Search Economy and Trends

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Published on December 1, 2008

Author: abcd82

Source: slideshare.net

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Search Economy and Trends

Panel: Search Economy and Trends Panelists: Heather Dougherty, Research Director Hitwise Jaideep Singh – CEO of Spock.com Kevin Lee – Chairman & CEO / Co-Founder of Didit Sean Walsh – VP of Online Marketing at Luxurylink.com Moderator: Sandeep Aggarwal, Managing Director Sr. Internet Analyst at Collins Stewart LLC

Secular Growth Trends in Internet Advertising $MM 2004 2005 2006 2007 2008E 2009E 2010E '07-'10 CAGR Total Worldwide Advertising $543,600 $569,100 $604,600 $639,700 $667,900 $695,593 $722,560 4.1% Y/Y Change 11.0% 4.7% 6.2% 5.8% 4.4% 4.1% 3.9% WW Internet Ad Spend $16,500 $21,000 $28,000 $35,663 $44,399 $54,569 $66,259 22.9% G rowth Rate 38% 27% 33% 27% 24% 23% 21% WW Internet as a % of Total 3.0% 3.7% 4.6% 5.6% 6.6% 7.8% 9.2% Y/Y Increase in Penetration 59 bps 65 bps 94 bps 94 bps 107 bps 120 bps 133 bps Source: Universal Mc Cann; IAB & PricewaterhouseCoopers; Collins Stewart LLC estimates • Worldwide advertising is approximately $700bn industry • Internet advertising is $45bn industry • Internet advertising is expected to grow 5x of overall advertising industry growth for next several years • Internet advertising will be 9%+ of the total advertising in 2010 (up from 3% in 2004)

Search Will Continue Dominate Internet Advertising Ad Revenue ($MM) 2004 2005 2006 2007E 2008E 2009E 2010E Total $16,500 $21,000 $28,000 $35,663 $44,399 $54,569 $66,259 Search $6,627 $8,864 $11,867 $15,923 $20,237 $25,256 $31,149 Classifieds $2,265 $2,724 $3,817 $4,405 $5,323 $6,371 $7,480 Referrals/Lead Gen $495 $1,007 $1,740 $2,063 $2,562 $3,153 $3,913 Email $266 $314 $449 $569 $709 $855 $1,017 Display Related Ads $6,846 $8,073 $10,128 $12,704 $15,569 $18,935 $22,700 Banners Ads $4,517 $5,594 $7,439 $8,646 $10,453 $12,565 $14,761 Rich Media/Video ads $1,064 $1,388 $1,738 $2,843 $3,717 $4,759 $6,102 Sponsorships $1,064 $965 $951 $1,214 $1,398 $1,612 $1,836 Slotting Fees $202 $125 $0 $0 $0 $0 $0 Ad Revenue (Y/Y Growth) 2004 2005 2006 2007E 2008E 2009E 2010E Total 38% 27% 33% 27% 24% 23% 21% Search 58% 34% 34% 34% 27% 25% 23% Classifieds 49% 20% 40% 15% 21% 20% 17% Referrals/Lead Gen 131% 103% 73% 19% 24% 23% 24% Email 0% 18% 43% 27% 25% 21% 19% Display Related Ads 18% 18% 25% 25% 23% 22% 20% Banners Ads 20% 24% 33% 16% 21% 20% 17% Rich Media/Video ads 38% 31% 25% 64% 31% 28% 28% Sponsorships 16% -9% -1% 28% 15% 15% 14% Slotting Fees NA NA NA NA NA NA NA Ad Revenue (% of Total) 2004 2005 2006 2007E 2008E 2009E 2010E Total 100% 100% 100% 100% 100% 100% 100% Search 40% 42% 42% 45% 46% 46% 47% Classifieds 14% 13% 14% 12% 12% 12% 11% Referrals/Lead Gen 3% 5% 6% 6% 6% 6% 6% Email 2% 1% 2% 2% 2% 2% 2% Display Related Ads 41% 38% 36% 36% 35% 35% 34% Banners Ads 27% 27% 27% 24% 24% 23% 22% Rich Media/Video ads 6% 7% 6% 8% 8% 9% 9% Sponsorships 6% 5% 3% 3% 3% 3% 3% Slotting Fees 1% 1% 0% 0% 0% 0% 0% Source: Collins Stewart LLC estimates

Fireside Chat with Search Industry Experts • Sean Walsh – VP of Online Marketing at Luxurylink.com • Heather Dougherty, Research Director Hitwise • Kevin Lee – Chairman & CEO / Co-Founder of Didit • Jaideep Singh – CEO of Spock.com

Sean Walsh Vice President, Online Marketing What is LuxuryLink.com? 5-Star Vacation Packages at Auction My Professional Background •VP, Online Marketing for Countrywide Financial •Director, Online Marketing for Sony Connect •Various Web Development / Product Mgt. Positions •Began as Aerospace Engineer for Hughes Space & Comm.

