• by Laurie Sullivan  @lauriesullivan, March 25, 2010

The North American search engine marketing industry will rise to be a $16.6 billion sector -- up 14% -- in 2010, according to the sixth annual State of Search Engine Marketing Report released Thursday by the Search Engine Marketing Professionals Organization.

The industry has changed in six short years. In 2004, SEMPO pegged the North American SEM market at $4.1 billion. The 90% of companies that rely on search engine optimization (SEO) has remained steady since 2007, while the proportion of companies carrying out paid-search marketing increased from 70% in 2008 to 78% in 2009 to 81% in 2010.

The proportion of agencies carrying out SEO support for clients will shift slightly to 88% this year, compared with 89% in 2009. The percentage of companies requiring agency support for paid search has decreased from 86% to 76%, which may reflect that marketers have a better understanding of the marketing strategy and access to more sophisticated technology and tools.

Forty-five percent say this year, funds for paid-search programs will come from a combination of new and reallocated budgets, compared with 38% in 2009 and 29% in 2008. Thirty-six percent say they will work with newly allocated budgets specially for paid search -- flat from last year, and up from 33% in 2008.

Despite the rise in paid search, 53% of the 1,472 marketers and agency executives who participated in the survey reveal that measuring the return on investment (ROI) has become the No. 1 challenge. Optimizing destination pages follows with 40%; researching and choosing optimal keyword phrases, 35%; integrating and measurement with other marketing channels, 30%; getting budgets approved for paid search, 26%; and the remainder, which includes making a business case hiring talent and getting C-level buy-in, 62%.

The study, conducted by Econsultancy, shows that 49% of the companies plan to reallocate budgets from print advertising to search engine marketing, 36% will shift money from direct mail, and 24% plan to switch budgets from conferences and exhibitions and Web display advertising. Although not a surprise, the research points to Google's dominance in search engine marketing, with 97% of companies paying to advertise through Google AdWords.

Seventy-one percent of companies pay to advertise on the Google search network, while 56% use the Google Content Network. But many say prices for keywords are on the rise. About 56% of advertisers and 62% of agencies suggest that Google keywords costs rose during the last year, but only 32% noticed an increase on Yahoo and 29% on Bing.

The study also reveals that the rise of social media marketing budgets, although modest compared with SEO and paid search, represents the biggest opportunity for search marketers this year.

This year SEMPO added an in-depth look at social media marketing as a complementary strategy to search optimization and paid-search marketing programs. Budgets are modest, but the report attempts to provide some perspective, calling attention to nearly nonexistent investments in social media campaigns on sites like Facebook and Twitter.

Today, 73% of companies and 80% of agencies say they use Twitter to market brands. About 73% had a budget of less than $25,000 for social media marketing in 2009, including 23% who admit their budget for this was zero.

When asked how much more or less they expect to spend this year, 37% who participated in the survey say budget will remain the same, while 59% say budgets will increase. Only 4% say that budgets will decline this year.