• by Laurie Sullivan  @lauriesullivan, April 10, 2012

Marketers spent 16% more on search budgets in Q1 in the U.S. and 3% in the U.K. compared with the year-ago quarter, according to a report published Monday.

The Adobe Systems Global Digital Advertising Q1 2012 Update reveals that ROI for campaigns in the United States rose 11% in the quarter compared with a year ago. Finance and automotive demonstrated the most increases, while the retail sector fell 5%. The minimal increase in U.K. search spend reflects the fragile state of the European economic recovery.

Marketers also spent more on mobile campaigns; they allocated 8% of all search spend in the U.S. and 11% in the U.K. Of this, tablets accounted for 4.25% of search spend. Because costs per click (CPC) on tablets came in lower compared with those on desktops, despite comparable conversion rates, mobile and tablet advertising investments will become more appealing to advertisers in the short term.

Justin Merickel, director of product innovation at Adobe, said conversion rates on tablets are stronger than PCs, but that's not true for search on handsets. "It outperforms desktop search," he said.

The tablet is driving the increase in ad spend. It has grown from virtually zero in May 2011. Spend on tablets now exceeds smartphones, with the inflection point occurring in October 2011.

As for Google, CPCs fell 5% year-on-year, but Bing and Yahoo rates rose 18% as marketers took advantage of better returns per clicks. As a result, the ROI advantage over Google no longer exists. When Yahoo Japan converted to the Google ad-serving platform from Bing-Yahoo, CPC rates dropped significantly, according to the report.

Changes to Google's search algorithm contributed to growth in marketers spending more of their budget on search. The report suggests that increases resulted from an increase in click volume rather than an increase in CPC rates. While it has been true for the past two quarters, it is contradictory to trends in prior quarters. The report suggests that "algorithmic changes to Google in Q4 2011, such as increased site links, have led to a greater proportion of branded traffic that does not impact CPC rates."

Analysis from the Adobe report suggests that U.S. marketers will continue to allocate more of their budgets to search for the remainder of 2012. The study points to an uptick between 10% and 15% in the amount spent by marketers on search as a bellwether for the state of the U.S. economy.

The Bing and Yahoo alliance is at risk of losing market share, per the report. For the past few quarters in the U.S., the duo produced higher RPC rates and ROI compared with Google, but the advantage the two had diminished this quarter as a result of declining CPC rates on Google and an 18% CPC increase on Bing and Yahoo.

Bing and Yahoo must continue to increase reach to obtain more click volume and focus on reducing CPC rates to sustain market share and regain market share lost to Google.

Today, mobile devices get about 8% of search marketing budgets. The report suggests that tablets and smartphones will take a larger share, reaching between 15% and 20% by December 2012; the growth driven by an interest in other digital marketing channels yielding the same ROI as desktop search, only with lower CPC rates.

Brands will continue to double the Facebook fan base in 2012, but CPC rates on the site should decrease. While Facebook ad CPC rates rose 40% sequentially for the past three quarters, CPC rates on Sponsored Stories tend to be lower than Marketplace Ads, which may contribute to temporary decreases, according to the report.

Data for this report comes from the former Efficient Frontier, acquired by Adobe in January 2012.