Travel Search Volume Trend

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Treasury's Paulson says US economy is healthy, transitioning to moderate growth March 1, 2007 WASHINGTON (AFX) - The US economy is 'healthy' and transitioning to a soft landing after blockbuster growth in early part of last year, Treasury Secretary Henry Paulson said today. 'For a number of months now I have believed that the US economy is A Few Interesting Quotes successfully transitioning to a moderate and sustainable rate of growth, and yesterday's data supports this view,' he said in a speech to the Economic Club of Washington. “Wait a minute. What did you just say? You’re predicting $4-a-gallon gas? That’s interesting. I hadn’t heard that.” — George W. Bush, Washington, D.C., Feb. 28, 2008 US inflation rate “still relatively contained”, Paulson July 4, 2008 LONDON – Treasury Secretary Henry Paulson said inflation that strips out food and fuel costs in the US remains in check and he praised the job Federal Reserve chairman Ben S Bernanke is doing conducting monetary policy.

“Inflation is contained”… Oh, really?!

1. The American Economy is in worse shape than many would have you believe. 2. American consumer demand is entering a protracted downcycle. 3. Consumer spending is 70% of US GDP. What’s my point? 4. The benefits of the offline to online advertising shift cannot overcome this downward force. 5. Therefore, it is prudent for all of us search marketers to pay close attention to the true health of the American economy and its consumers. Track your acquisition costs closely!

Heather Dougherty Research Director, Hitwise

Hitwise - Who We Are Online Competitive Intelligence Service Monitor the largest worldwide sample of Internet users – 25 million Report on the most online businesses (1M+ Websites) Provide daily delivery of information to drive better business decisions Founded in 1997 with profitable operations in the US, UK, Australia, New Zealand, Hong Kong and Singapore Acquired by Experian in 2007 1,400+ Clients Worldwide

Searches on Google increased 10% in July 08 over previous year Share of Searches by Search Engine - July 06 to July 08 Others 100% Ask MSN Search 80% Yahoo! Search Share of Searches 60% 40% Google 20% 0% 07 08 7 8 6 7 8 6 07 07 07 7 08 08 08 06 06 06 6 07 07 07 7 7 8 -0 -0 l- 0 l- 0 l- 0 -0 -0 -0 -0 -0 -0 b- b- n- r- n- n- r- n- g- p- v- g- p- v- ar ar ct ct ay ay ec ec Ju Ju Ju Ap Ap Fe Fe Au Ju Au Ju No No Ja Ja Se Se O O M M D D M M * MSN Search includes Live.com

Google’s traffic is increasing while maintaining repeat visitors Google's Market Share of Visits by New & Returning Visitors 7% Monthly Market Share of Visits 6% 5% 4% New 3% Returning 2% 1% 0% Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- 07 07 07 08 08 08 08 08 08 08

Impact of search varies widely among industries

Willingness to purchase search traffic also a factor Share of Paid Search Traffic by Industry 4 Weeks Ending Aug. 9, 2008 Retailers Auto Manuf Banks & FIs Food & Bev Brands Grocery & Alcohol Employment Newspapers 0% 5% 10% 15% 20% 25% 30% Share of Paid Traffic

What does Didit do? Didit transforms clients’ businesses through the application of digital media technology & strategy. Didit is the industry leader in search engine marketing, keyword targeted media and auction- media. Didit was co-founded by industry thought leader, SEMPO board member, Kevin Lee. Kevin’s years of SEM expertise provide the foundation for Didit’s proprietary Maestro search campaign technology. Didit’s unparalleled results and client growth have earned Didit recognition not only among marketers but also as part of the 2007 Inc 500 (#137) as well as a #12 position on Deloitte’s Fast 500.

Spending based on marginal profit Google’s share of wallet keeps growing: Goog Yahoo Microsoft Q1'06 Actuals 64% 34% 0% Q2'06 Actuals 68% 28% 3% If the Google Yahoo deal Q3'06 Actuals 69% 25% 5% is approved then look at Q4'06 Actuals 71% 22% 5% the shifts and allocation. Q1'07 Actuals 70% 22% 6% Q2'07 Actuals 71% 22% 5% Monetization Q3'07 Actuals 72% 22% 5% Click Share Q4'07 Actuals 73% 20% 6% CPC Escalation Q1'08 Actuals 73% 21% 6% Q2'08 Actuals 74% 20% 5%

