Advertisers Spend $4 Billion Dollars in 2004 on SEM

The Search Engine Marketing Professional Organization (www.sempo.org), a non-profit professional association working to increase awareness and promote the value of Search Engine Marketing (SEM) worldwide, today published a research paper, "The State of Search Engine Marketing 2004," which concludes that in the U.S. and Canadian market, advertisers will spend $4.087 billion dollars this year on search marketing programs.

"Our mandate is to promote and help grow the search engine marketing industry for our members and sponsors," said Barbara Coll, Chairperson and President of SEMPO.

That figure comprises payments to search engines and search-related media companies, search engine marketing agencies as well as in-house expenditures in support of such programs, including "paid placement," "paid inclusion," "organic search engine optimization" and "search engine marketing technology platforms" (terms which all are further defined in the report).

"The data indicate that current size of the market for Search Engine Marketing services is the tip of the iceberg; we have the beginnings of a healthy industry," said Kevin Lee, Board of Directors Member and Chair of the Research Committee of SEMPO.

"The research also suggests that marketers are using a mix of internal and external solutions to deal with the high level of complexity of the search marketing space. SEMPO expects increasing competition among marketers to drive significant growth in Search Engine Marketing and related services over the next several years."

The research, conducted by Executive Summary Consulting, Inc., is based on an extensive survey of 288 search engine advertisers and marketing agencies, executed via IntelliSurvey, Inc., as well as in-depth interviews with 30 leading industry experts.

"Most SEM market size reports to date have focused on paid search advertising and overlook search engine optimization work by companies and agencies, also ignoring the human resource costs incurred by companies for paid search marketing operations," added Lee.

The return on investment of SEM paid placement advertising continues to stay ahead of price inflation: advertisers said on average they have witnessed bid prices rise 26% in the last 12 months for keywords they commonly buy but said they could stand on average another 33% increase in the price and still make a profitable transaction.

Only 41% of advertisers reported that SEM budgets were newly created funds for this purpose; the rest said SEM budgets were coming in whole or in part from shifts away from traditional or Internet marketing programs.
The biggest shift in terms of share of budget was transferred from paid listings on shopping directories, e-mail programs, web display advertising, and print magazine and newspaper ads.

50% of advertiser respondents said that their senior executive staff considered the company's search marketing initiatives a "high priority" (although that figure dropped to 32% of companies with staff sizes larger than 500).

Advertisers expect to spend, on average, 39% more on all search marketing programs (organic SEO, paid placement, paid inclusion and SEM technology) in 2005 compared to 2004; smaller firms projected 32% more while larger firms (larger than 500 employees) projected a 43% year-over-year increase. Meanwhile, SEM agencies optimistically projected budget overall gross revenue increases for 2005 of 79% on average.