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Search engine marketing spending surges

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Spending on search engine marketing last year totaled $9.40 billion, up 62% from $5.80 billion in 2005, according to the Search Engine Marketing Professional Organization's annual State of Search Engine Marketing report, released last week.

The survey was conducted online in December and drew responses from 587 search engine marketing agencies and advertisers.

While organic search was the most popular form of search engine marketing, with close to three-quarters of advertisers using it, most of the dollars ($8 billion) were spent on paid search. Organic search, also called search engine optimization, garnered $1.10 billion. Paid inclusion accounted for $94.0 million of the overall spend.

"SEM has started to become a mainstream marketing platform," said Marissa Gluck, managing partner at Radar Research, the company that conducted the survey for SEMPO. "Based on capital as well as organizational effort within marketing companies, it's no longer a side thing at all," she said. "Marketers are putting their money behind it."

Money poached from offline

According to the survey results, the biggest change in 2006 was that search marketing poached budget dollars from offline marketing channels, according to SEMPO. That is in contrast with 2005, when money was shifted to search engine marketing mostly from online media.

Twenty percent of advertisers surveyed by SEMPO said they are shifting money to search from print magazine ads, 16% are moving direct mail dollars, 13% are shifting TV spot dollars and 13% are moving funds from their print newspaper ad budget.

"Marketers in the past were shifting budget from their online initiatives, like Web site development, or affiliate marketing," Gluck said. "We really saw a flip in the data this year."

Kevin Lee, a SEMPO board member and co-chairman of its research committee, as well as executive chairman of agency Did-it.com, said the budget shifts make sense.

"It's a realization among marketers that customers' behaviors are changing and they are relying on online in general," Lee said. "When someone has a question these days or a curiosity about something, whether it's a product or service, the search engine is where you go for that information. As that sinks in for marketers, they will follow those customers with the money. As the behavior moves online, the money will follow it."

SEM part of overall strategy

Craig Cooperman, director of acquisition marketing for Register.com, a domain name registrar, said search is an important component of his company's overall marketing strategy.

"It speaks to the needs of your customers, who are actively searching on branded terms and industry-related keywords," said Cooperman, who has shifted offline spending to search in the past year. While he would not cite an exact figure, he said Register.com spends millions of dollars a year on search advertising.

"We shifted significant portions of TV and radio spend to paid search," he said. "When you look at some of the less measurable channels, like TV and radio, we were able to turn down some of the spend in those areas and increase it in paid search, where we could do more testing, expand it, see the results and continue to track it. It's highly measurable."

More than half (58%) of respondents said they use search engine marketing to sell products, services or content directly online; 57% use it to increase or enhance brand awareness. Forty-seven percent of respondents said they use search marketing for lead generation.

"It's interesting how high branding ranks as a top objective, because search engine marketing is so clearly driven by direct sales and direct marketing, and the science around it is all derived from direct marketing," Gluck said.

SEMPO projects spending for search will grow to $11.50 billion this year, $13.30 billion in 2008, and $18.60 billion by 2011, driven by strong advertiser demand, rising keyword pricing, a second wave of small-to-midsize busi-nesses turning to search, better search technology and increased local search inventory.

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