Search Engine Ad Growth to Plateau, Study Says

Jeff Berg
CYBERSPACE — The paid search engine market is beginning to plateau, with the explosive spending experienced during the last few years expected to taper off through 2006.

The report found that paid search advertising spending, which grew 174.3 percent in 2003 and 51.3 percent in 2004, will probably drop to 22.5 percent in 2005 and 17.9 percent in 2006.

“That’s good news,” said David Hallerman, a senior analyst with eMarketer. “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.”

According to Hallerman, companies involved in search engine advertising have begun investing more in search engine optimization, contextual advertising and vertical searches.

United States Internet users are also becoming concerned about the amount of advertising, the report revealed, with 69 percent of people surveyed saying that they are interested in products or services that help them avoid online marketing. Sixty-five percent said that they feel constantly bombarded with too much online marketing and advertising and that there should be more regulations concerning it.

A majority of respondents – some 60 percent – also indicated that they hold a much more negative opinion of online advertising than they did a few years ago. Sixty-one percent of consumers surveyed also said that they feel online marketers do not treat them with respect.

According to Hallerman, these indicators can be both a boon and a bane to search engine advertisers. Because consumers control when search engine advertisers have to pay out money, Hallerman believes that the statistics could indicate a growing problem for advertisers, but also mentioned that, “since users can react to or ignore search engine ads at will, that greater control encourages greater responsiveness to relevant ads.”

“Paid search is unlike any other form of advertising, whether online or offline,” Hallerman said. “That’s because it’s the recipient of the ads – not the advertiser or publisher – who determines if and when any ad becomes monetized. An advertiser can have the highest bids, and top rank, for major keywords; and the search engine can be the most popular among Internet users. But until the consumer clicks on the ad, no money exchanges hands.”

eMarketer’s report was released shortly after the Pew Internet & American Life Project made public its findings that only about 18 percent of Internet users could tell the difference between sponsored and unsponsored search results.

“In a sense, many search engine users are a little bit like kids with a fancy new toy,” said Deborah Fallows, a senior research fellow at the Pew Internet & American Life Project. “They want to go play with it immediately and have a good time, but most don’t want to read the instructions or much care to know how it works.”