Lag Effect: Paid Search Surges Despite Economy, Cost Continues To Fall

by Joe Mandese, Jan 20, 2009, 7:17 AM

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It may be a lagging indicator, but the paid search advertising market actually surged during the fourth quarter of 2008, rising 43% over the same quarter in 2007. The estimates, which were released this morning as part of the latest edition of online analytics firm Covario's Global Search Spending Analysis, shows that paid search ad spending also continued to grow sequentially, posting a 7.2% gain over third quarter 2008, despite the financial crisis and the downturn in consumer and corporate confidence that manifested during the fourth quarter.

"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.

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0 comments on "Lag Effect: Paid Search Surges Despite Economy, Cost Continues To Fall".

1. Dana Todd from Performics
   

   commented on: January 20, 2009 at 10:29 a.m.

   No offense, but I'd hardly call 12 customers in a single industry a proper statistical indicator of the entire search media category. And, since Covario typically deals only with large customers, there's a dearth of small/medium companies in the mix.

   Does anyone have more data about CPCs and budgets across multiple industries, and in more sectors?

2. Erica Forrette from PacSun.com
   

   commented on: January 20, 2009 at 12:26 p.m.

   I was puzzled when I saw this headline also... because at PacSun, we saw over a 60% increase in our avg CPC for Dec 08 vs. Dec 07! I can't imagine we are alone in the retail sector seeing this inflation. There are constantly more advertisers in the space (direct selling by vendors, more affiliates, more resellers, etc) as well as more sophistication in existing advertisers. All of which is leading to CPC inflation in keyword marketplaces.

3. Alan Rimm-kaufman from Rimm-Kaufman Group
   

   commented on: January 21, 2009 at 6:52 p.m.

   Dana --

   Here’s our Q4 trend data, YOY:

   http://www.rimmkaufman.com/rkgblog/2009/01/07/2008-vs-2007-q4-paid-search-results/

   Cheers

   Alan

   http://www.rimmkaufman.com/rkgblog

4. Kevin Pike from Kevin Pike
   

   commented on: January 22, 2009 at 4:46 p.m.

   I agree with the previous comments... This report needs a little help.

   I wouldn't say an increase in spending was solely due to committed Q4 budgets from major advertisers. Most PPC agencies I know will work on a month-to-month budget with their clients.

   I wonder if this report considered PPC budgets might increase when other ad mediums drop because companies are trying to be more accountable and measurable during these economic times... i.e. invest where you can the see the best ROI

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