• by Laurie Sullivan  @lauriesullivan, October 12, 2009

Companies dumped more money in aggregate into paid search ad campaigns between July and September, despite the fact that conversions and average order size remained flat from the year-ago quarter, according to the market report released Monday.

The SearchIgnite Q3 2009 U.S. Search Market Report released today reveals that U.S. paid search spend rose 10% sequentially, but remained flat from the year-ago quarter. It is the second straight quarter for which the industry has experienced an uptick.

"Overall, this is positive news," says Roger Barnette, president of SearchIgnite, a paid search optimization company managing more than $350 million in pay-per-click (PPC) spend annually. "The fact that advertisers spent 40% more dollars and still had basically flat conversion rates and average order value tells us this is a very strong market." Barnette says the data reveals that companies managed to maintain steady return on investments and still increase spend. The last dollar spent on advertising is always the most expensive, he says.

During the third quarter, retail companies led the increase. Those that spent more on search typically have a multichannel sales and marketing strategy. In the United States, investments rose by 40% compared with the same quarter last year, despite flat conversion rates and average order size.

And although Microsoft's search engine Bing gained ground, it wasn't enough to shift a substantial share of paid search. The SearchIgnite study reveals that Bing did manage to demonstrate it could build market share, up 15% from the prior year. Yahoo, however, lost share to Google.

Yahoo's steep decline in investments in paid search by marketers during the last year drove down the search engine's market share 24.4%, year on year. The Sunnyvale, Calif., company fell to 17% of paid search share, down from 22% share in the year-ago quarter. Google continues to lead with 77% of search marketer spend -- up from 72% in the year-ago quarter, according to the SearchIgnite study.

Industry insiders suggest that paid search ads are typically the last to be cut during economic hardships and the first to return during a recovery. Barnette believes the ability to shift weekly budgets, turning up or down campaigns, makes paid search attractive to marketers looking for a flexible campaign strategy. "This lets you look at paid search as a leading economic indicator on the down side and on the up side signs," he says.

JP Morgan Chase Analyst Imran Khan agrees. He expects Google to report higher than consensus growth based on a better than presumed recovery in ad spending when the company releases earnings Thursday.

Khan explains in a research note the reasons for increasing Google's third-quarter revenue estimates to $4.27 billion, up from the prior estimate of $4.12 billion and pro forma earnings per share (EPS) to $5.41 from $5.20.

Khan expects third-quarter net revenue growth of 5.6%, compared with the prior year, and 5.1% sequentially. Although the estimate is higher than the average consensus growth estimates of 4.4%, it's still lower than some of the other published revenue estimates, he writes. The J.P. Morgan analyst bases the estimate on Google's Web site achieving 5% sequential growth in the United States, up from a 1% decline last quarter, and 4% sequential jump internationally, up from 1% growth last quarter.