• by Laurie Sullivan  @lauriesullivan, October 12, 2009

Data from Efficient Frontier suggests that an economic recovery for online marketing is on the way. Paid search has begun to show new signs of life, sequentially, but remains slightly down compared with the prior year.

The U.S. Search Engine Performance Report released late Monday indicates that paid search rose 5% sequentially between July and September, but plunged 5% year-on-year. The study also highlights the potential for double-digit sequential and year-on-year growth between October and December.

The study focuses on travel, finance, retail and automotive. Travel has not bounced back. Justin Merickel, vice president of marketing and new product development at Efficient Frontier, says travel declined 39% in the quarter compared with the prior year, but finance rose 7% driven by impressions and clicks, automotive rose 6%, and retail 2%.

"Conversions, which are down, have been holding back retailers from getting back into search marketing," Merickel says. "The volume is up and advertising demand is there. So when the conversion rate comes back, we expect spending to rise significantly in retail."

Merickel expects brands to increase spending in paid search between October and December. Budgets should reach between "high single-digit to low double-digit growth" year-on-year, and double-digit growth sequentially.

The U.S. Search Engine Performance Report reveals that marketers did not demonstrate a huge acceleration in spend, and decline slowed as marketers let up on spending breaks. Cost-per-Click (CPC) weakness drove year-on-year declines, with Google's search CPC declining for the fourth straight quarter. Return on investment (ROI) also remained stable as marketers continued to focus on efficiency.

Efficient Frontier also looked at paid search for Microsoft's Bing. Since April, sequentially, Bing has gained investments from marketers and clicks from consumers.

Merickel says Microsoft's Bing stole click share from Google during the third quarter. Bing took 4.8% of the clicks during the third quarter, up from 4.1%, sequentially. Google took 70.6%, down from 71.8%. A closer look at Bing's numbers shows category growth across travel, finance, autos and retail.

The most significant gains for Bing came in travel and finance, two weak sectors for Google. Travel marketers spent 6.30% of their budget on Bing in the third quarter, up from 4.40% sequentially. Finance marketers spent 6.20% and 4.80%, respectively.

Finance marketers spent 65% of their paid search budget with Google. Those in retail spent 83%.

Yahoo also rose slightly for both clicks and investments in paid search. Google's return on investment soared to 47% year-on-year. While both Bing and Yahoo improved 5%, Google's improvement far outpaced them. The Efficient Frontier study suggests that Google's improved ROI may result in additional budget allocation in coming quarters.

This analysis was completed based on data from Efficient Frontier search engine marketing customers and the resulting Efficient Frontier's Customer Index. The Efficient Frontier Customer Index represents a subset of Efficient Frontier clients who have spend data for six consecutive quarters or more whose resulting search engine marketing metrics are then normalized to average industry category contributions established by multiple third-party data providers.