March 7, 2006

eCommerce industry analyst firm eMarketer predicts that paid search advertising spending will hit $10 billion in three years from now. For 2006, the company expects US paid search ad spending in the US will increase by 26 percent, up seven percentage points less than last year's 33 percent gain.

After triple-figure growth rates earlier in 2001 and 2002, slower growth rates will prevail through the rest of the decade, eMarketer said.

"Clearly our growth rates are slowing," said Google's chief financial officer, George Reyes, on February 28, 2006, noting that the company's revenue growth is decelerating because of the "law of large numbers." In other words, hyper-growth can't be sustained forever. And as Google goes, so goes the search marketing industry.

eMarketer's David Hallerman, Senior Analyst and author of the new report Search Marketing I: Spending and Metrics, finds the slowing growth rate expected.

"As this market matures, the search engines will need to refine and improve their products, which will create greater opportunities for search marketers to unearth more effective niches," says Mr. Hallerman.

"Such maturity will include more vertical search for better targeting, and a sharp rise in local search, as both users and advertisers increasingly realize that the Internet is the best place to make contact with any kind or size of business."

Key data points from the report include:

-- Paid search ad spending in the US will top $10 billion in 2009
-- Paid search ad spending growth will slow to 26 percent in 2006
-- Paid search will continue to be the dominant form of Internet advertising
-- Local search ad spending will make up 20 percent of all paid search spending
-- The growth of local search will beat national search from 2005 through 2010

Spending and Metrics is part one of eMarketer's two-part study on search marketing. The second installment of this report will be available in April '06.

eMarketer's new Search Marketing I report provides answers to these questions:

-- Will search marketing continue its strong spending growth?
-- How does Google's dominance affect the search market?
-- How will local search contribute to spending increases?
-- What metrics best gauge a search campaign's effectiveness?
-- Can search make branding better?

Source: eMarketer