In a sector often dogged by hype, one thing is clear: search is already huge, it's growing rapidly and it's fundamentally changing the way products and services are marketed. The numbers are there to prove it.

In the USA alone, figures from eMarketer suggest that search advertising end totalled €6.2bn in 2007 and will reach €12.1bn in 2011. That's because businesses know that search works and intend to devote an ever-increasing proportion of their marketing spend to it.

A McKinsey survey in 2007 invited 410 companies globally to look ahead to 2010: respondents expected a majority of their customers to discover new products or services online and a third to purchase goods there. But to discover and buy goods online, customers must know where to look – or be guided there by a search engine.

The Internet Advertising Bureau, in partnership with PricewaterhouseCoopers, published some revelatory figures for UK advertising during the first half of 2007:
• Online advertising spend reached €1.9bn (14.7% of all advertising revenue – up from 10.5% in H1 2006).
• Spending on online advertising grew at 41.3% year-on-year, greatly exceeding the 3.1% growth rate for advertising as a whole.
• Search took 57% of the online advertising spend (€1.1bn), with display ads, classifieds and e-mail taking the rest.

Nick Hynes l Listen to the podcast

Marketing: reinvented

Nick Hynes, who headed The Search Works until December 2007, sums up the tool's appeal: "It gives control of the three key levers – how many customers, how much do you want to pay per customer, and when do you want them in the door. That is unique. Those attributes are unavailable in any other medium. You can pay zero and be at the bottom of the list, or pay the top amount to be number one."

For Sir Martin Sorrell, head of global marketing giant WPP, the rapid growth of online marketing has changed the landscape: "In the Western world, new media have attacked and disintermediated a number of traditional channels.

"Sweden will be the first country where online marketing spend outdistances TV this year. Group M's forecast is that it will outdistance TV next year in the UK."

When asked to identify the characteristics that distinguish online marketing tools, Sir Martin is clear: "Targeting and measurability. The argument has always been that they're more measurable, they're more targeted, they're more one-to-one."

Reversing the economic model

For over a decade, John Battelle has been an internet thought leader. He co-founded Wired magazine and wrote the seminal 2005 book, The Search. In his view, search offers a fundamental departure: "In the past, marketers acquired leads by finding content that had acquired an audience – let's say the Oprah television show. That has a very dedicated audience – usually female, usually 18 to 54 – and if you wanted to speak to women in that age group you attached your marketing to Oprah.

"Google switched the model around to say it's not about attaching your message to content. It's about attaching your message to intent. In other words, when someone declares their intent in a search engine, say the Chrysler mini van, you can put your ad there and you know someone's actually interested in a Chrysler mini van. That's a very, very different thing.

"And the nifty trick that really flipped the whole economic model was you don't have to pay for that ad until someone actually clicks on it. So it's performance based."

John Batelle l Listen to the podcast

The database of our intentions

John Battelle coined the term "the database of our intentions". For him, the impact of search goes very wide: "The commercial expression of search has been one of the most extraordinary events in the history of business. And Google is one of the more extraordinary companies in the history of business. But I think the implications of what we're creating are much broader than just the economic impact.

"The idea that hundreds of millions of people ask questions in a search box and then take action after retrieving results strikes me as an unprecedented historical artefact of what our culture wants, needs, desires, is looking for, is afraid of, is hopeful for."

New patterns of consumer behaviour

Increasingly consumers are using search engines as the default way of navigating the web and as a gateway to sites that help them find value for money.

The navigator of choice

Hitwise tracks about 10 million individual search terms a month in the UK. As Research Director, Robin Goad understands the evolving nature of search's role: "One in every eight internet visits is to a search engine and that's increased over the last two years from one in nine – a 15% rise in market share.

"The majority of search terms are 'branded' or 'navigational'. That's people searching for a particular website, such as Bebo or eBay. In 2007, we looked at the top 2,000 search terms and found that 81% were navigational terms, up 20% over the last two years. A key driver is the growth in the number of people with a search box in their tool bar.

"This means that search marketers need to focus on 'the long tail'. Not on the top 200 terms that are probably trademarked or very expensive for bidding, but the millions of terms in the tail, where generally people are looking for more specific things. These often provide better conversion for search marketers and are not necessarily as competitive."

Vertical search and price comparison

Vertical search sites, specialising in a particular product or service, are a growth area, as Robin Goad explains: "There are a number of areas where we see 'vertical search' growing. The biggest are in the flight and utility sectors, and some financial services areas, such as credit cards. Those are still much smaller than Google but their market share is absolutely growing."

The relationship between vertical and general search is symbiotic, as Robin explains: "If you look at an 'average' website, around a third of the traffic will come from search. But if you look at a vertical search site, up to 80% of their traffic may be coming from a traditional search engine."

For 3i's Mike Reid, one aspect of vertical search stands out: "Price comparison has come up significantly in the last year. It's a very lucrative market. Customer acquisition and retention are key. The skillset is all about getting you to use my price comparison engine and stay with it."

Countries and sectors: Moving at their own pace

Although search marketing is a global phenomenon that has left few industries untouched, the take-up in different countries and sectors varies significantly.

A globally-differentiated phenomenon

Different characteristics of different markets affect the speed of take-up, as Nick Hynes reflects: "Corporates in America tend to be much bigger, so they tend to have their own online marketing departments.

"This is very different from Europe, where the countries are much smaller, and consumers in Paris tend to have different needs from consumers in Munich.

"Because of this, the agency world is much more important in Europe than it is in the USA. And because the internet works very successfully, we're seeing much more marketing spend in Europe going into online.

"In the UK this year, we should see 14% of the marketing mix spent online. In the USA, that figure is likely to be 7.5-8%.

"The Far East tends to be more similar to Europe than the USA. Japan has the world's second largest internet economy and the online agencies there control nearly everything in digital."

Nick Hynes l Listen to the podcast

A tidal wave waiting to hit

A key group of spenders has yet to open its wallet fully – the makers of fast-moving consumer goods (FMCGs). Nick Hynes explains: "Of all the marketing spend in Western Europe, something like 60% comes from FMCG companies, such as Unilever. That large chunk of spend isn't reaching the online world because there hasn't been the right media platform.

"Brand-related advertising with banners doesn't appeal to FMCG players. It doesn't have the same influence on customer behaviour as posters or magazines or TV. In addition, whether it's soap powder or biscuits, consumers don't proactively search for these products online.

"In 2010 or 2011, we'll see online advertising overtaking TV spend. The challenge is to provide the right platforms for FMCGs to be successful advertisers online."

In Sir Martin Sorrell's view, the tidal wave of FMCG money will only flow in response to hard evidence: "It has to be demonstrated to packaged goods advertisers that this would be an effective use of their money. For the FMCGs, measurability is critically important."

Add a comment

View comments

Name	Email * A valid email address must be provided.
Comment	300 Characters Left
	Please enter the four letters shown on the left.
	Terms & conditions | Disclaimer | Privacy policy

3i Group plc may edit your comments and not all emails will be published.
Your comments may be published on any 3i Group plc owned website.