Search Industry Update

Aug 18, 2008 - 2:19 pm 1 by

Search marketing is the largest online ad format. Paid search not only accounts for nearly 45% of the global online ad spend, but it is also one of the fastest growing online ad formats. The panel will focus on the broad trends in search marketing, such as growth drivers, core search vs. vertical search, search spending and CPC trends in general and by verticals, search penetration in the U.S. vs. international, search adoption by brand advertisers, and search vs. other online ad formats.

Moderator: • Sandeep Aggarwal, Senior Internet Research Analyst, Collins-Stewart Speakers: • Heather Dougherty, Research Director Hitwise • Kevin Lee, Executive Chairman & Co-founder, Didit • Sean Walsh, VP, Online Marketing, • Jaideep Singh, CEO & Co-Founder, ___________

Sandeep: We are the first panel in SES, the topic you will hopefully find very interesting. I am an internet analyst with Collins Stewart. I used to do strategy planning for Microsoft and Schwab.

Why is this topic important? Some industry data. This advertising industry is around $700 billion, and internet is a $45 million industry. We think it will grow over 5 times faster than advertising over the next few years.

In order to determine trends in search marketing we have some great panelists. After they introduce themselves they will chat and then take questions.

Sean Walsh will be first.

Sean: Thank you Sandeep. I am the VP of online marketing for, essentially an online luxury travel marketplace. You can consider it to be a combination of Priceline and Ebay for luxury travel. I have run some large and small paid search campaigns, and have been involved in product strategy and web development for many years before that. I originally started in aerospace engineering and found my way here. I’d like to spend a few minutes to take you far afield from what you will be hearing over the next few days.

Over the past few years the shift from offline to online advertising has fueled many businesses. There are a few countertrends though that may be cause for concern – the health of the American economy and the American consumer. Here are some data points. I encourage you to point out what could be some of the holes in my argument, ask questions and please approach me after the session. A few data points on the travel industry, pulled from Google Insights, a relatively new tool. It’s one data point, but indicative of what’s been happening. This is the trend of the search query for “vacation” over the past few years. We are down now, there is certainly a decline. That is happening in the context of the indication of some of the vacancies in hotels, Phoenix and Nashville and Chicago have some of the highest vacancies. Some cities are benefiting from the weakness of the U.S. dollar such as New York and Las Vegas; but U.S. hotels are struggling though overall right now and have hard times ahead. That comes amid a great increase in the investment in hotels around the U.S. If you look at the trend line you can see that hotel investment, over the last few years, has doubled. Why has it increased so much when residential real estate has been dropping? Commercial projects take longer so it will take a while to see the downtrend.

It makes me wonder how anyone can consider “inflation contained”. Take a look at this red trend line, government statistic of the CPI in the U.S, it is at a high since the early 90s, we have the highest inflation since the early 80s. The thing that is most surprising is that in addition to record inflation, we have also changed the way we record CPI. The blue trend line is the way true inflation would be recorded if we calculated the same way as in 1980. 70% of GDP is made up by the American consumer. So my point is the economy is in worse shape than you may think. It is true there is a shift from offline to online advertising, but I now believe that we may be in for a bit of a bumpy ride over the next few years. It may be prudent to take a renewed interest in our ROI calculations; consumer purchasing has declined, which is hard for online marketers.

Heather Dougherty of Hitwise: We are an online internet measurement company that focuses on competitive intelligence. You probably see a lot in the press the market share of the various search engines. In July we saw Google surpass over 70% of searches, we see them continuing to grow, they have increased 10% over the previous year. In the UK they have 87% and in Australia, 88%, so even globally they are a strong force in the volume they are driving. We look at traffic in terms of market share of visits. From October 2007 to July 2008 you will notice the traffic has been continually increasing. What’s interesting is that the 2 colors on the chart show new and returning visitors. With Google, their returning visitor rate is about 90%-95% month to month.

