New research from Search Engine Marketing Professional Organization (SEMPO) sheds light on what’s happening in the SEM (define) industry today, from the size of the industry to key trends that will shape the year ahead.
SEMPO’s sponsored survey was conducted by Radar Research and IntelliSurvey and drew 553 respondents. This is the second annual industry-wide survey; last year’s “2004 State of the Search Marketing Industry” was released a little more than a year ago.
The report contains both predictable findings and a few surprises. According to the study, the U.S. and Canadian SEM industry grew from $4 billion to $5.75 billion, with paid placement accounting for 83 percent of the total spend.
Despite its demonstrated effectiveness and the amount of time and energy search marketers spend discussing organic SEO (define) techniques, SEO accounted for just 11 percent of overall spending, or $632 million.
Paid inclusion, the controversial practice only offered by Yahoo, drew just 4 percent of overall spending, or $246 million.
The market for SEM technologies, including leasing, agency solutions, and in-house development, is growing, but it still made up less than 2 percent of overall spending, or $90 million.
The SEMPO study predicts the SEM industry will grow to $11 billion in North America by 2010.
SEMPO’s numbers are significantly lower than those recently put out by Wall Street research analysts. For example, Piper Jaffray’s Safa Rashtchy recently said paid SEM alone in 2005 generated an estimated $10 billion globally in 2005 and is expected to grow 41 percent in 2006, to over $14 billion.
Rashtchy also predicts the paid search market to have a 37 percent compound annual growth rate (CAGR), to more than $33 billion in 2010. Though Rashtchy’s numbers represent global expenditures, North America still represents the majority of SEM spending.
Rashtchy is confident enough in his calculations to raise his one-year price target for Google’s stock from $445 to $600. That would give Google a market cap of about $175 billion, making it eligible for a top-10 position in the S&P 100, with approximately the same market capitalization as stalwarts Johnson & Johnson, AIG, and Pfizer (though still worth less than Microsoft, at current prices).
Think that’s crazy? Caris & Co. analyst Mark Stahlman makes Rashtchy appear downright conservative: Stahlman says Google is on its way to $2,000 per share, making it the world’s most valuable company. Stahlman said Google may one day reach $100 billion in sales, as it expands beyond search and email into financial services and online healthcare.
Uh-huh. I can see it now: Google Doctor (beta). Look out below if this analyst suggests Google Beanstalk as the next big growth opportunity for the company.
But back to reality, at least from SEMPO’s point of view.
The report also notes Google and Yahoo dominate the paid SEM with 95 percent of search marketers advertising with Google, and nearly 60 percent of advertisers running campaigns on Yahoo
In the contextual advertising realm, 46 percent of search marketers run campaigns with Google AdSense and Yahoo Search Content Match. Despite the relatively small percentage of overall spend, 38 percent also report using Yahoo’s paid inclusion program.
MSN is apparently gaining traction among search marketers, with close to one third of advertisers running a campaign on its search engine despite the company’s relatively recent entrance into the marketplace.
Search Marketing Goals
In a surprising finding, the SEMPO study finds the majority of search marketers (62 percent) say branding was the primary objective of SEM campaigns. Nearly as many, however (60 percent), say selling products is a key objective.
The contrast in objectives is sharp between small and larger companies. Firms with fewer than 500 employees are more focused on selling products, whereas organizations with more than 500 employees are more interested in driving leads and traffic to their Web sites.
Despite these self-reported goals, fewer than 24 percent track or measure branding impact. That doesn’t mean analytics and measurement aren’t important; fully 80 percent track increased traffic volume, 74 percent measure conversion rates, and 69 percent measure CTRs (define).
This suggests advertisers are still enamored of the concrete, demonstrable ROI (define) that can be measured from search advertising. They’re less concerned with more sophisticated marketing objectives, such as branding, or correlating search behavior with offline marketing activities.
Whether you agree with the numbers or not, the SEMPO study is an interesting read. For further analysis and additional data, download the “State of the Search Marketing Industry 2005” from the SEMPO Web site.
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