Niki Scevak from Jupiter Research opened up the Search Forecast and Outlook: Profiting from Growth Through 2009. I have attended this session about 2 times before, as I believe it provides some of the best information on the first day of the conference. He mentions that by 2009 paid search growth remains strong but beginning to slow eventually. Search will reach 5.5 billion dollar industry by 2009.
He next goes into the elements of paid search, with the first being pricing. What is seen is the increasing cost per clicking will be driving spend up and ROI down. The willingness and confidence of marketers to spend is the return on investment that paid search can return. He mentions that paid search cost will eventually stabilize. As retailers, travel merchants, and online merchants improve conversions rates some of that price is passed down as a higher CPC price. The primary aim is transactional, and if you peel away the effect, the primary goal is to produce successful sales.
The other driver of search dollars is the growing segment of households adopting broadband access. Search is the second most ambiguous activity next to email. As broadband increases from 27 million households to 46 million households will mean that users are spending more time online. This is a conservative outlook, and mentions that the forecasts for last year were short of what was real. In terms of the impact of broadband, the convenience is one of the things that will provide benefit to the people using it. Having access more frequently will allow more people to easily go online.
Relevance is improving and because so will help users make better decisions. Niki next goes into Local Search. He sees that in 2004 local search was a 408 million market, and by 2009 it should cap or exceed 879 million. This market is a long standing challenge that many companies have invested heavily to realize the full impact of this market. He says this market is in its very early stages, and there are barriers to adoption by users. One of the things they are very bullish on, is vertical search. There are many broad based online properties such as a lot of major online magazines and news sites. Search engines will launch around these categories in order to bring a broader selections of options for users. He mentions an executive survey they do yearly to investigate the amount of search spending tied to online transactions. The primary goal of the search spending is online transactions, and the dollars spent is tied directly back to instant online sales. Where there are transactions are going on, paid search marketing will be eventually tied to its success. They conducted a study that indicated that select categories (travel, media, entertainment, financial) are taking 80% of search spending seen today. Examples of these companies include Bizrate, Monster.com, and many other companies under these categories.
So what will the future hold for these categories? He says that new search engines will launch and that existing players will restructure their pricing model based on CPC and lead based acquisitions. There are a number of players that are gaining traction in the vertical marketing. 1/3 to 1/5 of users of vertical search engines come from broad based search engines such as Google and Yahoo. The role of vertical search is to further allow better searching for the user and make the transactions easier in the change. Often the users find better information and the retailers get better quality leads. We may see more companies spending more money on vertical search engines. Vertical search will not replace Google or Yahoo or one of the broad based search engines. Its an added layer to the search experience. If you go to Yahoo and type in “digital camera” you might end up on Amazon or Shopping.com and then back to Amazon to make your purchase. The process is not complete yet.
Niki next goes in a forecast of search that will profoundly impact display advertising. The advertising placement is expanding and there is a critical mass of advertising available. They have a large amount of reach, but very few frequency in terms of behavioral marketing. Its hard to measure the exact behavior. Will they use Google or Yahoo. The decision to search for a product or service can last for several months instead of just a short amount of time. He then ends and opens up for questions.
Q: How much are search engines are getting into display advertising? Where is mobile search headed? A: Once the inventory of search sites becomes mature, where people can plug into a network. Example is Friendster, where they have a huge inventory but little behavior tracking. They are willing to share their revenue to reach a better display. If someone searches for a car, car ads may appear on the Friendster network next time they log in. Mobile search is increasing, Yellowpages is one example as it appears he is implying this is the one way people might use it. He also mentions that mobile search is not that convenient yet.
Q: What the limiting factors facing search? A: The maturity of the online population is an issue. The improvement per months will be based on new broadband users, and one that is tenured. He says that in coming years, cost will be stabilizing, not that they will not increase, but it will be slower. As long as conversions improve, so will cost of advertising, as their many industry where there are still undiscovered keywords and inventory. This has also contributed to the large amount of growth, and it may become more flat as the inventory plays out over the next few years.
He mentions an interesting fact from the yearly survey they do, is that surveyed individuals have said that print based yellowpages (big yellow book) is more effective and easier to use than online listings or yellowpages.
Q: Where are the assumptions behind the growth through 2009 coming from? A: Around 23% of queries have a commercial intent. This has been trending slightly upward. There are significant efforts by search engines to identify their organic results. The relevance between paid and organic should not change dramatically. He says that organic results offer more opportunity to describe more information about the site. This information helps drive more people to use organic listing, whereas paid search is limited to a certain amount of words in the copy.
Q: If Google examines the people that use paid search and only lets in the most relevant, will this improve conversions? A: Niki says that you can not restrict the view just to a US market. Within the last 18 months, companies have tripled their budgets for paid search as they become more sophisticated.
Q: Someone in the audience mentions that paid inclusion is included in the forecast and asks why this is? A: Yahoo is one of the players still using paid inclusion. This is evolving into some kind of transaction form. I don’t know what he means here. It’s a niche opportunity. He says that paid inclusion is certain misunderstood. Where paid ranking vs. the guarantee that your site will be spidered daily. People may be willing to paid a certain amount of money for this certainty that their new products will be spidered.
Q: Question on budgets A: People should not look at how much should we spend? The expectation level is unreal. When you have the contextual pricing tied to search advertising. This is confusing for advertisers. I do agree!
Q: Contextual advertising trends, where are they headed? A: Direct sales forces are becoming better. Contextual advertising networks are constrained by the success of the direct sales force. This is on one side. There are remnant inventories, based on a yield management surveys, that advertisers are looking at. It’s hard to say that basing the ads on what is on the page of the website doesn’t tell much about conversions or trends. I am sure he is directly talking about the contextual properties that are under Google’s and other search engines control (eg. Adsense, Content Match, etc..).