• by Laurie Sullivan  @lauriesullivan, April 13, 2010

Investments in search engine marketing during the first quarter of 2010 rose 20% compared with the prior year -- but slipped to 8%, sequentially, as they typically do between January and March, according to Efficient Frontier's Q1 2010 U.S. Search Engine Performance Report released Tuesday.

The report reveals that return on investment (ROI) in search rose 4%, compared with the same quarter in the prior year. Marketers stepped up spending as consumers returned to purchasing goods and services.

Stable pricing and stronger consumer demand drove search marketing growth above the expected 10% to 15% 2010 outlook. That should continue, according to Justin Merickel, vice president of marketing and new product development at Efficient Frontier.

Google held a dominant position during the first quarter in 2010, about 75% share for both spend and clicks. Return on investment for Google grew 16% year-on-year based on slightly lower click per cost (CPC) and improving conversion rates.

Despite Google's dominance in rising click rates -- 8% compared with the prior year, and 4% sequentially -- the Mountain View, Calif. search engine still trails Bing when it comes to delivering advertisers a solid return on investments.

The study reveals that Bing delivers 22% higher ROI than Google. Yahoo trails Google in ROI by 23%, but the Bing/Yahoo combination could bring down the return for marketers.

Merickel attributes the uptick for the quarter to the retail sector, although Travel slid a bit. "Retail is driven by marketers attempting to support consumer demand in query growth," he says. "We're not seeing the huge sequential decline in queries, which says to me consumers are developing more consistent shopping patterns."

The industry should begin to see more evergreen retail campaigns, rather than a huge blimp in the fourth quarter because those shopping patterns have become more consistent, Merickel says.

Retail led the uptick with 32% growth compared with the prior year, but both finance and automotive sectors also each grew 9%. Travel cost per clicks (CPCs) slid 4% for the quarter, but Bing still managed to renew its market share.

Bing has made the biggest gains in travel, rising 160% from the year-ago quarter to hold 9.1% share of the amount marketers spend. Microsoft's search engine took more clicks and budgets, rising to 5.5% and 6.5%, respectively. These 45% gains, compared with the year-ago quarter, represent 45% in both.

Unlike Bing, marketers continued to hold back investments in Yahoo, which experienced deeper losses in market share across both clicks and in spend. Yahoo's Q1 2010 numbers represent a 15% year-on-year click share loss and 12% spend share loss.

Research firm comScore recently released data that suggests Yahoo gained share of search market performance -- the first time for the Sunnyvale, Calif., company in more than a year. But Yahoo continues to lose marketing dollars. "When we look at Yahoo, it's based on the network effect," Merickel says. "If the return on investment isn't as strong and the bid price drops, the amount of budgets marketers invest will fall."

In Q1, Efficient Frontier saw 20.5% of clicks go to Yahoo, down from 22.7%, sequentially, and 24.2% compared with Q1 2009.

Impressions on all search engines increased in the quarter. Bing gained 100%, followed by Yahoo at 39% and Google at 13%. On the flip side, click-through rates (CTRs) on all engines declined. Efficient Frontier notes that as more people search online, the percentage of qualified traffic decreases naturally.

More clicks are turning into conversions, Merickel says. "I think we'll see higher than anticipated spend growth, closer to 20% rather than the 10% to 15% you hear about now."