SEMPO Survey Reveals Major Shifts, Part 1

The search marketing industry is looking mighty healthy. That’s the conclusion of the Search Engine Marketing Professional Organization’s (SEMPO’s) annual “State of Search Engine Marketing 2006” survey. Data from 587 respondents were collected, and Radar Research, the firm that conducted the study, has analyzed responses. Today, I’ll cover some top-line results and the implications they have for search marketers.

Most of the survey focuses on the North American market. More research is underway to cover overseas trends and assess the state of the market in other regions. The survey concludes total SEM (define) spending for North America was $9.4 billion in 2006. Paid placement accounts for 86 percent of overall spending, or $8 billion.

Advertisers spend the lion’s share of their money on PPC (define), yet almost three quarters of advertisers report they engage in organic SEO (define). SEO spending isn’t commensurate with organic SEO, accounting for approximately 12 percent of overall spending, or $1.1 billion. To calculate that number, Radar used estimates of both in-house and outsourced labor and fees.

Another reason organic SEO spending lags behind PPC may be that marketers (or their agencies) have decided the marginal benefit of incremental SEO spending is low. A similar phenomenon exists in public relations though, like SEO, good PR is extremely valuable. Throwing additional money at a top-notch PR agency and hiring additional internal PR staff may not make a huge difference. Likewise, the law of diminishing marginal returns hits organic SEO harder than paid placement.

The survey indicates paid inclusion (currently available only at Yahoo and some second-tier search engines) accounts for just 1 percent of overall spending, or $94 million. It’s tough to get Yahoo stats that confirm or deny that. However as the PPC and SEO arenas get more complex and competitive, technology will play a growing role. The market for SEM technologies, including leasing, agency solutions, and in-house development, will account for 1.3 percent of overall spending, or $122 million, according to the survey.

This number may be underrepresented due to several factors. First, many SEM agencies are building their own technologies for both organic SEO and PPC search. Second, Google and Yahoo API (define) charges should probably be included in the number. Google only started billing its commercial developers for API recently, so total 2006 API fees may not have been material. However, these fees may become more material in the future as they add up with certain vendors and as more vendors and marketers start integrating their systems directly into Google and Yahoo. Microsoft has pledged not to charge API fees because it rightly fears a chilling effect in respect to bidding, listing relevance, and innovation.

Five-Year Projections

SEM spending will grow to $18.6 billion by 2011 in North America. The survey predicts spending growth on pure SEM will plateau around that year as the industry matures. Strong advertiser demand will keep CPCs (define) high, but the industry won’t be able to create pure search inventory. The entrance of small to midsized businesses into the SEM marketplace will add spending and relevance, due to increased coverage (more searches have a relevant local or niche advertiser).

Advertisers have begun to assign branding value to their search tactics. This is a very positive sign, because Wall Street (perhaps fueled by some search engine information retrieval folks) has siloed online spending into search (textual search plus textual display purchased primarily on a direct response basis) and branded advertising (more accurately, graphical advertising, including banners, video, audio, and rich media). Truth is, all advertising and marketing delivers some directly measurable benefit and some branding benefit. The latter is more difficult to measure and quantify.

Branding and direct sales are paid-placement programs’ top objectives. Most marketers I speak with are smart enough to have both as objectives. One shift from previous years is that direct sales is now as compelling as brand awareness as an SEM spending objective. In 2006, direct sales was the top choice at 58 percent, followed by brand awareness at 57 percent (respondents could give multiple responses to their spending motivation). That’s a statistical dead heat.

Advertisers can’t break old habits, regardless of what they say their objectives are. Overwhelmingly, advertisers gauge success by direct response performance metrics. Less than a quarter (21 percent) track or measure branding impact. Instead, the overwhelming majority, 73 percent, track increased traffic volume; 71 percent measure conversion rates; and 68 percent track click-through rates.

When it comes time to request budget from the executive suite, nothing beats demonstrable ROI (define). Everything else is important, too, but it may take a few more years before the VPs support site stickiness or engagement as metrics of success, joining the direct response metrics.

There’s more survey results to cover next week.

Join us for Search Engine Strategies in London, February 13-15, at ExCel London.

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