Search Spending to Grow, Move In-House

  |  January 9, 2006   |  Comments

A new report from SEMPO finds that spending on search marketing will grow to $7.2 billion in 2006, with more advertisers opting to keep their efforts in-house.

Spending on search engine marketing is on the rise, but more advertisers are opting to handle their search efforts in-house, according to a report from the Search Engine Marketing Professional Organization (SEMPO).

In "The State of Search Engine Marketing 2005," more advertisers responded that they are planning on managing their SEM campaigns in-house this year, with 65 percent of respondents to its November survey saying they would handle their entire search efforts in-house rather than outsource to an agency, up from 52 percent of respondents in last year's report.

Smaller advertisers are more likely to keep paid search efforts in-house. Sixty-nine percent of advertisers with fewer than 500 employees said they will handle 100 percent of their SEM efforts, while 53 percent of larger advertisers responded similarly. Among larger advertisers, 33 percent of respondents said they would outsource more than half of their efforts, including 6 percent who plan to outsource their efforts completely.

"Integration will be the key here. Advertisers need to make sure their search plan is integrated with the rest of their marketing to take advantage of the peaks in search activity that coincide with other online and offline campaigns," Gord Hotchkiss, SEMPO Research Committee co-chair, told ClickZ News. "When consumers' interest is aroused, it's a pretty good bet they're going to go online to learn more, and when they go online, it's a good bet they'll go to a search engine."

The research did not explore the reasons why advertisers are choosing not to outsource, but one factor that could be contributing is advertisers' dissatisfaction with SEM agencies. Among advertisers that did outsource paid search, fewer reported being happy with their agency's performance. Only one-third of respondents said they were either "very happy" or "moderately happy" with the services of their primary SEM provider in the past year, while 42 percent reported mixed results, and 25 percent said they were moderately or very unhappy.

The report also found that advertisers overall use paid search almost equally for branding, direct response, and lead generation, while larger advertisers use search more for branding than for direct response. Overall, 62 percent of advertisers that responded are using search engine marketing to increase brand awareness, 60 percent said they use it to sell products or services directly, and 58 percent use search to generate leads that they plan to close via another channel.

These objectives diverge once an advertiser's size is factored in, with 77 percent of advertisers with more than 500 employees reporting that search is used for branding, 49 percent for direct sales, and 70 percent for lead-generation. For smaller companies, branding is less important, with only 55 percent reporting that as a goal of search, 65 percent saying they use search to sell directly, and 54 percent to generate leads.

"It seems like 2006 will be the year that search expands beyond its direct marketing roots and gains traction with brand advertisers," Hotchkiss said.

These findings are similar to those reported in SEMPO's "The State of Search Engine Marketing 2004" research. That report found that 61 percent of respondents said they use SEM to increase brand awareness, while 58 percent wanted to sell products or content directly online. Next in line was lead generation, with 54 percent saying they aimed to generate leads that they could close themselves via another sales channel.

According to SEMPO's research, advertisers in the U.S. and Canada spent $5.75 billion on SEM in 2005, a 44 percent increase over 2004's reported $4 billion. In 2006, advertisers plan to spend $7.2 billion, and spending is expected to reach $11.1 billion in 2010. These numbers include agency and in-house expenses for paid placement, paid inclusion, organic search engine optimization and search engine marketing technology platforms.

A Piper Jaffray research report put the paid search industry at $10 billion globally in 2005, and estimated its growth at 41 percent in 2006, reaching more than $14 billion. Piper Jaffray also predicted the industry will grow at a 37-percent compound annual growth rate (CAGR) to more than $33 billion in 2010.

The SEMPO survey found the bulk of the SEM spending will be on paid placement, accounting for 83 percent or $4.7 billion. While four out of five advertisers report they engage in organic search engine optimization (SEO), organic SEO will account for approximately 11 percent of overall spending; paid inclusion will account for just 4 percent of overall spending; and SEM technologies, including leasing, agency solutions and in-house development, will account for less than 2 percent of overall spending.

The report is based on an industry-wide survey of 553 respondents conducted in November 2005 commissioned by SEMPO from Radar Research and Intellisurvey.

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Kevin Newcomb

Kevin Newcomb joined ClickZ in August 2004, covering search marketing and other online marketing topics. He has been reporting on web-based businesses since 2000.

Before the bubble burst, Kevin was a marketing manager for an online computer reseller, handling copywriting, e-mail marketing, search marketing and running the affiliate program.

With a combination of real-world marketing experience and years of business journalism, Kevin brings to ClickZ a unique ability to deliver news and training materials that help online marketers do their jobs better.

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