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Search spending to triple by 2009 but ROI to decline

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Spending on search marketing will continue its robust growth over the next five years, nearly tripling by 2009, according to a Jupiter Research forecast released Monday.

Paid search is expected to grow 189% from $1.9 billion in 2003 to $2.6 billion this year. By 2009, Jupiter forecast, the market will hit $5.5 billion.

One reason the medium attracts advertiser dollars is its ability to target. Seventy-seven percent of marketers surveyed by Jupiter used search marketing as part of their online strategy in 2003, said Gary Stein, a senior analyst at Jupiter, in his remarks at the company's Advertising Forum in New York on July 28. "This is a direct medium," Stein said. "There's a really core focus on selling."

Online advertising spending overall will increase 144% over the next five years, from $6.6 billion in 2003 to $16.1 billion in 2009, according to Jupiter. Online ad spending is expected to rise to $8.4 billion this year. Much of that increase is being fueled by paid search, which is projected to grow at a compound annual rate of 30% over the next two years.

Nevertheless, return on investment (ROI) has begun to fall as prices for desirable search keywords rise. The average cost of a click from paid search has risen from $0.29 per click in 2003 to $0.36 per click this year.

"There's a lot of overbidding in search," Stein said, adding that ROI will go from "great" to "good." Jupiter said that in a recent executive survey, marketers complained of rising keyword prices and declining ROI. A quarter of the respondents said they saw a declining ROI from search marketing.

Not surprisingly, an increased focus on measurement is accompanying the rise in keyword prices. "The word of the year is accountability," Stein said. "Accountability is the new ROI."

Search engine marketing tools can help, Jupiter said. SEM tools, which are becoming more sophisticated, help marketers more easily measure and optimize campaigns. Unfortunately, the most popular tools among marketers are the free conversion-tracking tools offered by search engine leaders Google and Overture, which Jupiter said lack detailed site analytics.

Jupiter recommends paying attention to order value and creative. Tracking order value will give marketers an accurate picture of how much revenue was generated by dollars spent and is the only way to make informed bidding decisions, Jupiter said. Jupiter also recommends marketers track which ad text (creative) generates the most clicks, rather than tracking click-through rates provided by the search engines.

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