The Clickable Search Engine Marketing Blog

Search Advertising Trends For Q4 2008 And Outlook For Q1 2009

Following are our observations of the 2008 Q4 U.S. search-advertising marketplace, along with outlook for 2009 Q1. These insights reflect Clickable’s unique visibility into the spending of a large cross-section of small and midsize advertisers, who manage their search-advertising spend with Clickable’s search and pay-per-click (PPC) advertising  management solution. They also reflect our team’s collective experience in search, analytics and online advertising, as well as direct conversations with customers, search engines, ad-networks, agencies and technology companies among other industry stakeholders. Key contributors included my colleagues: Ben Seslija, Peter Chun, Keith Hong and Ken Yarmosh.

Please send us your questions and feedback, and let us know what you're seeing. Are our observations aligned with yours?

2008 Q4 Spending Trends

• We observed marginal search and pay-per-click ad spending increases – at best. Advertisers’ greater use of search as a primary marketing tactic has been offset by the market downturn.
• Conversion rates are down, but clicks have gone up: evidence of an Internet population researching more deals during the past holiday shopping season. The research and buying cycle is lengthening, with greater focus on savings and incentives.
• For most advertisers, we saw spending increase from Q3 to Q4 2008 – though the rate of increase was lower than usual.

2009 Q1 Outlook

• 2009 Q1 spending is declining versus 2008 Q4; early signs indicate up to a 20% decrease, but more pronounced in e-commerce.
• Any decrease from 2008 Q4 to 2009 Q1 should be offset by efforts, especially in retail, to sustain spending through prolonged deals and incentives.
• Macroeconomic conditions are driving everything.

Advertiser Goals

• Advertisers’ goals have not really changed, but accountability on the same metrics has increased. Bottom line: get more for the same dollar. Advertisers are more vested around Return On Ad Spend, or ROAS. They’re more sensitive to the profitability of their advertising investments.
• Connecting the dots beyond search, we’ve seen some retailers rush to liquidate, reduce inventory and even slow production.

Advertisers’ Visibility Into Future Spending

• Among Clickable’s customer base, we’ve not observed significant change in advertisers’ visibility or commitment to future advertising. But any broad, underlying change for advertising in general could be hidden by an overall surge and reallocation of investment into performance tactics, such as search.

Impact Of A Weaker Consumer Wallet

• Which will crack first: advertisers’ willingness to spend, or consumers’ willingness to click?  We believe the advertiser will crack first. Why? Longer click-paths increase risk, costs, and variability; all this makes tracking harder and attribution more difficult. The “full economic visibility of search” becomes, well, less visible.

Strongest/Weakest Performers In 2008 Q4

• Inexpensive and low-consideration offers did well, including retail, telecom and entertainment. The bigger mass retailers were able to leverage their scale to benefit.
• Who didn’t do well? Automotive, financial services and real estate, in particular.

Cost-Per-Click Shifts

• Among Clickable’s customer base, we observed Click-Through Rates (CTR) increase, while Cost-Per-Click (CPC) decreased. Early signs indicate they offset each other to keep Revenue Per Thousand Queries (RPQ) relatively steady across the engines.

Engine Monetization Updates

• Have recent monetization tweaks from the engines had an impact on spend? Has Google's new front-page minimum-bid algorithm impacted performance? It’s too early to isolate variables to understand true cause and effect. We suspect CPCs will go up, but we need to see the impact to overall click-through, which would influence Google’s overall monetization. (If click-through holds steady, overall spend will go up.) So far, we see coverage holding steady, with advertiser positioning reshuffling, particularly the last three positions on page-one search results.

A new report predicts that the U.S. search advertising market will contract by as much as 20% from the first quarter a year ago the fourth quarter of '08. The report, from Clickable, a search-advertising services company, shows the impact...

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