• by Masha Geller , October 8, 2003

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.

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?