Search Marketing Spend Growth Accelerates, Exceeding Expectations

Retail Sector Leads the Recovery; Positive Trends Expected to Continue in Second Half of 2010; Data Based on Efficient Frontier’s Q2 2010 U.S. Search Engine Performance Report

SUNNYVALE, Calif. – In Q2 2010, the Search Engine Marketing (SEM) industry posted solid year on year (YoY) growth of 24% and 9.7% quarter on quarter (QoQ) growth. This is according to Efficient Frontier, a leading performance marketing company managing more than $900 million on behalf of clients worldwide on an annual basis. This data and specific industry trends were released today in the company’s Q2 2010 U.S. Search Engine Performance Report.

“The second quarter growth for the sector exceeded our expectations. We anticipate that the positive trends will continue for the back half of the year with retail leading the charge,” said David Karnstedt, President and CEO, Efficient Frontier. “We see the demand for online performance marketing continuing into 2011, especially in the areas of search, display and social media.”

Report Highlights:

Spend Growth Accelerates, Exceeding Expectations

In Q2 2010, the search marketing sector continued to bounce back, shrugging off a still uncertain economic environment. YoY spend was up 24%, with a 9.7% increase in spend QoQ, partly due to a recovery in Cost Per Click (CPC) prices which rose across all of the major search engines. Overall, return on investment (ROI) in search was up 4% YoY and was 10.6% higher than last quarter (Q1 2010).

Retail Sector Leads the Recovery

In the first half of 2009, search felt the adverse affects of a sputtering global economy. In sharp contrast to a year ago, search marketing in Q2 2010 is showing a strong recovery.

The retail sector leads the recovery with 38% growth in spend YoY and 16% growth QoQ, a pace that far exceeds the typical modest quarterly rise in Q2. Retail CPCs continue to grow at 18% YoY and 17% QoQ, indicating a growing aggressiveness on the part of advertisers in this sector. Consumers are also playing their part in driving the recovery with impression volume up 65% YoY, signaling continued consumer interest in online shopping.

Seasonal Strength Bolsters Travel; Auto Improves While Finance Lags

The travel sector also enjoyed a recovery in this seasonally strong quarter with a 10% YoY increase in spend due to a 13% YoY increase in CPCs. The auto sector continued its growth with a 6% YoY increase in spend. The Finance sector took a 2% dip in growth despite a 22% YoY decrease in CPCs. Although advertisers were not able to monetize leads as well, interest remains high for financial products.

Retail: Spend was up 38% YoY due on strong consumer and advertiser demand
Travel: Spend was up 10% YoY on CPC gains
Finance: Spend was down 2% YoY due to a decrease in CPCs that was largely offset by volume growth
Auto: Spend was up 6% YoY on CTR and CPC gains
Bing Continues to Gain Market Share while Yahoo! Loses

Bing continues to grow its market share at Yahoo!’s expense. Taking quarterly fluctuations into account, Bing’s spend share has grown from 6.1% in Q1 to 6.4% in Q2 2010. Bing click share has remained stable QoQ. The YoY spend share gain for Bing is 56% and YoY click share gain is 36%.

Meanwhile, Yahoo! continues to lose market share as spend fell to 18% from 18.7% in Q1 2010 and click share fell to 19.4% from 20.1% in Q1 2010. Yahoo!’s Q2 2010 numbers represent a 12% YoY spend share loss and a 9% YoY click share loss. Google’s market share has grown slightly in Q2, with both spend share and click share up to 75.6%.

Outlook for H2 2010

After a Strong First Half, Q3 is a Critical Quarter

The last two quarters have shown strong growth in terms of SEM spend (20% YoY in Q1 and 24% YoY in Q2) and we expect the positive trends to continue for the second half of the year. CPCs continue to make a strong recovery, indicating growing demand and larger advertising budgets, which should continue to contribute to the expected growth in the coming quarters. However, weakness in the European economy might negatively affect Q3, so we remain cautious as we keep our SEM growth expectations in the 15-20% range.

Microhoo! Expectations

Given the diverse performances of Bing and Yahoo!, we remain cautiously optimistic about the Yahoo!/Microsoft partnership. In the long run, we believe that the integration will bring small advertisers on board the unified platform, increasing marketplace demand, and lift CPCs. However, we are uncertain of the short-term effects. Currently, the unified Microsoft and Yahoo! stance is that advertisers will only be allowed to place the same bids across both search engines. Due to the very different ROIs across Yahoo! and Bing, we feel this will be detrimental to advertisers because the high ROI on Bing will subsidize the lower ROI on Yahoo!. The net effect could be suppressed CPCs, dampening the impact of greater demand.

Retail to Continue its Growth

Out of the four sectors, we expect retail to continue showing strong growth in search engine spend in the range of 30+%. We have found retailers increasingly willing to experiment and explore new ways of online marketing, using all available channels such as search and display, and using cross channel marketing to help them attribute offline revenues to online efforts.

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 fixed sample of large scale U.S. search engine advertisers across multiple sectors, including finance, travel, retail and automotive. The Efficient Frontier Customer Index sheds light on trends in search engine spending and performance on YoY and QoQ basis.

The complete U.S. Search Engine Performance Report: Q2, 2010, is available for download from the Efficient Frontier website at:

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 $900 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 and subscribe to the Efficient Frontier blog at and follow on Twitter at