Paid Search Spending Continues to Decline

Recently we did a mid-quarter update to our ongoing analysis series about how our high tech customers are managing their paid search programs. These findings are a continuation of what we were seeing in Q1 (this data is current through May 20th).

Here are the highlights:

• Spending continues to contract, with spend from Q1 to Q2 shrinking by 6.7%.  This entirely from the US – where spending fell by 21%, while EMEA and APAC grew by 14% and 29% respectively.
• The spending contraction in the US was mostly due to pull back on Yahoo and MSN which saw reductions in quarter-over-quarter spending of 24% and 38% in the US alone.  We had seen growth in Q1 on these networks, but this was clearly temporary.
• Google spending was down 2.3 percent from Q1 (so far) and down 15% in US, but up strongly overseas.

Most of our customers articulate that this is expected.  They had 1H budgets that were severely curtailed at the end of 2008.  Our customers say that they expect spending to improve in 2H based on re-budgeting meetings that are taking place this month in most major corporations.

In addition, a couple of key other statistics

• Costs per Click (CPCs) have continued to erode – for over 4 quarters now.  The average CPCs in Q2 to date were $0.63, down from $0.76.
• The largest reductions are on Yahoo ($0.83 to $0.68) and MSN ($0.79 to $0.62).

Also, we continue to see stronger Click through Rates (CTRs):

• CTRs continue to be strong – at 1.8% with MSN CTRs up from 2.5% to 3.5%.
• This is due to continued migration of spending away from low CTR generic terms toward high CTR branded terms.   In the economy, most advertisers are ensuring they are focusing on spend around brand terms.

Overall, we continue to see weakness in the paid search market, however, we expect spending to stabilize in Q3.

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