Paid search is expected to grow by 34% to $2.6 billion in 2004, and to $3.2 billion in 2005, according to Jupiter Research's report "Online Advertising Through 2009." That growth will be driven by increases in pay-per-click fees rather than by inventory growth, the report said, resulting in a much lower ROI for advertisers.
Most marketers still don't do any adequate measurement of their campaigns, say search industry experts, a problem that will become increasingly costly for them.
"There's probably only a handful of our clients and marketers in general who we'd say evaluate the performance of their campaign in the right way," said Wendy Aldrich, VP-marketing at Business.com, a vertical search engine.
Another executive agreed. "We see confusion about what to measure and how to measure it," said Steve Mitgang, senior VP-general manager of Overture Performance Marketing, a division of Yahoo!'s Overture Services.
Tracking sales throughout the cycle
Part of the problem is that search is still in its early stages, and some blue-chip marketers-United Parcel Service of America, for example-aren't even doing any search marketing yet. Also, measurement is particularly tricky for b-to-b marketers, given their targets' usually protracted sales cycles.
"On the b-to-b side, the thing we focus on with our clients is tracking leads through to sales that occur months later, even though it is much more difficult to do," said Sean Fields, director of sales at Ace Rankings, a search engine optimization company.
Reaching prospects and tracking the results throughout the sales cycle-not just at the end-are important because they help marketers determine how to adjust keyword spending, Aldrich said.
But before marketers can determine search engine marketing ROI, they have to define what it is.
"We found marketers have a spectrum of definitions of ROI," Mitgang said. He said the most common definition of ROI is return on ad spend. For example, "I spent $100 on this campaign," he said. "Did it drive incremental sales for me?" One level up from that, he said, are marketers looking at "overall activity," or conversions.
Patricia Hursh, founder and president of SmartSearch Marketing, a search engine marketing company, said even if marketers can agree on conversion rates as the standard metric, "The challenge most businesses face is in defining conversion."
Hursh said many b-to-b marketers are not selling their products and services online, particularly the bigger-ticket sales. In the b-to-b world, then, a conversion metric might be how many people downloaded a white paper or a trial version of software, or how many people requested more information or that a sales representative call them.
"You can come to someone like me and say, `I need you to drive more prospects to my Web site' and I can do that, but that's not ROI," Hursh said. "Most people want to know if they're making money driving traffic to their site."
Many companies offer tools and services to help marketers measure and maximize their investments.
Fathom Online, a search engine marketing company, recently announced it is integrating analytics from Coremetrics into its search services. The analytics will enable Fathom clients to do extensive analysis of search campaigns. Other vendors are either building their own solutions or entering partnerships, as Fathom did, with analytics providers such as Webtrends and Omniture, in order to provide marketers with the right tools for measuring ROI.
Search engines themselves are also beefing up their measurement products and services. Yahoo!'s Overture, for example, recently announced a new service called Search Optimizer, through its Overture Performance Marketing division.
Aldrich said Business.com, a vertical search engine, works closely with clients to measure effectiveness. A recently completed search campaign for IBM Corp. returned a 10-to-one ratio on the initial investment. "We surpassed their ROI goals by 50%," she said.
NetSuite, a customer relationship management company, has been doing basic search marketing for the past couple of years but until recently hadn't been tracking returns very closely.
"We probably put fuel into the fire in the last seven or eight months," said Tara Ryan, senior VP-marketing. The company works with search engine marketing company Ace Rankings, which has provided numbers to Ryan illustrating how powerful search is for her company. "Over 20% of my leads today come from search engine marketing."
Converting to sales
In addition, she said NetSuite converts 4.5% of keyword leads to sales. "I'm converting only 4% on banner ads and newsletter sponsorships," she said. NetSuite compares both paid and natural keywords to about 10 other media, she said, including Webinars, PR, print advertising, direct mail, telemarketing and e-mail.
Some highly competitive keywords for NetSuite, such as "CRM," can become cost prohibitive, so the company closely monitors all keywords and produces regular reports. It looks at how much was spent on a particular keyword in a given month compared with its conversion rate, and then reallocates dollars to the most profitable keywords. It also measures cost of keywords on major search engines such as Google versus keywords on smaller ones. It costs the company about $150 a lead on Google versus about $50 at the smaller engines, Ryan said. "Knowing the ROI allows us to do real-time marketing," she said.