• by Steve Smith , Staff Writer @popeyesm, October 26, 2006

Search category growth is a moving target

Steve Smith reports

You don't need a search weatherman to know which way this wind blows. Search is cruising at full sail, although speed and direction estimates vary wildly. Evolving consumer habits - how, where, and why we search - are sending the U.S.S. Search in new and uncharted waters.

Most prognosticators see overall paid search revenue continuing its double-digit rise for the foreseeable future, but with some segments surging past others. For example, eMarketer anticipates overall search spending growing from about $7.1 billion this year to $11.6 billion in 2010. JupiterResearch pegs this year's search take a bit lower, at $6.2 billion, but growing to $10.3 billion by 2010.

Most soothsayers anticipate a pullback in the year-to-year growth rates we've witnessed over the past five years. Jupiter, Borrell, and eMarketer project that search spending growth will decrease to the low teens by 2008. But that cooldown will come after one of the great heat waves in modern ad spending history.

Borrell is alone in projecting an actual decline (minus 2.3 percent) in search spending by 2010. Gordon Borrell, principal, reasons that "the underlying force that will cause online advertising to slow down, including search advertising, is the strong attraction that marketers have to 'promotions.'" Couponing, contests, and the like are gaining more traction and will start muscling into keyword buying at both the national and local search levels.

Googleville

Consumer behavior remains the key driver of the search economy. "The share of users' time spent searching has consistently been going up since around 2000," says David Berkowitz, director of strategy, 360i. For instance, comScore found that the number of searches in the U.S. grew by 28 percent from August 2005 to August 2006. The proliferation of new information platforms - like social search, personalization, RSS, and blogging - will only make the search interface more critical. "There's more content people will search for," says Berkowitz.

Almost two years after Yahoo launched its own assault on the search Google-opoly, followed by Microsoft last year, the Google train keeps chugging. The search brand increased its overall share of searches to 44.1 percent, according to comScore. Ad buyers continue to be intrigued by msn's AdCenter, which recently added demographic and behavioral targeting to its search product mix. Yet Microsoft's foray into search continues to lose rather than gain share in the market. Yahoo also lost ground to its perennial rival and is experiencing softness in the financial services and auto ad sales categories.

Search Localizes

Nearly everyone agrees that the key growth will be local. Borrell estimates $987 million in local search spending this year, rocketing to $4 billion by 2010. But there will be a leveling off even in local, says Borrell. "The sun can't shine forever," he says. "We're not saying it will decline for a long period. If you follow the trend lines out and factor in traditional advertising cycles, this is what happens."

Outsell's Richard says that small businesses remain hard to get and that local search growth will be incremental. But the promise is stunning: Of the 12 million businesses in the U.S., most of them offering local services, only 250,000 to 350,000 currently advertise online. "It's this endless holy grail of opportunity," he says. But this massive potential may end up parsed out among many players.

Nielsen/NetRatings data showed Google gaining ground to outpace Yahoo for local searches in the first half of 2006. At the same time, substantial increases for SBC's YellowPages, MapQuest Search, and Dex Local (owned by RH Donnelly) also ratcheted up the rankings. As users embrace vertical local search features at the major engines, the category is legitimized for competitors who may be able to leverage relationships with local newspapers and TV to lure audiences away.

Search Standing Up

Like local search, vertical search engines and the social search phenomenon may be poised to move both consumer and business searchers away from the general query habit and toward more directed questions and answers. Outsell analysts say general search is leaving too many queries unanswered and reducing productivity, and that opportunities for more focused B2B engines such as GlobalSpec (engineering) and eBuild (construction) to offer information more efficiently will produce $1 billion in revenue by 2009.

On the consumer side, "The major engines have a problem," says Fredrick Marckini, CEO, iProspect. "They are constrained, and vertical search solves a lot of problems when it comes to targeting." One of those key verticals may well be social search, where Yahoo has a distinct advantage with user-generated tagging and bookmark-sharing functions. "Yahoo Answers went from nonexistent to 12 million users in months," says Marckini. On the other hand, Google now has YouTube in its fold, a game-changing move that's still reverberating through the market.

As content distribution moves toward on-demand models, the search query becomes the primary pull mechanism. While some disagree (see sidebar, page 30), the fundamental shifts in media consumption across all platforms only seem to enhance the role of search in the media value chain. The trick will be to get the right query tool in front of the right person at the right place in the on-demand media ecosystem.