European Search Marketing to Grow Through 2007

European search engine marketing (SEM) is expected to grow from €856 million in 2004 to three billion euros by 2010 according to “Europe’s Search Engine Marketing Forecast, 2004 to 2010” from Forrester Research.

SEM is expected to reach €1.4 billion in Europe this year, a 65 percent climb over last year. In the report, SEM refers to commercial search including paid listings, contextual search, site optimization, and paid inclusion.

Large companies already include SEM in their media buys, but small and medium-size enterprises (SMEs) don’t make search a substantial component. SMEs would do well to pick up on three key trends. Net-influenced sales will generate leads for companies without Web sites. Search engines offer marketing services that can generate the awareness achieved by yellow pages listings, although pay-per-call search services are currently only available in the U.S.

Broken down by country, the U.K. leads the rest of Europe in SEM. British businesses budgeted more than half their total online ad spend on search in last year. Spending this year is expected to reach €763 million. France will account for 19 percent of European SEM this year. Germany trails as third, spending €165 million in 2004. While the report forecasts SEM will build through 2007 and remain steady through 2010, it predicts a decline in ad spend from German businesses due to slower online marketing growth and more risk-adverse marketers.

Forrester expects SEM to grow at a modest compound annual growth rate (CAGR) of 13 percent over the next five years, with a decrease beginning in 2007. Several factors will trigger the decline. A backlash against paid listings will grow as consumers learn the difference between paid listings and natural search results. Rich media ads come into play with further adoption of broadband in the European market. The cost of keywords is also expected to increase, which will cut into the ROI.