eView: Search Marketing Positioned for Growth, Increased Complexity and Platform Expansion in 2008

2007 was a big year in search marketing. It was the year of mega acquisitions by Google (DoubleClick), Yahoo! (Right Media, BlueLithium) and Microsoft (aQuantive, AdECN) - setting up a three-way battle of online advertising platforms.

It also was the year that SEO as we knew it got turned on its head with the advent of universal (or blended) search. It was the year that Yahoo! launched Panama and all search marketplaces became opaque, as well as the year that paid search became significantly more complex with the introduction of "quality score," a system of ranking paid listings using variables in addition to clickthrough rate and cost per click.

It also was the year that Google and Microsoft entered the free directory assistance market, renewing their focus on local advertising and mobile search. And, it was the year in which Google launched AdSense for Video, providing publishers with both free content and monetization, becoming the de facto video ad platform on the Web. And, finally, it was the year that Google continued its dominance in the U.S. and Europe.

Building on the momentum in 2007, I expect 2008 to be another exciting year. Here are some of my predictions about the coming year in terms of search:

1. U.S. paid search spending will increase by at least 30 percent in 2008.

Those who believe that search spending will slow in 2008 generally make two assumptions: (1) the macro-economic slowdown in the U.S. economy will drag down online advertising budgets and spending; and (2) U.S. search marketing has matured, with much of the real growth behind us. While it is historically true that an economic slowdown generally is followed by a decrease in spending on advertising, we have yet to see this in our client base. Even in the verticals that should be more sensitive to wider economic trends, we are seeing stability and growth in paid search spending. If the macro-economic slowdown in the U.S. economy persists, I believe that advertising dollars will shift into search and other direct response channels that can deliver quantifiable returns. After all, paid search hit its stride during the last significant slowdown in the economy.

On the second assumption, I point to the following trends, which are all well documented by the analysts in our space: persistent growth in query volume; increasing query coverage; improving clickthrough rates; increasing click costs; and, all this rolls up into the most telling metric, increasing revenue-per-search for search engines. Bottom line: U.S. paid search will grow by at least 30 percent in 2008, and I don't see anything getting in the way.

2. Paid search will get even more complex in 2008.

2007 was a banner year in terms of increased complexity in the channel, driven mostly by marketplace changes. Search engines will focus on three things to make life even harder for search marketers in 2008. First, expect search engines to continue to enhance paid search ranking algorithms to build on the quality score concept, with even more emphasis on campaign structure, relative quality of ad copy and landing pages, and Web site quality, usability and popularity. Before too long, the quality score algorithm will look more like Google's PageRank.

Second, personalized search, and behavioral and demographic data will find their way into the paid search ranking algorithm as search engines refine the way that they match individual user queries and search results. And, finally, search engines will persist in trying to make less valuable display inventory look like more valuable search inventory (more on this later). Bottom line: Search marketers should shake off a tough 2007 and prepare for an even tougher 2008. The marketplaces are going to get even more complex as search engines scramble to improve their revenue per share.

3. Go to Europe in 2008 and consider China in 2009.

U.S. advertisers who have products and services that can be sold and fulfilled in Europe need to be in Europe. The most important markets are, in order of size, the U.K., Germany, France, Italy and Spain. For U.S.-based advertisers, Europe presents an opportunity to expand campaigns into regions where there generally is far less competition, lower CPCs and higher CTRs. Additionally, search engines are very easy to work with in Europe as they still are aggressively growing their markets. Some cautions to the U.S.-based search marketer: Europe is different than the U.S. in many ways, so retain a local agency familiar with the nuances of each of the distinct European markets. Due to Google's agency rebate program, there are plenty of fly-by-night agencies in Europe set up only to benefit from these commissions, so be careful to select a reputable agency that has a solid track record, a viable technology and services offering, financial stability, and solid client references. And make sure that you play by European rules; don't just apply your U.S. search marketing and e-commerce tactics to your European campaigns. Remember, when in Rome ...

Finally, with a few exceptions, China is far too undeveloped in this area and risky for U.S. search marketers to step into in 2008. Yes, search activity is growing at a monstrous rate, and queries are expanding beyond pirated music and movies to mainstream e-commerce queries, but the market hardly is ready for prime time. Baidu, the reigning search engine in the territory, provides little to no support to its advertisers, has very limited API functionality, provides limited data to help marketers track their metrics or optimize their campaigns, and still has not fully settled on its business model. Just one example: Baidu does not provide any impression data. It is the ultimate opaque marketplace. Until it adopts Google-like practices, tools, policies and access to data, U.S. search marketers should watch from the sidelines.

4. 2008 will be the year that search and display converge.

High-end or premium display inventory will continue to be bought and sold by people with specific campaigns, budgets, goals and insertion orders. If Google, Yahoo! and Microsoft have it their way, the rest of display inventory - the so called "remnant" inventory that represents the overwhelming majority of available impressions - will be offered, sold, tracked, managed and optimized in the same way as search inventory. So, in 2008, search marketers should expect to be able to bid on, buy and optimize display inventory through AdWords, adCenter and Yahoo! Search.

This is version one of the consolidated online ad platform. What will make this tenable is data and the interplay between search and display - to the extent that search marketers can leverage search and other behavioral and demographic data to make display inventory more valuable than raw remnant display inventory, which is a big win for marketers and for the search engines. Look out for start-ups that focus on providing this data layer (perhaps through open marketplaces or exchanges) and for agencies (with real technology) to leverage data and provide optimization across both channels. Expect search engines to fight it out for your display dollars and cooperate in building these markets and the value of the inventory; no one benefits more from the development of a platform increasing the value of remnant inventory than the search engines.

Having said all that, the basics are still critical for success in 2008: Work with a reputable, established and stable firm that understands that search engine marketing success is best achieved through a combination of technology and services; leverage all the data available to you; establish a strategy, but stay nimble; look at marketing as an integrated effort; and focus on the metrics that drive your business.

Here's to a great 2008!

James Beriker is the president of Efficient Frontier, a Mountain View, Calif.-based provider of search engine marketing technology and services to leading advertisers. Reach him at james@efrontier.com.