• by Ross Fadner , December 14, 2004

Advertisers in the United States and Canada will spend a combined $4.1 billion on search engine marketing this year, according to new research released Tuesday by the Search Engine Marketing Professional Organization (SEMPO), trade organization for the burgeoning search marketing industry.

The report, "The State of Search Engine Marketing 2004," reveals that advertiser spending on search marketing management services will reach nearly $1 billion in 2004--more than eMarketer predicts rich and streaming media to generate this year combined. The report says advertisers will spend $618 million in 2004 on their in-house search marketing departments; $380 million on search engine marketing agencies, which handle the processes of search marketing management and optimization on behalf of advertisers; and $30 million on licensing paid search management programs from technology developers.

The SEMPO report breaks total paid search spending into $3.34 billion for paid placement; $492 million for organic search engine optimization, which refers to optimizing ranking on search engine natural results; $182 million on paid inclusion--offered by Yahoo!, other smaller search engines, and vertical directory providers; and $72 million on paid search management programs.

Branding was the most popular search marketing objective among the marketers polled, with 61 percent of companies saying they used search engine marketing to build brand awareness. This result contradicts conventional wisdom that paid search is chiefly a direct marketing medium. But the second most popular objective was selling products, services, or content--57 percent of respondents cited making an online sale as their primary goal.

Advertisers said that return on investment is strong; survey respondents said they could withstand another 45 percent increase on average in keyword prices and still make a profit, despite the recent price inflation of 26 percent in the last year on common keywords. Respondents said they plan to spend, on average, 39 percent more on search marketing initiatives in 2005 than this year. Search marketing agencies said they plan on a 79 percent increase in their 2005 budgets.

"The data indicate that the current size of the market for search engine marketing services is the tip of the iceberg; we have the beginnings of a healthy industry," stated Kevin Lee, CEO of search marketing agency DidIt.com, and a member of SEMPO's board of directors. "SEMPO expects increasing competition among marketers to drive significant growth in search engine marketing and related services over the next several years."

Research for the SEMPO report was conducted by Executive Summary Consulting, Inc., an independent consultancy firm run by Rick Bruner, who was recently appointed DoubleClick research manager. The survey, conducted by IntelliSurvey, polled a representative sample of 288 search engine advertisers from corporations of varying sizes. Other data came from interviews with 30 industry professionals.