Commentary

Just an Online Minute... Search Hype

In light of all the new announcements in the paid search arena this week - Yahoo and Overture officially sealing the deal, AOL and Google expanding their partnership and MSN giving LookSmart the boot - it may be worth a minute to take a step back from the astronomical financials (Yahoo is shelling out about $1.9 billion for Overture, based on yesterday's stock prices) and look at paid search from a more philosophical perspective. Mainly, is paid search over-hyped?

Here's where I'm coming from. A few months ago I met our Spin columnist Cory Treffiletti to discuss topics for a panel he was thinking of moderating at our Forecast 2004 conference last month, and he offered: "Email marketing is dead. Search is on its way out. What's next?" My initial reaction to this proposal was incredulous, but two weeks ago, at the same conference, a panelist used the example of his daughter, who will no longer go to a certain major paid search provider because she doesn't trust the paid search listings and actually gets annoyed by the fact that they're sponsored.

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Do with those two individual opinions what you will, but just this morning, I read an article on The Street.com that quoted Danny Sullivan, editor of SearchEngineWatch.com, who considers Microsoft's decision to dump LookSmart an indication of "a long-term interest in providing the best experience for the user over a short-term focus on making as much money as possible from search." That statement naturally begs the question, "Is paid search just another fad?"

Then there is yesterday's announcement from iProspect, a search engine optimization services provider, which was just named the 47th fastest growing company in Inc. Magazine's 22nd annual Inc. 500 list based on the company's fairly remarkable five-year revenue growth of 2,785%, all coming from search engine optimization (free, not paid listings.)

Yes, overall, at 18.3%, according to comScore, the click-through rate for sponsored search in general is more than four times that for free search listings, and for certain industries, such as financial services, sponsored search outperforms algorithmic-based free search listings by a factor of nearly nine times.

Safa Ratschy, a US Bancorp Piper Jaffray analyst, projects that the global market for search advertising will double to $2 billion in 2003 and soar to $6 billion in 2006. Call me a skeptic, but I've seen astronomic projections in the online arena in years past, and I have to wonder if the time is right to start wondering if paid search is really on its way to a plateau or on a decline altogether. Could Cory be right?

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