The Search is On
Not only did search engine marketing take off just as many other online advertising programs were succumbing to the collapse of the dot.com bubble, but it has quickly built upon its early success. Search engine marketing has evolved from the fairly simple concept of paying for placement in search results, to a complex series of programs that are moving beyond search portals such as Yahoo and MSN and onto traditional online content sites as well.
"Search engine marketing is the driver of the online economy right now," says Frederick Marckini, CEO of iProspect. "Search is the ultimate online marketing tool, because the behavior of search is more of an indicator of purchase intent than any other online activity."
Marckini isn't alone in that belief. Yahoo's proposed purchase in July of Overture for $1.63 billion in stock and cash made is further proof that the major players on the Internet may now view search engine marketing as the key to going forward.
"I'm not sure the category needed any more validation," says Brett Groom, west regional president of Agency.com's itraffic division. "But this is certainly an indication that Yahoo is saying this is too big a chunk of our revenue stream. We think that there's some potential to grow it and we don't want to be at the vagaries of all that's going on so we're going to make this deal."
Yahoo's move may trigger some additional shuffling of the current alliances between the major portals and content sites on one side and the search engines and search engine marketers on the other. But it's unlikely to slow down the search marketing's momentum.
Indeed, the real debate seems to center not on whether search engine marketing will continue to grow in the coming years from its current levels of about $2 to 3 billion annually, but on how much of the overall online media buying pie it will eventually get. And the key to that will be whether search marketing can move from being primarily a direct response vehicle into a reach-and-frequency branding tool as well.
Admittedly the jury's still out on that one, but the early signs are promising. "When I started a year ago, I might have thought, 'if you want branding, you're not necessarily going to use pay-for-performance,'" says Bill Demas, senior vice president and general manager of Overture's Partner Business & Solutions Group. "But what we've seen with large brands and luxury sites that want to get their message out there is that this is the most efficient form of advertising, regardless of whether it's straight transactional lead generation or just a way to try to build your brand."
Does this mean that search may soon be competing with offline media for reach-and-frequency dollars? Chris Theodoros, director of Agency Relations at Google, for one, doesn't think so. But he does say that going forward, more traditional advertising agencies will likely begin to move some tasks that are currently being handled by search marketing specialist companies in-house, which could lead to more coordination between search marketing and traditional offline campaigns.
Right now, search marketing is kind of an advertising world unto itself, with the main players all basically divided into three groups. The group that has gotten the most notice is the pay-for-placement model best exemplified by Overture and Google AdWords. With this model, companies bid against each other for the right to appear at or near the top of dedicated, sponsored results list that appears above the "natural" list whenever a consumer conducts a search. Companies participating in these programs pay the bid price only when a consumer clicks on their listing and is delivered directly to their website.
The second tool, which is known as natural search engine optimization, was initially seen as a precursor to pay for placement, but is now going through a renaissance of its own. With natural search optimization, you pay a company such as iProspect or Intrapromote to tweak your website so that it appears on the top of natural search results. Because the major search engines are continually changing the algorithms behind their natural search, this ends up being an ongoing process, with no real guarantees that you'll always be at or near the top of the results lists on any given day.
Somewhere in-between these two is the hybrid model known as paid inclusion. "In paid inclusion, you agree to pay a flat fee, let's say 30 cents a click, in order to show up in search results when your site is relevant," explains Dakota Sullivan, vice president at LookSmart, the driving force behind paid inclusion. "Paid inclusion enables an advertiser to pay to guarantee they'll show up in search results, but which actual searches you ultimately show up in is all determined by the algorithm."
Both natural search optimization and paid inclusion are generally less costly programs to run, and proponents, citing anecdotal evidence argue that people who arrive on websites from a natural list have higher conversion rates than those coming from paid lists.
But of course neither paid inclusion nor natural search optimization offered the rock solid guarantee that pay-for-placement does. If you're willing to pay the price, you'll end up at or near the top of the results list for every keyword.
The two pay-for-placement leaders, Google and Overture, are witnessing search engine marketing growth these days, and neither shows any signs of easing off the accelerator. In recent months, both have added contextual search programs to their core offerings, although there are some key differences between the two.
With Google's AdSense, the company is purchasing banner inventory on sites, and then replacing the traditional creative with text listings of results that are relevant to the content that's displayed on the page. This enables advertisers to get traffic from sites other that search engines, enables content sites to sell more banner space, and also enables Google to get the revenue from each of those clicks.
Overture's ContentMatch is similar, but instead of simply buying up inventory on content sites, the company is looking more for partnerships with sites such as MyFamily.com, car-centric Edmonds.com, and Advertising.com.
Demas says these partnerships ensure that both sides are working to make sure the lists are truly relevant to the content being viewed. While vague on the business model specifics, he suggests that content partner sites may eventually get more than just standard banner revenue. "We're not trying to exploit the publisher and get all this revenue for ourselves," he says. "In order to get cooperation, we will explore a variety of options over time."
Regardless of which program you choose, the major benefit to advertisers remains getting a measurable return on investment. "It's all about accountability," says LookSmart's Sullivan. "If I'm an advertiser, I want to know where every click I'm getting is coming from, I want to able to compare performance by lead source, and I want to then be able to trim out the parts that aren't working and build up the part that are."
The success of search engine marketing is having an interesting impact on website design. "The site itself was usually the sole responsibility of web development and the overall brand marketing departments and so, the old feeling was that the look and feel had to be most important," says Intrapromote CEO John Lustina. "Now almost every web development company that has a search engine optimizer on retainer is agreeable to discussing the usability and user expectation aspects of a website."
Ted McConnell, manager of IT research at Proctor & Gamble, says, "If you want to orient your marketing to start with the consumer, listen to them and really take them seriously, then organic search marketing should be the basis upon which you design your website."
Because of its ability to deliver ROI, search engine marketing has been an ideal tool during the Internet advertising slump, but whether or not it can maintain its current levels of growth, as media online spending begins to pick up again, is up for debate.
U.S. Bancorp Piper Jaffray Senior Analyst Safa Rashtchy recently issued a report predicting search engine marketing could reach $7 billion in annual revenue by 2007. During a phone interview, Raschtchy says that his firm may soon be revising those numbers upward, to account for new revenue-producing programs such as local and contextual search.
But Rashtchy cautions, "I don't think anyone should think that the sky is the limit." Regarding the potential that paid search will become a reach and frequency tool, Rashtchy says, "There is an opportunity, but we have to be careful not to be overtaken by that. It's more like the icing on the cake. This is primarily going to be a direct response model."
On the other hand, Rashtchy dismisses any notion that search engine marketing is anywhere near its peak, or may be running out of keywords to monetize. "We can still see these rates continue to go up about 50 cents or more on average, so there is a limit, but right now, we're well below that level at 35 to 37 cents, so there is room to grow." He also adds that currently, about 10 million keywords/phrases are being bought. "We could have another 10 million," he adds.
While stressing that these are his personal views rather than formal company policy, Procter & Gamble's McConnell says that search marketing's real long-term value may not be as a vehicle to deliver goods and branding information to a consumer, but rather as a tool to learn more about consumer behavior. "If you fall into the trap of trying to reduce it to just a media model, then you're losing what I think is 50 percent of the value," he says. "The reason I'm crazy about search is that I think it's a wonderful way to find out, in an unaided way, how consumers express their needs. Search is an absolute real-time monitor of the pulse of consumer needs, and we haven't begun to exploit it in the way that it should be."