Search Remains Hot While Video Warms Up

Originally Published: December 2005

With the cold weather outside, it’s good to turn our minds to the warm things we miss… beaches, convertible cars and search marketing. Okay, so you cannot really compare search marketing to a white sand beach, but they do have one thing in common… they are both hot. Search marketing continues to garner a larger portion of online ad budgets, and it does not show signs of slowing down anytime soon. Internet video advertising is also trying to make a name for itself and carve out a larger portion of those online ad budgets. With the growth of broadband, video ads have been springing up for some time. However, it now appears they are on the cusp of true explosive growth.

With online marketing budgets making up 56% of the total marketing budget of business-to-consumer marketers and making up 40% of the total marketing budget of business-to-business marketers, as reported by MarketingSherpa, the piece of the pie going to online marketing is getting much larger. In addition, a recent joint study by Deutsche Bank and Media Post revealed that third quarter 2005 online ad-spending rose 10% over the second quarter. 73.5% of respondents said their budgets increased and more than one third said their budgets increased by at least 11% over the previous quarter.

According to the Pew Internet & American Life Project, approximately 60 million people use search engines each day. That number equates to 41% of the Internet-using population that current use search engines on a typical day. The Project also revealed the total number of people using search engines has increased 55% from June 2004 to September 2005 from 38 million to 59 million. With nearly 60 million people using search engines each day, paid search has become a huge business. Currently, comScore Media Matrix ranks Google, Yahoo!, MSN, Ask Jeeves and AOL as the top five search engines based on the number of unique visitors.

When you combine the increase in online budgets with the continuing increase in search engine usage, you can see why paid search advertising exploded in growth in 2005. Online video ad spending is also on the rise, and 2006 should see it truly hit the ground running.

A recent study by eMarketer found Internet video ad spending will nearly triple in 2007 to $640 million from $225 million in 2005, and they predict video spending will reach $1.5 billion in 2009. This tremendous growth has been spurred by the proliferation of broadband access in homes. The year 2005 marked the first time over half of all online households connected to the Internet via high-speed access. eMarketer predicts that by early 2008 more than half of all households, not just those currently connected to the Internet, will connect via broadband. With this extended reach and the ability to use true video, marketers can use the Internet like a targeted version of TV. Marketers can pick and choose who they want to see the advertising, and the creative can have all the elements of TV (audio and video). In addition, true online video will allow marketers to blend entertainment, paid search, behavioral targeting, online brand building and online gaming into a true integrated online brand building and sales-driving campaign.

However, there are a couple downsides to paid search and video advertising, namely rising costs and increased competition. In the study by Deutsche Bank and Media Post, they found prices of search ads continue to increase at a significant rate. 58.2% of respondents reported paying more for search ads in the third quarter of 2005 than they paid in the second. In addition, two thirds of respondents said they paid more for rich media in the third quarter over the previous quarter. This rise in cost can be attributed to the fact that paid search can be easily tracked (to quickly show return on investment), it has demonstrated its effectiveness and since many advertisers have jumped into the paid search game, competition is becoming stiff for limited inventory. Click fraud is also a concern for paid search marketers, although many of the search engines have systems in place to monitor and lessen the likelihood of fraud. Similar things are happening with video advertising. As more and more marketers realize the effectiveness of the medium, and can prove it by fairly simple metrics, it is bringing about increased competition for limited space. While competition is not as fierce as it is with paid search, it is catching up quickly.

As the year 2006 begins, paid search and online video advertising are two hot items during this cold weather season. While both have their drawbacks, they are proving their effectiveness on a daily basis. As more and more marketers are shifting budgets to online (and have been for quite some time now), it is freeing up more dollars for paid search and leading edge technologies like video advertising. Now, who isn’t ready for a heat wave?