Also, we look at the search impact of each individual industry. Auto for example; about 38% of their traffic in July was driven by search, so folks are using that strongly. If you look at banks and financial institutions, the percentage is much less, because people just go straight to their bank website for online banking. Food and alcohol are in the middle, folks are looking online for coupons and such.

Now we can not only look at share of search traffic, but how much is paid vs. organic. With the same industries we just saw, obviously retailers are at the top of paid search, followed by auto manufacturers that are involved in paid. In the middle, are the packed foods and goods companies. It shows that there are a lot of opportunities for optimization.

Kevin Lee: DidIt: Most of you probably know of me because I write a weekly column on ClickZ. We’ve been managing paid search since inception, we are older than Google, some of the data I like to illustrate is the theme of Google, how they are continuing to take their share of wallet, right with their share of growth. The general idea is that if you look at percentage spend, they have gone from 64% up to 75% of spend. Because of the way we manage paid search for clients, we don’t care who gets the dollar, we put the money into the better opportunity, wherever it may lie. So quality of traffic and competitiveness drives where the money goes. So we shift the money around. You might think Google is the most competitive bid landscape – yet we can still get ROI’s out of Google. We probably spend a little more time optimizing Google campaigns, but they are really like a steamroller continuing with wallet share.

Interestingly, I also help SEMPO run the state of the market survey each year which shows how people have responded to “can you really afford further price escalations”. People have a little more reserve price to go. Whether you choose to bid higher or not is a separate thing, but think about new strategies because you may need to leverage that in the marketplace.

What if keyword prices continue to escalate? Many advertisers are trying to improve the efficiencies of their campaigns.

Some things to watch for this year with regards to search: a lot more contextual opportunities, more retargeting opportunities, more opportunities to buy rich media and video. This may actually be the year of mobile – what is the appropriate monetization for that – no clear winner with regard to modes of paying, but there will be increased real time advertising opportunities. There is also a blending of search and display: showing vs. targeting an ad. Also, what is going to happen with Yahoo?

Jaideep Singh: We are seeing the second innings of search…search is getting more and more prevalent. What are people doing in the area of people search?

-Spock is venture backed with 8 million raised -We are the leaders of people search space we have indexed over 300 million people to date -We have 4 million unique visitors per month

What is the people search opportunity in terms of queries? This is a very large market – there are a lot of searches for people in search engines and social networks. People also search address books and content sites – so there are 45 billion people searches a year not including mobile.

This will be interesting for advertisers to reach users.

To give you a sense of how this breaks down – a lot of people searches go unmonetized because it is hard to target name searches, but we enable searches by keywords and by names. About 25% of searches originate with queries for a doctor, lawyer, service provider. So we enable those types of searches and have good performance for advertisers and click through rates.

A quick demo on

A search for “venture capitalist.”

A search for “cardiologist in Denver” and you get people results.

Question from the audience – what if you don’t want to be found?

We don’t index those private pages if you don’t want to be found. Check it out after we are done here. Thank you.

If you want your name to show up in see Jaideep after the session!

Sanjeep: If you want your name to show up in see Jaideep after the session!

Some questions:

Why is search the most effective online format? Why does it have such a large ecosystem? Kevin?

Kevin: Heather probably also has some interesting data. To some extent, many marketers see that consumer behaviors have moved to search, and not being there is a HUGE opportunity cost. The vast majority of marketers are using search to harvest demand – a lot of people are close to the end of the buying cycle and search allows marketers to tap into the consumer or business prospects right at the time it is most valuable. So we will see where it goes, right now there is no waning of the power of that paradigm.

Heather: At Hitwise, we see that consumers are telling us what they want., in some instances you can predict this; every year in January it is diets, resolutions, so you can predict this, help drive the demand. Learn when the trends and spikes are and get in front of the data. So not only be reactionary, but help drive the demand. Search I think needs to help drive decisions across the organizations, they are giving you the language to describe something and they know you have what they are looking for.

Sean: When I look at paid search as an ad format, I think it’s kind of lousy, I mean you are limited to characters and you can’t use all caps. But the point is, you are capturing someone right at the moment when they are ready.

