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Study Finds Tech Giants Spending More on Paid Search

Covario, a local online marketing agency, announced results of its third-quarter 2008 Global Search Spend Analysis on Oct. 15, revealing that large technology companies are moving more ad dollars to the paid search arena.

The study observed a spike in year-over-year advertising spending on paid search, which involves paying an advertising fee to Web sites such as Google or Yahoo based on page placement (ranking) or number of “click-throughs,” for example.

Despite a faltering economy, the growth rate rose to 52 percent from 43 percent compared with the previous year’s quarterly analysis.

Craig Macdonald, vice president of marketing and product management at Covario, says clients have been successful in gradually reallocating ad budgets to include a stronger online presence, adding that they enjoy “the high (return on investment) and clear accountability” of paid search. “However, we do expect paid-search spending growth to slow over the next two quarters as a result of the severe economic conditions,” he said.

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The analysis focused on paid search spending allocation patterns for 128 brands at 12 major U.S.-based technology organizations such as Intel and Lenovo. The total was more than $225 million.

“It’s all about the smarter use of funds,” said Ken Wells, creative director at San Diego’s Alchemy Design Group. “Ninety percent of our clients do all marketing online, and that’s an increase from years past.”

The potentially high return on investment in relation to the relatively low cost of entry seems to be fueling its momentum. In economically uncertain times, the Internet offers a highly measurable ad medium, Wells says.

“People these days are finding where they’ll get the most bang for their buck and that’s online,” Wells said. “It’s a numbers game, and with paid search you have the opportunity to push the numbers further and broader.”


Cautious Optimism

The report also asserted that in the second quarter of 2008, advertisers had shifted part of their budgets for paid search away from Google to Yahoo, but those numbers were not available by last week’s deadline.

Yahoo solidified its Q2 gains in Q3, though the trend flattened out.

Based on the most recent data, the percentage of spending in Q3 executed on Yahoo in North America was 13.5 percent, down slightly from 14.3 percent in Q2.

As for Google, the Q3 spending allocation was 82.9 percent, up from 81.2 percent from the previous quarter.

In its most recent study, Covario added an analysis of click-through rates, or CTRs, the number of times visitors to search engines click on the link that leads to the advertisers’ pages.

The general pattern is that CTRs are down in 2008 from 2007.

Specifically, CTRs for Google were 1.9 percent in Q3 2008, down slightly from 2.4 percent in 2007. Yahoo had the lowest CTRs for advertisers at 1 percent, and MSN had the highest at 2.2 percent.

“We are cautiously optimistic about paid search (spending) in 2009,” Macdonald said.

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