July 13, 2010, 2:41 PM

Paid search spending continues to bounce back—or maybe it doesn’t

Vendors offer conflicting reports on second quarter paid search spending.

Zak Stambor

Managing Editor

Lead Photo

The paid search landscape is either booming or struggling—depending on who you listen to.

U.S. paid search spending increased 24% in the second quarter of 2010 compared with the same period in 2009, says a new report from Efficient Frontier, a search engine marketing firm. Growth was largely driven by the retail industry, which increased spending on paid search 38% in the second quarter compared with the same period a year earlier, the report finds.

“Retail continues to be the sector with the strongest growth, driven by strong consumer interest as seen from the 65% year-over-year increase in impression volume,” according to the report.

But another new report suggests less rosy results for retailers. While total paid search spending grew 14% in Q2 compared with the year-earlier quarter, spending by retailers grew only 7%—marking the first quarter in more than a year retailers’ spending growth fell below that of other search advertisers, according to search engine marketing services provider SearchIgnite.

Both Efficient Frontier and SearchIgnite agree that Microsoft Corp.’s Bing search engine is making gains as it seeks to challenge dominant search engine Google, but they differ on how fast Bing is growing. Efficient Frontier says spending on Bing increased 56% in Q2 2010 over Q1 2009 while SearchIgnite put Bing’s growth at 26%. Efficient Frontier says Bing’s share of overall retail paid search spending is 5.3%, while SearchIgnite says Bing’s share of overall paid search spending is 6.2% (SearchIgnite does not break out spending by sector).

Yahoo, which is second to Google in search volume but is moving to use Bing as its search engine over the coming months, saw further losses in market share across both clicks and in spend, the Efficient Frontier report finds. Yahoo’s share of clicks fell to 19.4% in Q2 2010 from 23.4% in Q2 2009, the report says. Yahoo’s share of spending fell to 18.0% in Q2 2010 from 20.4% in Q2 2009.

Google expanded its dominant position in Q2 2010, with nearly a 75% share of both spend and clicks, in the Efficient Frontier report.

A third new report paints an even gloomier picture. Retailer clients of search engine marketing company NetElixir Inc. experienced slower growth in their search marketing results in the second quarter compared growth in the first quarter, NetElixir reports. Clicks, cost-per-click, click-through rates and conversion rates were all up, while the value of the average order was down in Q2 vs. a year ago. While growth is usually good news, the growth was not as strong as the Q1 year-over-year growth in NetElixir’s client base.

Here’s how the quarters compare for the 32 U.S. retailer clients of NetElixir.

Q2 2010 vs. Q2 2009

  • Clicks: up 5%
  • Cost-per-click: up 5.3%
  • Click-through rates: up 3.8%
  • Conversion rates: up 16%
  • Average order value: down 1.5%

Q1 2010 vs. Q1 2009

  • Clicks: up 5%
  • Cost-per-click: up 11.2%
  • Click-through rates: up 8%
  • Conversion rates: up 53%
  • Average order value: up 10.2%

Clicks measure the number of times a consumer clicks on an ad to go to a web site; click-through rates are the percentage of consumers who see an ad who click through.

Whether slower growth in click-through and conversion will continue is uncertain. “It is difficult to make a definitive statement on continuation of these trends in Q3 since we have just 10 days of data. However, in the first week of July the numbers for most categories were stronger than what we observed in June,” says Udayan Bose, CEO of NetElixir.

All three firms measured clicks and spending based on their retailer clients’ search activities. Differences in the results stem from the number and types of companies they serve.

Meanwhile, a fourth report presents signs that paid search is improving..

“The advertising recovery (if you can call it that—it was hardly ever more than a deceleration) is still in progress,” says the quarterly Search Engine Advertising Update from research firm AdGooroo LLC.

The report found that first-page advertising on Google, Yahoo and Bing all increased, a sign that advertisers are spending more as the economy recovers. Google posted a 7.3% increase in the number of first-page advertisers during the second quarter, while Yahoo and Bing each saw 2.8% increases, according to the report.

Moreover, all three search engines had marked increases in ad coverage—the average number of ads shown per search query, which serves as a predictor of search revenues. Google increased its average number of ads per keyword 15.1% to 5.72, Yahoo increased 22% to 6.85 and Bing 11% to 3.85.

Amazon.com was the top advertiser for all three search engines during the second quarter, AdGooroo says.

Comments | 1 Response

  • Personally, I believe that Paid Advertising will rise on a cost basis... and google is betting on this. An illustration is the freight industry, my industry (http://www.freightaccess.com). We started in 2008. We now routinely spend about $1.65 per click on advertising. This $1.65 / ea has risen from $1.45, earlier. More players come into the marketplace, and want to be on top, so the price goes higher and higher. That is why it is so important to focus on SEO. There will always be companies out there to spend more than you on PPC advertising, which is like the equivalent of getting a loan at a pawn shop. You pay too much, get results, but in the end it actually is a waste of funds. Brad Hollister Director of Business Development http://www.freightaccess.com http://www.bradholliste .com http://www.bradleyhollister.com

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