Cost Per Click Rising Amidst Competition And Search-Ad Network Activity

Microsoft Spend And Unique Accounts Double

One of the great things about Clickable is the real-time insight provided by our platform, where thousands of marketers and agencies manage their search advertising investment. Clickable’s search and advertising experts regularly analyze our customers’ spending patterns to gain insight into marketplace trends. The learning influences the products we build, as well as our understanding of the broader online advertising industry.

We just completed our latest analysis of the Clickable intelligence database, and are delighted to share highlights of our end-of-year review of the search advertising landscape. These directional insights are derived from actual spending on the Clickable platform: a community that comprises thousands of search advertisers, including small, midsize and sub-enterprise businesses; as well as advertising agencies.

Search Budgets in Q4 2009 Relative to Q2 and Q3

Compared to the average of Q2 and Q3 2009, search budgets in Q4 are up as much as 30%, with the highest increase in retail and electronics. Even non-seasonal services like financial services are up as much as 15%, suggesting a more fundamental shift in spending.

Q4 Notable Sector Gains Versus Q2/Q3 Average: Retail: +30%; Travel: +20%; Services/Legal: +20%; Services/Insurance: +15%; Auto: +10%.

Seasonal Spending Recovery 

In November, overall search spend was significantly higher than in September (+25%), though only slightly higher than October (+5%). This reflects seasonality and correlates highly with recent improvements in the economy. It also reflects Cost Per Click (CPC) spikes as advertisers spend more to meet competition, protect their brand terms and offload their end-of-year budgets.

Q4 Cost Per Click and Paid-Click Growth

CPCs and paid clicks are both increasing in Q4, though the rate of growth varies significantly across industry sectors. Increases are ranging from 5% to 40%, with the most aggressive spikes in the retail sector.

CPC and paid-click growth are influenced heavily by two factors: 

Natural Demand And Competition: In addition to seasonality, advertisers want to spend more as the economy recovers as well as offload end-of-year budgets. 

Search-Engine Influence: Different methodologies are developed by search-engines to drive CPCs up, such as new first-page bid rules and quality score refinement. Furthermore, the introduction of Bing has changed the dynamic of the Microsoft and Yahoo competitive landscape. (More on Bing below.)

CPC Outlook 2010

CPCs will likely increase as well as paid clicks. If so, key questions arise: Will advertisers absorb that traffic and spend, or place arbitrary budget limits? Will they expose themselves to additional traffic that my or may not benefit in terms of conversion and return? We believe smaller retail margins will heavily influence ad spends going into 2010.

Microsoft, Bing Gaining Momentum

In Q2 2009, only 7% of all ad-network accounts managed through Clickable were Microsoft, representing 1.7% of total spend. However, nearing the close of Q4, the number of Microsoft network accounts managed through Clickable doubled to 14%, while overall spend doubled to 3.4%. This increase in the Microsoft distribution is one of the first significant signs of a power shift from Yahoo to MSN. Google, on the other hand, doesn’t seem to be impacted.

Nonetheless, advertisers shouldn’t pull out of Yahoo, as it is still a massively popular search engine. But as some advertisers do move away from Yahoo, decreased competition may present new opportunities for other advertisers to succeed on that network.

With Bing making headway, it becomes increasingly clear that the time and resource investment in second- and third-place networks can be justified by the returns. (Of course, products like Clickable make it easier than ever to manage campaigns and profit across all major search networks.)

This analysis was prepared by members of the Clickable team, including Ben Seslija, Peter Chun, Keith Hong, Preston Green and Max Kalehoff.

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