Kevin: With targeted searches, you have more ability to be more creative so I think this year we will see a lot of increased advances there.

Jaideep: Let me add to that. Until now, from a user stand point, it used to be that people had to think about the right way to phrase a query. But now you can type something in and the search engines will suggest a variety of other phrases to search!

Sandeep: In about 15 minutes I will open the floor to questions. Kevin lee is offering a signed copy of his book to those who ask!

When should we start seeing brand advertisers adopting search? GM, Ford, Proctor and Gamble, etc; what other trends are we seeing in big brand advertisers. Kevin?

Kevin: They are perplexed at what to do with search – what does Coca Cola doing with that, how many people search for “thirsty” or “cola”? So they need to be creative if they want to use search as a marketing tool. Maybe Coke should be bidding on American Idol names, since they are the sponsors? Perhaps Olympic sponsors should buy the names of Olympic athletes? It would help increase awareness. Right now, for “oily hair”, there is just not enough search volume for Proctor and Gamble so they need to be creative.

Sean: A lot of big brand advertisers can’t sell their products online. Especially now with automobile companies, they are struggling in other ways.

Heather: It makes more sense that someone click on an ad for Toyota Prius than diapers, it’s a higher consideration product, so with auto I think they have a little more opportunity, they need to drive folks to their websites to learn about cars than go to dealers. Pepsi has some paid search activity, but it’s more about branding than anything else, so I think they do need to experiment beyond that.

Sandeep: Heather, you showed us a slide on market share, what kind of trends will be applicable across the board? Who is driving innovation, does Google still lead the pack? What other trends do you see?

Heather: I think with Google, they have clearly been aided by the browser, i.e. Firefox. A client pointed this out – we have continued to see searches on branded terms continue to increase, 88% of the top 1,500 search terms are branded; it similar to when AOL had the go box – and we are seeing things like that help Google.

Sandeep: What kind of trends do you see with your clients?

Kevin: It seems to be a slow but steady move with regard to query share volume, we don’t use contextual heavily for clients, but Google is doing heavy expansion into contextual. When you ask more marketers is contextual search? And they say yes but it’s clearly not. So the bucket is not clear in many cases. What bucket does contextual and display even fall in? Google is rolling out products and services in that direction.

Sandeep: Sean, what other spending trends in search marketing do you see right now, are they meeting your internal expectations?

Sean: I can give you some trends for the travel space. Also, the mortgage space and mobile search which I have been involved in. In the travel space, I have been seeing CPCs come down, I try to isolate out improvements I make to ad copy or other things that would improve my quality score. What I have been seeing is a bit in decline in the CPCs in the program as a whole. The mortgage space has been falling off even more rapidly, has been backfilled to some degree by banks, a lot of paid search in that area. In mobile search, the search volume has been growing pretty dramatically.

Kevin: One interesting thing we have noticed with our clients, there is a lot more volatility than in prior years – the demand for the advertising is more volatile up or down. Some search marketers are just now getting their “search is great” epiphanies, and others who are cutting budgets across all media spends. A lot of crazy decisions are being made.

Sandeep: How can the advertiser benefit from people searches? What monetization angles are you looking at?

Jaideep: There is not a clear marketing method, but we are focused on not just the person but the meta data about the person. If you search for me you see entrepreneur, venture capitalist, when you look at those keywords, there are strong CTRs. So in general we are working with Adsense and the Yahoo publisher network now, we have about 50 advertisers now targeting our site. Companies like Intellius and White Pages and service providers like real estate agents and lawyers targeting us. In those businesses it makes a lot of sense. About 20% of searches ended up being celebrity searches – so what are we promoting there – shopping; movies etc.

Q&A portion.

Q: if the yahoo/Google deal goes through, how might it affect your business?

Kevin: Yahoo might create a system how to rotate ads from third parties. How that impacts us – our clients are large so don’t only have a Google account, they will have on Google/yahoo/msn – so if the click comes through the more expensive rate, that could result in cost escalation.

Contributed by Sheara Wilensky of Promediacorp.


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