SEMPO: Most Advertiser Respondents Could Still Tolerate Further Price Rises, at Moderate Levels RESEARCH HIGHLIGHTS • Over three-quarters of respondents said they could tolerate further rises in paid placement prices • 21% report they cannot afford to pay more for leads/conversions because they are currently at maximum efficiency, a slight decrease from 2006, and on par with 2005 • Even among advertisers who report the capacity to increase ad expenditure, more than half can afford 30% or less • Despite increasing ad spend and year-to-year growth in the value of search engine marketing, we are likely nearing a pricing plateau as advertisers near their maximum efficacy. Ability to Afford Further Price Escalation in Paid Placement Ads quot;Given the current efficiency you experience with Paid Placement programs, and the quality of the leads that this tactic generates, how much more could you afford to pay for the leads / conversions this channel provides before you could not 30% justify the expense?quot; % of Advertiser Respondents 21% 20% 18% 17% 16% 10% 10% 6% 5% 4% 1% 1% 2% 0% Nothing 10% more 20% more 30% more 40% more 50% more 60% more 70% -90% Tw ice as Three times Don't know more much as much Advertisers n=240 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Global Results. Copyright © 2008 20

Faced With Escalating Keyword Prices, Advertisers Would Increase Program Efficiency RESEARCH HIGHLIGHTS • Paid placement advertisers would address price rises by improving the efficiency of their programs before cutting back on spending • Improving site conversion efficiency and improving the overall efficiency of bidding programs would be first steps in maintaining paid placement programs Reaction to 2-Year Steady Increase in Paid Placement Costs quot;How would you likely react to hypothetical scenario where the cost of Paid Placement steadily increased for the next two years?quot; 100% % of Advertiser Respondents 74% 77% 80% 72% 67% 70% 65% 60% 28% 40% 26% 23% 22% 25% 21% 22% 21% 16% 22% 15% 22% 19% 20% 13% 15% 13% 17% 13% 20% 13% 11% 13% 13% 13% 2% 2% 1% 0% Improve site's Improve our bid Shift more Rely more on Increase the Rely more on Supplement Rely less on Grin and bear Decrease Cease Paid efficiency at mgmt programs budget to more number of outside SEM cost from outside SEM it; w e can still budget for Paid Placement converting * niche search sophisticated keyw ords agencies brand budgets agencies afford to pay Placement programs ad netw orks softw are w e bid on more altogether All Advertisers Advertisers of <500 Employees Advertisers of 500+ Employees Source: Search Engine Marketing Professional Organization survey of SEM Advertiser n=240 agencies and advertisers, Dec 07-Jan 08. 21 Global Results. Copyright © 2008

What does Didit do? This year, while the search engines may try to add tools into their interfaces, chances are complexity will increase: • Keyword-targeted display (contextual) • Re-targeted search display ads and text • Keyword-targeted Video and Rich Media • Better control over syndication networks • Mobile? CPC, CPCall, CPM, CPA, CPSMS? • Real-time cookie/profile driven adserving • Blending of search and display • MSFT/YHOO merger, Goog/Yahoo alliance?

PEOPLE SEARCH PEOPLE SEARCH

SPOCK IS THE LEADER IN PEOPLE SEARCH Funding Venture backed with $8 million raised through Clearstone and Opus Capital Strong team with winning culture (36 FT from leading companies and schools) Team Leading technical advisors from Stanford, Google, and Yahoo! The #1 Market leading product Product Over 300 million people indexed to date Deep IP through patents and 2 years of intense product development 4 million unique visitors per month growing at 25% monthly Leadership The best brand perception from thought leaders, the press, and users Emerging distribution model 24

PEOPLE SEARCH IS A HUGE OPPORTUNITY Search Engines 7 billion people searches per month Social Networks 7 billion people searches per month Over 45 billion monthly searches Address Books 30 billion address book searches worldwide Spock is monetizing this market with relevant targeting of ads Content IMDB 1 billion people searches per month Directories 2 billion searches per month on online directories 25

PEOPLE SEARCH IS NAME + KEYWORD DRIVEN People enables both name searches & keyword searches Keyword searches make targeting better and create value for users & advertisers Meta data (keywords) used to target name searches better 26 CONFIDENTIAL

Fireside Chat with Search Industry Experts on Interesting Topics on Search Marketing 1. Revisiting the value proposition for search – why search continues to be the most attractive online ad format? 2. Search beyond direct marketers - Adoption of search by brand advertisers and other advertisers 3. Google vs Yahoo! Vs Microsoft – shares of wallet, innovations, product enhancement etc 4. Spending trends – by verticals, any visible impact from economic headwinds 5. Key metrics trends – CPC, CTR and conversion trends 6. Vertical search - People search 7. Search beyond PC – mobile search 8. Geographical search – US vs. International, national vs. local 9. Search marketing trends by size of advertisers – SMB, Govt, enterprise, education or just large vs. small to mid size advertisers 10. Universal search – how it is performing, signs of traction, how it is changing how advertisers buy keywords and run search campaigns

Thank You!! Sandeep Aggarwal, Managing Director Sr Internet Analyst Collins Stewart LLC saggarwal@collinsstewartllc.com 415-659-2260

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