Spend Expected to Grow by More Than 15 Percent in 2010; Data Based on Efficient Frontier’s Q4 2009 U.S. Search Engine Performance Report
SUNNYVALE, Calif. – The Search Engine Marketing (SEM) industry posted solid sequential and year on year growth for the fourth quarter of 2009. Marketers, especially in the retail category, took advantage of growing consumer demand and took a more aggressive position with their search campaign spend. This is according to Efficient Frontier, a leading performance marketing company with more than $750 million in global client spend annually. This data and specific industry trends were released in the company’s Q4 2009 U.S. Search Engine Performance Report.
“The fourth quarter results and the 2010 outlook paint a much rosier picture than we’ve seen in more than a year,” said David Karnstedt, President and CEO, Efficient Frontier. “While certain sectors, such as travel, continue to lag, we expect overall growth to exceed 15 percent for the full year 2010.”
Report Highlights:
In 2009, the search marketing sector slowly climbed out of the malaise established in the final months of 2008, culminating in a fourth quarter 2009 that posted solid sequential and year on year growth. Both sequential Quarter on Quarter (QoQ) and Year on Year (YoY) growth were up 6%. However, overall Cost per Click (CPC) remains well below year ago levels, indicating that overall market competition remains suppressed.
The Strong Tide of Retail Lifts Search
The key barometer for Q4 is always retail, and in the fourth quarter of 2009, retailers spent aggressively in search. Spend in the retail sector grew 17% Year on Year (YoY) and 46% Quarter on Quarter (QoQ), an impressive showing given the unsure footing of the overall economy. Search ad impression volumes that result from retail queries spiked 90% YoY and built on four quarters of positive sequential growth.
CPC posted strong sequential gains in retail but remains down 9% from year ago levels, holding back spend growth slightly. Consumers’ average transaction size was down about 5% YOY but posted a normal seasonal lift of about 5% sequentially QoQ, indicating more cautious spending due to the economy. While clicks originating from search engine marketing converted at the same rate less revenue resulted from those clicks. The net impact on Return on Investment (ROI) was positive as CPC was down 21% YoY in Retail.
SEM Sectors Outside of Retail Reflect a Cautious Consumer
The positive trend in retail was not upheld in other sectors. Travel continues its downward spiral as spend dropped 20% YoY and 25% QoQ, above the typical seasonal impact.
The Q3 bump the Autos category received from the Cash for Clunkers program dissipated quickly as consumer interest fell back to the levels of Q2. Advertiser demand in the autos sector rose as CPCs drifted up 7% sequentially, resulting in a slight 2% spend increase. Finance spend continues to be stable as weaker advertiser demand is offset by rising consumer interest and available clicks.
Retail: Spend was up 17% YOY on large volume gains, and seasonal sequential strengthening of CPC and conversion rate.
Travel: Spend was down 20% YOY driven by weak CPC.
Finance: Spend was up 2% YOY on volume gains.
Auto: Spend was up 2% YOY on volume gains.
Trends by Search Engine
Google’s particular strength in Retail helped them post strong gains in both spend and clicks in the quarter. Google’s share of clicks rose to 74.4% and reversed a downward trend in share since the launch of Bing. Yahoo! was the biggest loser in paid click share, giving up a full 3.4% since Q3 in moving from 24.4% to 21%. Bing held steady at 4.6% in Q4 vs. 4.7% in Q3.
Google’s share of spend also rose, but at a slightly slower rate, moving up from 73.9% in Q3 to 74.5% in Q4. While Yahoo! gave up significant share in clicks they lost only 0.5% in spend as a strengthening CPC at Yahoo! offset some of the click loss. Bing remained relatively stable in moving from 5.3% in Q3 to 5.1% in Q4.
Outlook for 2010
The Coming Seasonal Strength in Finance and Travel
Retail drove the 4th quarter and all signs point to continued strength in 2010. CPCs have been dropping in Travel for an extended period and consumer search volume (interest) is up only modestly. Conversely, consumer search volume is up considerably in Finance (+66% YoY in Q409). Efficient Frontier expects modest strength in finance and continued weakness in travel in 2010.
Bing To Return to Growth
Bing’s momentum dissipated in Q409 as Google’s strength in retail gave them the upper hand. Efficient Frontier believes that this alteration in the trend line for search engine share should be temporary with Bing’s comparative strength in travel, finance, and autos, providing a boost for share gains in the first half of 2010. The company expects a 30% gain to put Bing in the 6-7% range for share of clicks by the end of 2010, with accelerators available through distribution deals.
Potential Impact of the Microsoft-Yahoo Deal
The Microsoft-Yahoo! deal may have a unique impact beyond the sum of the Yahoo! and Microsoft’s collective share. Competition in Microsoft’s AdCenter will grow as the Yahoo! demand and advertiser base is absorbed, driving up CPCs. A deeper understanding of any impact or changes to distribution partners may change the outlook for CPC and volume. Importantly, Yahoo!’s crumbling paid click share hit 21% in Q409 from 24.8% in Q408, a drag that could offset Bing gains.
Overall Sector Growth Predictions
After a strong Q4 and continued recovery in the overall economy, we expect 15-20% range in SEM spend growth for the full year of 2010. Market competition in SEM should continue to recover adding CPC growth on top of volume expansion.
Additionally, the developments in the ad exchanges controlled by the engines (Right Media, AdX, and AdECN) will increasingly align display with search. As platforms like Efficient Frontier enable marketers to manage across search and display, a more comprehensive understanding of the full value of marketing will emerge. The most likely outcome is that the engines with strong display offerings will deepen their control of online ad spend.
Research Methodology
This analysis was completed based on data from Efficient Frontier search engine marketing customers and the resulting Efficient Frontier’s Customer Index. The Efficient Frontier Customer Index represents a subset of the company’s clients with spend data for six consecutive quarters or more, whose resulting SEM metrics are then normalized to average industry category contributions established by multiple third party data providers. The Efficient Frontier Customer Index consists of a axed sample of large scale U.S. search engine advertisers across multiple sectors, including Nance, travel, retail and automotive. The Efficient Frontier Customer Index sheds light on trends in search engine spending and performance on a year-over-year (YOY) and quarter-over- quarter (QOQ) basis.
The complete U.S. Search Engine Performance Report: Q4, 2009, is available for download from the Efficient Frontier website at:
http://www.efrontier.com/research/search-engine-report/Q4-2009
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About Efficient Frontier
Efficient Frontier is a leading digital performance marketing company managing search and display optimization for large-scale marketers around the globe. Founded in 2002, Efficient Frontier pioneered the application of modern portfolio theory to Search Engine Marketing. Today, the company combines its core predictive modeling algorithms and bidding technology with comprehensive, value-added services to manage more than $750 million in annual 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 marketplaces. The company is headquartered in Sunnyvale, California, with offices in New York, the United Kingdom, France, Germany, 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 www.efrontier.com and subscribe to the Efficient Frontier blog at blog.efrontier.com.
