Lag Effect: Paid Search Surges Despite Economy, Cost Continues To Fall
"The strong growth rate is the result of budgets that were already committed to fourth quarter spending before the deteriorating macro-economic environment impacted corporate budget allocations, and the reluctance of large advertisers to cut spending during the holiday season," the report explains.
The analysis, which is based on paid search spending of 12 of Covario's U.S.-based high tech and consumer electronics customers, indicates that paid search advertising volume continues to expand even as average prices paid continue to fall.
The average cost-per-click (CPC) in the high tech sector fell to 86 cents in the fourth quarter, down 17% from the third quarter of 2008.
"The steep fall in CPCs in the fourth quarter was a direct result of the macro-economic situation," Craig Macdonald, vice president-marketing and product management at Covario stated, adding that, "Large advertisers are migrating spend away from relatively high priced marketing terms that promote brand awareness toward terms which are about sales conversion, and tend to have lower CPC rates."
The CPC fell on every major search platform with the exception of MSN, Covario notes, adding that the biggest decrease has been felt by Google, whose average CPC dropped to 89 cents in the fourth quarter from $1.14 in the third quarter of 2008.
MSN, conversely, saw its average cost surge 45.7% since the fourth quarter of 2007, though it still commands only 3.7% of total paid search spending in the U.S.
Interestingly, Covario also finds that Baidu, the dominant search advertising platform in China, is beginning to make significant inroads in North America. Baidu's share of paid search spending among North American high-tech firms jumped to 11.0% in the fourth quarter from only 5.6% in the third quarter of 2008.