What Happened to Search Spending in 2008? - eMarketer

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What Happened to Search Spending in 2008?

Only online video ad spending grew faster than search. Here’s why.

January 12, 2009

Today's economic turmoil is tightening many ad budgets. Marketers are looking for the most effective use of their dollars. For Internet advertising, they look for performance-based advertising that is highly accountable—and that means search.

While eMarketer estimates show search ad spending rising steadily from $10.7 billion in 2008 to nearly $20 billion by the end of 2013, the fallout from economic problems is still buried in the data.

Even as the search market remains healthy relative to other online formats (such as static display ads) or offline media (such as newspapers), additional dollars entering search advertising each year will be lower from 2009 to 2011 than in 2008. This slower growth is a direct result of the current economic climate and its aftermath, as both companies and consumers dig out of the hole.

US Search Advertising Annual Spending Increases*, 2007-2013 (millions)

With paid search spending in the first half of 2008 at $5.06 billion, according to Interactive Advertising Bureau (IAB)/PricewaterhouseCoopers (PwC) research, the second half needs to have hit a bit more than that to reach eMarketer’s $10.69 billion projection. (The IAB numbers are not in yet.)

Search spending delivered greater growth (a 23.6% gain) in the first half of 2008 than any format other than video advertising (which is coming from a minuscule base). Search’s share of the total spend reached 44% in the first half of 2008, too, up from its 41% slice in 2007’s first half.

US Online Advertising Revenues, by Format, First half 2007 & First half 2008 (millions and % change)

Two key factors might have allowed search spending to retain the same strength in the July-to-December 2008 period, despite the recession. One is search advertising’s broad strength relative to other methods. The other is the need for marketers—many of whom were desperate to attract customers—to boost traffic and conversions during the holiday season.

To put the first-half 2008 growth into perspective, however, means recognizing that once a market gets to be as large as search, steep annual growth rates of 30% or higher are difficult to achieve, even in a thriving economy.

Search’s share of total online ad spending jumped sharply in 2008, to 45.3% from 2007’s 41.5%. That increase was due almost entirely to economic circumstances. That is, hard times brought more ad budget scrutiny—so search’s high accountability put it in sharp focus.

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