This week, I’ll delve further into the results of Search Engine Marketing Professional Organization’s (SEMPO’s) annual “State of Search Engine Marketing 2006” survey. It holds some interesting data for search marketers, both in-house and at SEM (define) agencies. Even the investment community has been showing interest in SEMPO data lately.
SEM is gaining visibility in the corporate suite. Top executives are starting to pay attention to it. For the first time, a majority of senior executives consider SEM a high business priority, with more than half of advertiser respondents (51 percent) saying senior management at their companies were “very involved” in SEM programs.
I doubt this means senior executives are making tactical decisions about SEM, such as managing bids or writing titles (organic or paid). But executives, like the general public, are using Google, Yahoo, and MSN to make their own buying decisions, so they’re finally starting to get it. There’s still huge room for growth, however, both halves of senior management — those who don’t view SEM as a priority and those who do.
SEM is poaching budget from other marketing channels, perhaps due to increased search visibility in the corporate suite. The survey found increased SEM spending (mostly PPC (define) search) is coming from offline marketing channels. An increased budget shift into SEM from other media is quite a change from prior years, including 2005, when budget was shifted mostly from online media such as Web development and affiliate marketing. Thirty-six percent of search marketers report their funding for paid placements programs and organic SEO (define) came from newly created 2006 budgets. Advertisers who are shifting budgets toward SEM are primarily taking the money from offline marketing channels such as print magazine advertising (20 percent); direct mail (16 percent); TV (13 percent); and print newspaper (13 percent).
This is great news. Finally, the budgets are following the eyeballs. As consumers spend more time online, they spend less time reading print or watching TV (especially the commercials, given the continuing proliferation of DVRs). Search doesn’t, of course, claim a high percentage of consumers’ online time, but the searcher’s mindset is unique. This trend is also good news for increased quasi-search spending. Contextual and behaviorally targeted media increasingly show up as an option within the engines’ interfaces. Given the limited inventory of pure searches across any keyword set, marketers will find ways to tap opportunities inherent in this extended inventory.
Advertisers and agencies alike agree CPCs (define) are rising; however there’s greater disagreement than last year over pricing trends. Almost three quarters of advertiser respondents felt prices for their common keywords rose in the past 12 months, while 100 percent of agencies believed prices rose. When asked about paid placement in particular, surprisingly, 17 percent of advertisers didn’t know whether they were paying more in 2006 than in the previous year. Agencies feel they’re experiencing modest price increases more than advertisers do.
Of those advertisers who’ve determined prices increased, most would address increased prices by improving program efficiency before cutting spending. This is an opportunity for vendors and can help improve efficiency. Improving site conversion efficiency and overall bidding program efficiency would be advertisers’ first steps toward generating the required efficiencies to afford the CPCs in an escalating market.
Without ROI (define) improvements in place, advertisers and agencies are approaching their price limits. Three out of four advertisers said they could still afford an increase in keyword pricing in 2007. The remainder said they were currently at maximum efficiency. Yet even among advertisers reporting the capacity to increase their ad expenditure, the vast majority can only absorb increases of less than 30 percent. Despite increasing ad spend and year-to-year growth in SEM value, we’re likely nearing a pricing plateau as advertisers approach their maximum efficacy.
Advertisers who figure out how to become more efficient will have the increased reserve price to break through the plateaus and capture a higher percentage of targeted searchers through higher positions.
Agencies should also interpret the survey findings as a wakeup call. Although many of those answering the survey were in-house SEM professionals and some may have a specific agenda given their role, there was a significant increase in the desire to move organic and PPC search in-house. Nearly two thirds of advertisers report they intend to manage 100 percent of their SEM initiatives in-house; 57 percent are keeping their paid placement entirely in-house; 61 percent are keeping organic SEO entirely in-house; and 59 percent are maintaining their paid inclusion in-house.
If advertisers follow through on their responses, we may see a shift in which in-house search marketers replace agencies. Agencies must prove they provide value-added services. However, the data also imply managing SEM internally is a stop-gap measure while the SEM agency marketplace undergoes consolidation and contraction, improving service levels and the ability to demonstrate value. Agencies must also show demonstrable ROI to clients to improve advertiser satisfaction, which currently seems rather low. Radar Research (which conducted the survey for SEMPO) is convinced advertisers will begin to realize internal management of their SEM is both costly and complicated. They’ll likely begin to outsource once again.
Over time, there will be a clear balance of in-house and agency-managed search marketing on both the paid and organic sides. Even hybrid mixtures may evolve, in which in-house search marketers use some outside services but cover much of the strategy, coordination, and work themselves.
Next year’s data will be even more enlightening, I’m sure.
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