Paid Search Ad Spending Rebounds in Q2

by Craig Macdonald | May 27, 2010

As predicted in our first quarter (Q1) Global Paid Search Spend Analysis, spending by high-tech and consumer electronics companies is rebounding in the second quarter (Q2), from its 11.9% quarter-on-quarter decline between the 4th quarter (Q4) 2009 and the 1st quarter (Q1) 2010.

Our mid-quarter Q2 analysis projection shows that paid search spending in the high-tech and consumer electronics sector will be up an estimated 24.9% over Q1 – with Google leading the way with 29.9% increase, Yahoo up 11.3% and Bing down 13.3%.

There are three (3) main stories in second quarter that are of interest to paid search advertising professionals.

The impact of the decision by Google to reposition its China business.
There is a large amount of interest on the part of our customers on how the market is reacting to Google’s Q1 announcement that due to privacy restrictions by the Chinese government the platform would relocate its Chinese business to Hong Kong. With several months of data now, what we are seeing is that overall paid search spending in China is up nearly 85% from Q1 — with spend on Baidu up nearly 210%. Spending from Q1 to Q2 on Google is up — but far more modestly — around 43%. Overall strong growth aside, it appears that the prognostications of massive defections from Google are unfounded — the spending on the network in China remains robust. However, this strategy by Google clearly is a boon to Baidu — whose spend is up markedly.
What happened to the “Cha-Ching” in Bing?
In Q3 2009, we saw huge growth in usage of the Bing network — 3-4 months after the official “re-launch” from the MSN platform. Since then, growth has lagged. Why? CPAs on Bing have remained higher than Yahoo and Google in the US — about 50% higher than Yahoo and 2X higher than Google. It seems that marketers, after giving Bing a chance — have slowed growth and are approaching the network more tepidly. We have received briefings over the past few weeks from the teams at Yahoo-Bing — and the integration is proceeding on plan. However, the fundamental dynamics of the networks have not changed. In Q2 of this year, we are projecting that after three quarters of modest market share losses to Bing (5-6%), Google is going to take about 1-2% of those market share points back. Budget planners at advertisers should react accordingly.
Transactional Costs Go Up.
As is always the case with our analysis, given that spend in Q2 grew faster than inventory, transaction costs went up. With the strong growth in Google spend, clicks per conversions (CPCs) on the platform were also up nearly 12% and clicks per accounts (CPAs) were up 23%. This is something that marketers need to monitor in order to ensure their ROI goals are being met as the spend levels increase throughout the year.    In our Q1 2010 report, Covario predicted that spending in 2010 would be 14-18% above 2009 levels. With the strong rebound in spending in Q2, we hold to this projection and recommend that search marketers plan on similar average budget increases in order to maintain online market share.

ACTIONABLE INSIGHT 1: Strong growth on Baidu necessitates that marketers executing search program in the China should increase spending to maintain market share for branding purposes. However, the traditional issues with the system (very poor information system) continue to plague marketers, making reporting and performance management problematic.

ACTIONABLE INSIGHT 2: The growth in Bing spend seems to be subsiding. We are projecting reductions in spend on the network between Q2 and Q1 (unless something changes in June). This is due to steadily higher CPAs advertisers are experiencing on the network.

ACTIONABLE INSIGHT 3: Spend in Q2 is projected to be 25% higher than Q1. So our forecast of budget increases of 14-18% to maintain market share looks solid.