After several years of phenomenal growth levels, the paid search market is finally reaching maturation levels that will likely lead to lower, but steady growth in the future. A newly issued report from eMarketer examines the impressive number that have been driving the paid search industry for the past few years and estimates the increases that we will likely see through the end of 2006.

"I think a lot of search and advertising professionals are going to be surprised. The good news is that the growth of paid search ad spending is flattening out, Yes, you heard me right. That's good news," said David Hallerman, a senior analyst at eMarketer, and the author of the report. "In an industry once-burned by bubble-and-burst expansion, Internet advertising is best served when its most effective vehicles show steady, and less hyped growth."

Paid search has seen year-over-year three-figure increases in the past, though that number dropped to just a 50% increase in 2004. Paid search is projected to grow an additional 22.5% in 2005, before dropping into the teens in 2006. eMarketer's data is based on paid search, paid inclusion and contextual search figures from the Interactive Advertising Bureau (IAB) and data from PricewaterhouseCoopers.

eMarketer also shares the results of a SEMPO study that sheds some light on why companies are willing to spend so much money on paid search advertising. Despite the direct response appeal of search marketing, 61% of companies use paid search ads to increase or enhance brand awareness. That number matches well with a recent study by comScore Networks that found 92% of searchers ultimately headed offline to make their purchases. Other responses including selling products, services or content (58%), driving traffic to a Web site that generates profit through advertising (44%) and to generate leads (54%).

The slowed growth in paid search listings may lead to an increase in business for search marketing companies that specialize in organic optimization. "As the paid search market matures involved companies will look for additional ways to build their bottom line through search. This will include greater spending on tools such as search engine optimization, which boosts organic search rankings..." explained Hallerman.

Rising per-click ad prices and a saturated market have made it harder for companies to generate strong profit margins solely through paid search listings. Because organic listings have no costs associated with them beyond the cost of hiring an optimization firm, many companies that have ignored organic marketing in the past are finding themselves turning toward it to help increase overall ROI in the future.

While companies that started their campaigns in paid search advertising are likely to make sure organic optimization becomes a healthy part of their online marketing mix, it's unlikely that they will abandon paid search anytime soon. The study shows that the paid search marketing is not a bubble preparing to burst, rather it is an advertising outlet that is reaching maturity and settling into a long-term sustainable growth pattern. Ultimately, companies that take the time to focus on testing their paid search campaigns in order to maximize conversions and minimize bid prices will find themselves able to outlast their competition.

Discuss the maturation of the paid search market in the Small Business Ideas Forum.
February 1, 2005

Jennifer Laycock is the Editor of Search Engine Guide, the Social Media Faculty Chair for MarketMotive and offers small business social media strategy & consulting. Jennifer enjoys the challenge of finding unique and creative ways to connect with consumers without spending a fortune in marketing dollars. Though she now prefers to work with small businesses, Jennifer’s clients have included companies like Verizon, American Greetings and Highlights for Children.

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