Advertisers will spend about $4.1 billion this year on search marketing programs, according to a research paper released by the Search Engine Marketing Professional Organization, a non-profit professional association.


The paper, “The State of Search Engine Marketing 2004,” is based on research conducted by Executive Summary Consulting.


Search engine marketing is popular among real estate agents and companies who want to advertise to prospective clients starting their home searches at the major Web portals and search pages like Yahoo!, Google, AOL and MSN.


The $4.1 billion figure comprises payments to search engines and search-related media companies, search engine marketing agencies as well as in-house expenditures in support of such programs, including “paid placement,” “paid inclusion,” “organic search engine optimization” and “search engine marketing technology platforms.”


Research relied on an extensive survey of 288 search engine advertisers and marketing agencies, executed via IntelliSurvey, as well as in-depth interviews with 31 leading industry experts. The final report breaks down advertiser spending for 2004 in several areas: $3.1 billion to search media companies; $618 million on SEM-related in-house expenses within advertising corporations; $380 million to search engine marketing agencies, and $30 million in SEM technology licensing fees.


The report also estimated that marketers will spend (including both in-house and external media, service and licensing expenses) $3.3 billion on paid placement campaigns; $492 million on organic search engine optimization; $182 million on paid inclusion, and $72 million on SEM-related technology services.


“The data indicate that current size of the market for Search Engine Marketing services is the tip of the iceberg; we have the beginnings of a healthy industry,” said Kevin Lee, Board of Directors Member and Chair of the Research Committee of SEMPO.


Additional findings in the study included:


  • The return on investment of SEM paid placement advertising continues to stay ahead of price inflation: advertisers said on average they have witnessed bid prices rise 26 percent in the last 12 months for keywords they commonly buy but said they could stand on average another 33 percent increase in the price and still make a profitable transaction.


  • Only 41 percent of advertisers reported that SEM budgets were newly created funds for this purpose; the rest said SEM budgets were coming in whole or in part from shifts away from traditional or Internet marketing programs. The biggest shift in terms of share of budget was transferred from paid listings on shopping directories, e-mail programs, Web display advertising, and print magazine and newspaper ads.


  • Brand awareness was overall the top objective advertisers set for search marketing programs, just beating out sales and lead generation initiatives.


  • Half of advertiser respondents said that their senior executive staff considered the company’s search marketing initiatives a “high priority” (although that figure dropped to 32 percent of companies with staff sizes larger than 500).


  • Advertisers expect to spend, on average, 39 percent more on all search marketing programs (in 2005 compared to 2004; smaller firms projected 32 percent more while larger firms (larger than 500 employees) projected a 43 percent year-over-year increase.


  • Most advertisers plan to manage the majority of their search marketing spending in-house as opposed to via an agency: 52 percent of advertisers said they would manage 100 percent of their 2005 spending on both paid inclusion and organic SEO in-house.



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