Despite the faltering economy, search marketing is holding up well, as marketers focus on tools that promise the strongest return on investment. How long that will last is uncertain, but for now search ad budgets seem relatively sheltered from the global economic woes.
“We believe that search is not immune to macroeconomic forces, but we also believe it will have the least relative decline of the various marketing tools,” said Craig Macdonald, VP-marketing and product management with interactive marketing analytics company Covario Inc.
“I can tell you precisely the answer to that,” Macdonald said. “There's less risk in spending money on search. It's very measurable and the cheapest form of lead acquisition out there.”
According to a new Covario study, year-over-year growth in paid search in North America stood at 32% in the third quarter, in line with several other analyses and relatively unchanged from earlier in the year.
“Because you can measure pre- cisely your return on different Web marketing activities, you know what you'll get in return and can dial it up or down,” said Dave Alampi, VP-global marketing strategy and services at enterprise software company Infor.
“Because our strongest area of concentration is the small-to-midsize business market, with smaller deal sizes, we feel it's relatively recession-proof,” he said. “We have no intent to reduce our paid-search dollars at all.”
Forrester Research projects that paid search marketing will grow 26% this year, reaching $11.4 billion in the U.S. In addition, the company's “U.S. Search Engine Marketing Executive Survey” (conducted by Jupiter Research prior to its July acquisition by Forrester) forecasts that search budgets will remain stable through much of 2009.
“Because of its inherent accountability, search offers a safe haven for marketers and advertisers who are pushed by the recession to meet some pretty aggressive goals,” said Evan Andrews, interactive marketing analyst with Forrester. “You can track every cent and every click. Search is comfort food for marketers.”
Still, a possible impact looms as fearful customers rein in their purchasing of consumer goods, depressing b-to-b sales of product components and marketers' budgets.
“The economy is ultimately going to have an effect on search,” Andrews said. “There is no way that a once-in-a-century financial meltdown won't spill over. With search, it's just going to be delayed.”
If search budgets remain relatively healthy, it will likely be at the expense of other forms of marketing outreach.
The Direct Marketing Association projected in October that Internet marketing (including search but excluding e-mail) would grow 19.7% this year but also that direct response newspaper advertising spending would fall 7.6%; telephone marketing would decline 1.5%; and radio ad budgets would drop 2.7%. The DMA projected modest growth in direct-response TV spots (4.5%) and direct mail catalog spending (up 3.1%).
“We're seeing that traditional agencies are getting hit before digital agencies,” said Jeffrey Pruitt, president of the Search Engine Marketing Professional Organization (SEMPO). “Some advertisers are increasing spend because search is working.”
Industry watchers say the rapid growth of search marketing is bound to slow as it matures. Covario compared search's current growth rate of 32% with early 2007, when paid search spending was growing by 83% year-over-year.
Macdonald warned that short-term projections may be misleading, because fourth-quarter budgets are already set. When the economy's impact on business becomes more apparent by early 2009, “budgets will roll down based on that,” he said.
While search is inexpensive and highly measurable, there is evidence it's becoming more efficient as well, reinforcing marketers' opinion of the medium. Covario reports reductions in the average cost-per-click being paid to search engines, largely as a result of improved optimization by large advertisers.
In the third quarter, for example, the average cost-per-click was $1.09, down from an average of $1.19 in the year-earlier period. “But I think cost-per-click will actually start to go up, as marketers loosen up the ROI hurdles they set for their search programs based on what they will or will not pay for keywords,” Macdonald said. “Advertisers will begin to tolerate a 5% to 10% inflation rate over the next several months.”
But will users click through on sponsored links? The Covario study indicates the economy may have an impact here as well.
In the third quarter, click-through rates for Google fell to 1.9%, down from 2.4% in the year-earlier period. MSN's rate fell to 2.2% from 3.0%, while Yahoo was relatively unchanged.