Google Leads U.S. Search Advertising Market With 76% Market Share, While Yahoo Gains 3% Market Share Annually According to Efficient Frontier Report

Despite Recession, Search Advertising Held Value, ROI Was Steady and Retail Sector Saw 9% Spend Increase Annually

SUNNYVALE, Calif. – Efficient Frontier, the worldwide leader in Search Engine Marketing (SEM) technology and services, released the U.S. Search Engine Performance Report: Q4 2008. The report, the largest independent research in the search marketing industry, was based on an analysis of 92 billion impressions and 600 million clicks across a portion of Efficient Frontier customers, which includes some of the world’s largest brands. The results of the research indicate that Google has maintained its hold on the search advertising market with 76 percent market share, and Yahoo continued to increase its presence, gaining 3 percent market share year-over-year. Despite the economic downturn and reports of the erosion of other marketing channels in 2008, the index of Efficient Frontier customers included in the Q4 report saw a minimal 8 percent decrease year-over-year, while the retail sector saw a 9 percent uptick in spending year-over-year, an indication of the strength of the search marketing channel.

According to industry research firm, eMarketer, “search ad spending may not be recession-proof, but it is proving to be recession-resistant.” eMarketer estimates that although the rate of growth is projected to fall over the next three years, search ad spending growth will continue to be positive, in double digits every year until 2012 when it will rise again to nearly 14 percent.*

“Search engine marketing remains the most accountable sales and client acquisition channel on or offline,” said James Beriker, President and CEO of Efficient Frontier. “To continue to achieve stellar results, the current recession has made it even more critical for search marketers to know their metrics and manage campaigns based on actionable market, sales funnel and conversion data. The reason we work with more than 150 of the most sophisticated search marketers in 20 markets worldwide, and manage more spend than any other firm, is that we use math to automate the process of accurately modeling data and making the right overall strategy and keyword bidding decisions to deliver optimal performance, no matter the market dynamics.”

The Efficient Frontier report shows that Google’s market share leadership was backed by significant gains from Google Content, which experienced 63 percent growth in 2008, clearly reflecting Google’s ongoing focus on improving its targeting and monetization capabilities across the AdSense network. Yahoo, which increased its market share by 1.9 percent in Q3, added another 0.5 percent in Q4 to close out the year with a 3 percent annual gain and total 20 percent market share. Microsoft Live Search now represents 4.2 percent of total search advertising spend for advertisers in the Efficient Frontier index.

ROI Trends

Interestingly, a closer look at spending between the months of September and December 2008 revealed that ROI dropped in most verticals between September and October due to the economic downturn. This led advertisers to reduce budgets and focus on maintaining a positive return. This shift suggests that SEM advertisers have moved from a volume strategy to an ROI and efficiency strategy where budgets are adjusted dynamically to maintain a targeted ROI despite a reduction in search volume. Leveraging Efficient Frontier’s technology and services, its customer-base improved ROI in Q4 by 1 percent year-over-year and 3 percent quarter-over-quarter.

“When shifts in the online marketplace make it more difficult to deliver the desired results, advertisers must depend on the right technology to do the heavy lifting,” added Beriker. “This is where our customers have a distinct advantage. The move at the end of Q4 from a volume model to an ROI and efficiency model needed to happen instantaneously for advertisers to benefit. Our proprietary technology combined with the sophistication of our customers made that shift possible.”

Additional Search Engine Marketing Trends

* Large vs. Small Advertisers: Small advertisers in the U.S. accounted for a greater decrease in search advertising spend than larger, more established brands. Advertisers spending less than $50,000 per month cut spending by 23 percent year-over-year, with many of the cuts coming between Q3 and Q4 of 2008. Companies that spent more than $200,000 per month only reduced spending by 9 percent over the same time period. These margins are typical during a recession when larger, more sophisticated brands aggressively utilize the search channel to drive revenue and sales while strengthening their position.
* Overall Impression Trends: Overall impressions for search engines are down 6 percent year-over-year. From Q4 2007 to Q4 2008, Google experienced a 3 percent decrease, while Yahoo lost 13 percent impression volume. Microsoft Live garnered 21 percent more impressions in Q4 than in Q3 2008 and gained 18 percent more impressions year-over-year.
* Click-Through Rate Trends: Overall click-through-rates (CTRs) in search were relatively flat year-over-year, gaining only 2 percent. While Microsoft Live Search had higher CTRs than all other search engines from Q1 to Q3 of 2008, it dipped below Google Search in Q4 2008. Google Search CTRs decreased by 2 percent year-over-year, while Yahoo CTRs improved 3 percent year-over-year. Google Content CTRs increased 150 percent year-over-year.
* Cost-Per-Click Highlights: Overall search cost-per-click (CPC) is down 5 percent year-over-year. In the last quarter of 2008, Google Search’s CPC declined by 8 percent, while Microsoft Live Search declined by 3 percent and Yahoo Search declined by 1 percent. Microsoft Live Search has consistently maintained a higher CPC than all other search engines, indicating that advertisers are willing to pay a premium for a high quality, albeit smaller audience.

Trends by Vertical Market

* Automotive: 15 percent decline in spending over 2007, due primarily to lower impression volume, reflecting weakness in consumer demand.
* Finance: 25 percent decline in spend over 2007, with impressions up by 5 percent reflecting high customer demand for financial services, with but fewer qualified conversions.
* Retail: 9 percent increase in spend over 2007, reflecting the strength of the channel in price comparison and shopping efficiency, particularly for more established online brands that increased spend to reach revenue goals.
* Travel and Entertainment: 24 percent decrease in spend year-over year, primarily due to reduced traffic volume, which is down in by 18 percent in the sector year-over-year.

The complete U.S. Search Engine Performance Report: Q4, 2008 is available for download from the Efficient Frontier website.

Research Methodology

Analysis for the Efficient Frontier report was based on data from a fixed sample of the overall Efficient Frontier U.S. customer base from Q4 2007 through Q4 2008, and covers nearly 92 billion impressions and 600 million clicks on search and content ads on Google, Yahoo and Microsoft Live Search. The report includes data from advertisers in the financial services, travel and entertainment, retail, automotive and business-to-business verticals.

About Efficient Frontier

Efficient Frontier is the worldwide market and technology leader in providing search engine marketing (SEM) solutions for large advertisers and agencies. Founded in 2002, Efficient Frontier pioneered the application of modern portfolio theory to SEM and today combines its core predictive modeling algorithms and bidding technology with comprehensive strategic and tactical value-added services to manage more than $750 million in annual search spend globally. The largest and most sophisticated advertisers and agencies partner with Efficient Frontier to achieve and sustain optimal campaign performance and growth in highly complex and competitive search marketplaces. The company has over 200 employees and is headquartered in Sunnyvale, CA with offices in New York, the United Kingdom, France, Germany, Hong Kong, and India, and technology licensing partnerships in Japan and Australia. Efficient Frontier is a privately held company with funding from Redpoint Ventures and Cambrian Ventures. For more information, please visit and subscribe to the Efficient Frontier blog at

*eMarketer: Search Ad Spending: Reactions to a Recession, January 2009