• by Laurie Sullivan  @lauriesullivan, October 15, 2008

Two reports released this week show increases in search ad spending last quarter, but paid search isn't immune to the economic rollercoaster investors now ride through the financial markets. One survey tracked a dozen large tech companies, while the other found the dollars spent by U.S. retailers declined for the first time in several years.

Global search ad spending by large tech companies, including Hewlett-Packard, Intel and Lenovo, rose 51% in the third quarter compared with a year ago, attributing 5% to one-time costs on Olympic campaigns, said Craig Macdonald, VP of product management and marketing at San Diego-based Covario.

These advertisers continue to rely heavily on Google, particularly in Europe/the Middle East/Africa, where Google took 95% of third-quarter spending, compared with North America at 83% and Asia-Pacific at 73.9%. "Most of these companies have begun creating global campaigns, and it's much more efficient to get them up and running in Google," Macdonald said. "Google's capitalizing on that."

Macdonald said companies have begun to shift from buying "massive amounts" of generic search keywords because they are expensive and rarely lead directly to sales. "These companies are spending more money on branded terms, because they tend to be less expensive," he said. "They are beginning to use search as a branding play to more aggressively harvest the brand value they build in other medias like display advertising and TV."

A report from SearchIgnite, a search management company, and investment bank RBC Capital Markets, suggests that retailers increased search spend during Q307, but intra-quarter figures show that budgets are declining.

Overall, the study suggests that search ads in the United States during Q3 grew by nearly 27% from the same quarter a year earlier. Retailers spent 19% more on search in July, compared with the same month in the earlier year. That growth slowed to 1.9% in August, dropping sharply in September. That's when advertisers spent 10% less than the same month in the year earlier.

Overall, search marketing remains healthy, but there is potentially alarming news from retailers based on the quarterly decline despite of steady order conversions rates, according to Roger Barnette, president and founder of Atlanta-based SearchIgnite. "We typically see growth in retail," he said. "The question whether it's a leading indicator remains to be seen, because it's unprecedented to have an industry segment decline in growth rates in search marketing. ... I don't recall an industry vertical having year-over-year decline in spend. We've been running these reports for two years."

Google, which releases third-quarter earnings on Thursday, continued to increase its dominance in the search market, taking more than 72% of search ad dollars. Yahoo lost slight market share in Q3, but rose several points year-over-year. MSN has remained relatively flat, never gaining or losing more than .8% market share.