Search Ads Continue to Surge; Good News for Google?

Given the even sorrier state of the economy a year ago, it’s not hard for any industry to show an improvement. But even though search ads didn’t slump nearly as much as every other kind of advertising, it’s continuing to show strong improvement, according to a new report from search marketing firm Efficient Frontier. That’s likely to bode well for Google, which reports its second-quarter earnings on Thursday. From the report, released this morning:

In Q2 2010, the search marketing sector continued to bounce back, shrugging off a still uncertain economic environment. Year on Year (YoY) spend was up 24%, with a 9.7% increase in spend Quarter on Quarter (QoQ), partly due to a recovery in Cost Per Click (CPC) prices which rose across all of the major search engines. Overall, return on investment (ROI) in search was up 4% YoY and 10.6% higher than last quarter (Q1 2010). Search marketing growth continues to exceed the 2010 outlook of 10-15% due to increased consumer demand, which results in higher pricing as indicated by higher CPCs.

In the first half of 2009, search felt the adverse affects of a sputtering global economy. In sharp contrast to a year ago, search marketing in Q2 2010 is showing a strong recovery. Marketers shook off the continued economic uncertainty and capitalized on improving return on investment from search advertising to grow sales volume.

The retail sector leads the recovery with 38% growth in spend YoY and 16% growth QoQ, a pace that far exceeds the typical modest quarterly rise in Q2. Building on the momentum of Q1’s strong growth, retail CPCs continue to grow at 18% YoY and 17% QoQ, indicating a growing aggressiveness on the part of advertisers in this sector. Consumers are also playing their part in driving the recovery. Impression volume in the retail sector was up 65% YoY, signaling continued consumer interest in online shopping.

Here’s the rundown, sector by sector followed by Efficient Frontier:

• Retail: Spend was up 38% YoY due on strong consumer and advertiser demand.

• Travel: Spend was up 10% YoY on CPC gains.

• Finance: Spend was down 2% YoY due to a decrease in CPCs that was largely offset by volume growth.

• Auto: Spend was up 6% YoY on CTR and CPC gains.

Meantime, while Microsoft’s Bing search engine continues to gain, it’s at the expense of Yahoo, not Google, at least when it comes to search spending. Efficient Frontier says Google continues to hold 75% of search spending, while Bing has 6.4%, up from 6.1% in the first quarter, and Yahoo’s share fell from 18.7% from 18%.

Another search marketing company, SearchIgnite, reported similar trends. It says search spending rose 14% in the second quarter, accelerating from 11% in the first quarter. Spending on Bing rose 26%, giving it a 6.2% share, Yahoo was up 3% to get 15.4% share, and Google remained dominant with a 16% uptick, hitting 78.4% market share.

ComScore’s latest numbers also show Google lost a small amount of search market share to Bing and Yahoo, though analysts note that a change in how comScore measures searches makes the shift’s significance uncertain.

All that indicates Google’s second quarter will look pretty good. Analysts on average are expecting its revenues to rise almost 23%.

Investors will be looking forward more than back, however. Google is notoriously stingy with outlooks, so for now Efficient Frontier’s will have to suffice, and so far, not surprisingly given the iffy state of the economy, it’s a mixed picture:

The last two quarters have shown strong growth in terms of SEM spend (20% YoY in Q1 and 24% YoY in Q2) and we expect the positive trends to continue for the second half of the year. CPCs continue to make a strong recovery, indicating growing demand and larger advertising budgets which should continue to contribute to the expected growth in the coming quarters. However, weakness in the European economy might negatively affect Q3, so we remain cautious as we keep our SEM growth expectations in the 15-20% range. Should we continue to see strength in Q3, and taking into account typical strength in Q4, the year could surpass our already upwardly revised expectations.

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