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Eyeing Prices as Search Keeps Growing

SEM is chewing on other media budgets.

April 9, 2008

Even as some marketers rein in spending to hedge against further economic problems, search engine marketing (SEM) is in great shape—at least for the moment.

Search engine advertisers and agencies surveyed for the Search Engine Marketing Professional Organization (SEMPO)-sponsored "2007 State of the Market" survey listed multiple reasons for the SEM spending growth, including advertiser demand, rising keyword and pay-per-click campaign costs, small-to-midsized business SEM use and increased behavioral and demographic targeting.

The study was conducted by Radar Research online using an IntelliSurvey panel.

SEMPO now projects that North American search engine marketing (SEM) spending will grow to $25.2 billion in 2011 from $$12.2 billion in 2007.

"However, in light of the concerns about the overall economy, it's important to note some of this spending is the result of shifting marketing dollars from other offline and online marketing endeavors,” said Jeffrey Pruitt, president of SEMPO.

Search Engine Marketing (SEM) Spending in North America, 2007-2011 (billions)

eMarketer projects that search engine marketing in the US alone will reach $13.6 billion in 2008.

US Search Engine Marketing Spending, by Type, 2006-2011 (% of total and millions)

Although SEM has been booming, there may be a spending limit for some marketers.

About three-quarters of respondents worldwide said they could live with further rises in paid placement prices, but three-quarters of that group said they were nearing a spending ceiling. Among those who said they could stand more price increases, more than half wanted those increases to be 30% or less.

Change in Prices in the Last Year for Paid Placement Keywords on which Search Engine Advertisers Worldwide Bid Routinely, December 2007 (% of respondents)

The other question mark for the industry is how an economic slowdown could affect shopping-related searches by consumers.

"Search marketing is all about consumers," said David Hallerman, senior analyst at eMarketer. "Where they go the money follows."

Mr. Hallerman suggested that in this respect, search marketing was like the proverbial tree in the forest.

"If a search engine serves up a text-link ad and no one clicks on it, does it still make someone money?"

Get a top-level view of where search is headed. Read eMarketer's Search Engine Marketing: User and Spending Trends report.

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