The revenue numbers keep getting bigger, but the growth rate will slow as the market matures.
Spending on paid search will more than double by 2009, but growth will slow as the market matures, a Jupiter Research (a Jupitermedia Corp. division) report revealed today. The firm expects advertisers to spend $2.6 billion on search by the end of 2004, and rise steadily through 2009 when it reaches $5.5 billion.
Despite the rise in spending, the compound annual growth rate (CAGR) will slow to 11 percent in 2009, a big drop from the 60+ percent in 2003 and 30+ percent in 2004.
"Paid search has grown aggressively over the past several years and will continue to grow at a good rate. Growth of 63 percent last year and 11 percent in 2009 is a sign that the market is maturing. As it gets larger it can't continue to grow at the same pace," said Nate Elliott, associate analyst at Jupiter Research.
The lift in ad spend is accompanied by a large increase to the average click price. Rising 62 percent, Jupiter found the average click price will jump from $0.29 in 2003 to $0.47 in 2009.
The rising click prices coupled with Nielsen//NetRatings prediction that search activity would deplete ad inventory, could be seen as key variables in the huge rise in search spending. However, Elliott says, "Lack of inventory and rising prices are contributing factors but they are part of a normal maturation process."
The search spending growth will naturally benefit search engines and agencies, but organizations that can quickly adapt to the pricing increases will likely reap rewards as well. "As companies continue to invest and search prices rise, they will have to get better at measurement. At $0.05 per click, I'm not as likely to be concerned with my return on investment, but for $0.45 cents I want to make sure I'm getting my money's worth," said Elliott.
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