Is Search Slowing Down?

The answer is yes. But that could be good news for advertisers and consumers.

"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. In fact, the entire stock market dipped on the news of Google's slowing growth rate.

"It's true," says David Hallerman, Senior Analyst and author of the new Search Marketing I: Spending and Metrics report, "after three-figure growth rates earlier in the decade, paid search ad spending in the US will increase by 26.2% this year, somewhat less than last year's 33.2% gain, but starting next year, and through the end of the decade, more modest growth rates in the teens will prevail."

"But you must keep in mind," he adds, "that in a mature market — one limited by the law of diminishing returns — even low two-figure ad spending growth represents significant opportunities."

In fact, recent stock market gyrations aside, eMarketer's Mr. Hallerman is somewhat bullish about the future of the search advertising market. And the numbers back him up.

According to recently released data from Nielsen//NetRatings, the number of online searches soared from more than 3.2 billion in December 2004 to nearly 5.1 billion in December 2005, representing a 55% jump year over year.

As users search more and more, their searches get increasingly complex, moving beyond just one or two terms in a keyword. That's one factor behind marketers increasing the average number of keywords they use in paid search campaigns. According to MarketingSherpa, that number nearly doubled to 17,314 in September 2005 from 9,100 in September 2004.

"The more keywords marketers bid on," says Mr. Hallerman, "the more likely there'll be a paid search ad awaiting when the user conducts a search."

Obviously, for most marketers, search has not yet met the point of diminishing returns. But more importantly, for both marketers and search users, there is another good result to be gained from a slowdown in the growth of paid search ad spending.

"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."

You don't have to search for answers about the future of search, you can find them in eMarketer's new Search Marketing I: Spending and Metrics report today.

Article from www.eMarketer.com, 7 March 2006