending on travel, for example," he says. "I would hope that the other markets would follow."

So far, they haven't. All other categories, including travel, finance, and autos, showed little growth or were down. Specifically, Efficient Frontier says travel ad spending plummeted 39% from a year ago. Even automobile-related ad spending was up only 6% thanks entirely to the Cash for Clunkers programs.

However, among Efficient Frontier's retail clientele, the uptick in spending was much less pronounced, up only 2%. "As we move into the shopping season, we could see growth increase," Karnstedt says, potentially moving search ad spending overall back into double-digit territory.

Google remained dominant in the quarter. Efficient Frontier said Google lost a bit of ground, as its share of search spending fell to 73.7%, from 75.5% in the second quarter. Meantime, Bing's share rose to 5.3% from 4.3% in the second quarter. However, Google's return on investment, or how much marketers got in new business in return for their ad spend, shot up 47%, way more than its rivals, which may help it recapture any lost business in coming quarters.

For its part, SearchIgnite saw little change in market share, with Google continuing to lead with 77% of search marketer spending, up from 72% a year ago. Although Bing was up the most, with a 15% increase in spending, that didn't help lift its overall share. It remained at 6%, unchanged for the last several years, when it was known as Live Search. Yahoo's share fell sharply, from 22% a year ago to 17% today.

Despite the mixed picture for Google's market share, any improvement in search ads is likely to benefit the company more than its rivals. That's not only because it so dominates search ads, but also because it's disproportionately strong in retail, which is likely to see even more search spending in the fourth quarter. In anticipation of that improvement--as well as a spate of new, higher target prices by analysts--Google's stock has risen sharply this year, up 63% from the start of the year to $524 today.

Two weeks into the fourth quarter, it's too early to say how things are going, but Karnstedt and Barnette are cautiously optimistic. "So far, so good," says Barnette.

Reader Comments


October 13, 2009 9:58 AM

If you want to be a successful business, you've got to continue advertising. Golfers looking for free golf tips will quickly improve their golf swing and game, enhancing their enjoyment for years to come.

Metroplex Interactive

October 13, 2009 1:08 PM

I would estimate that search marketing would be a leading and lagging indicator. By this I mean that as the economy began to lag, companies turned to search marketing to prop up sales with a cost effective tool. As the economy starts to show signs of life, search marketers will again turn to search marketing to ensure they participate in the beginning of the economy rebound.

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