Tempered Growth In Search Expected As Market Matures

SearchIgnite and RBC Capital Markets released their latest "state-of-the-search-industry" report. While overall fourth-quarter 2007 search spending was up 26% year-over-year, spending by advertisers that had been using search for more than a year (dubbed Same Advertiser Spend) is growing at a slightly slower rate.

In fact, quarterly growth as measured by Google media spend has been down year-over-year since second-quarter 2006--from nearly 76% growth (over second-quarter 2006 to second-quarter 2007), to 35% in third-quarter 2007 to just 24% in fourth-quarter 2007. According to Roger Barnette, president of New York-based SearchIgnite, the research suggests that we're seeing the first inklings of the maturation of the search market--at least for more seasoned advertisers.

"We're still extremely bullish when it comes to search, because marketers are increasing spend and the industry is still growing," Barnette said. "But we are seeing the amount of increases in some advertisers' spending shrink, and these are the earliest signs of the maturation of the industry. Marketers can't grow their spend in any channel at 100% per year forever, it just doesn't make sense."

The report also found that retailers had a ball with search this past holiday season, with a 72% increase in spending from third-quarter 2007, and nearly 44% growth from the previous year. "Advertiser spending is always up in the fourth quarter in the retail sector, but in a year where retailers were very skittish about in-store sales, we were impressed with the year-growth," Barnette said.

Jordan Rohan, managing director and Internet analyst at RBC Capital Markets, had a slightly bullish view on search that was also tied to the market's performance with retailers in fourth quarter. "The strength in retail category ad spend evident in the SearchIgnite data suggests that search may not be as tied to economic forces, in the near term, as some people had feared," Rohan said.

Barnette added that SearchIgnite hadn't seen any signs of recessionary trends in the client data from this quarter--in fact, in fourth quarter, the firm saw increased CTRs and client revenues month-over-month. "It could be that there aren't as many macroeconomic concerns with advertisers that are likely to spend a large percentage of their dollars on the Web," Barnette said. He also echoed many industry sentiments that search would be "somewhat insulated from economic downturns" as the ad channel delivers the most measurable ROI--which would make advertisers less likely to cut it when reducing spending.

But Barnette did say that the search marketing management tech firm would be watching spending and performance closely in the coming months for signs of any impact from the softening market.

SearchIgnite has partnered with RBC Capital Markets (the corporate and investment banking arm of Royal Bank of Canada) for a total of five quarterly search market reports, each tracking the spending and performance of more than 500 marketers that are either clients of SearchIgnite or its sister company 360i. This most recent study tracked more than 20 billion impressions and 320 million clicks on Yahoo, Google and MSN from Jan. 1, 2006, through Dec. 31, 2007.

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