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Q3 11 gpssa-final

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Third Quarter Paid Search Rebounds from Second Quarter Lull Forecast for 2012 is for 18 – 22% growth—powered by Asia-Pacific Region By Craig Macdonald
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Page 1: Q3 11 gpssa-final

Third Quarter Paid Search Rebounds from Second Quarter LullForecast for 2012 is for 18 – 22% growth—powered by Asia-Pacific Region

By Craig Macdonald

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industry report | quarterly global paid search spend analysis

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Executive Summary•���Growth�in�paid�search�advertising�was�up�24%�in�third�quarter,�2011�compared�to�a�year�earlier—rebounding�from�a�one-time�lull�in�Q2’�11.��Strong�“Back�to�School”�spending�on�consumer�technologies�and�strong�growth�in�APAC�powered�this�paid�search�advertising�rebound.��

•��2011�will� end�at� 20%�higher� than�2010�paid� search� spend� levels�globally—the� top-end�of� our� 2011� forecast� range� from� the�beginning�of�the�year.

•��Advertisers�are�forecasting�18�–�22%�growth�in�2012�� -�18�–�20%�growth�in�North�America� -�15�–�18%�growth�in�EMEA�� -�40%+�growth�in�APAC�

•��Fear�of�slowdowns�in�paid�search�advertising�spend�due�to�economic�concerns�are�muted�due�to�the�measurability�and�resiliency�of�the�medium.

•��CPC�inflation�continues�to�grow�at�2�–�3%�quarter-on-quarter�for�the�5th�straight�quarter.��This�must�be�factored�into�advertiser�budget�plans.

•��Paid�social�media�spending�on�Facebook�is�becoming�a�key�part�of�the�budgeting�process�for�paid�search�advertisers�for�75%�of�the�customers�in�the�high-tech�sector.��Growth�in�paid�social�media�is�strong,�albeit�off�a�much�smaller�comparative�budget�to�paid�search.��

NOTE: We are no longer breaking out Yahoo/Bing spend in the report for Americas and EMEA markets.

Third Quarter 2011 Global Spending Overview Spending�on�paid�search�advertising�is�back.��Spending�on�paid�search�advertising�was�up�by�26%�in�Q3’�11�from�Q2’�11.��This�is�after�a�reduction�in�spending�between�Q1’�11�and�Q2’�11.��The�strong�growth�this�quarter�was�powered�by�“Back�to�School”�spending� in�the�consumer�electronics�sector,�continued�strength� in�the�personal�computing�market,�as�well�as�strong�spending�growth�in�Asia�Pacific.��Q3’�11�paid�search�spending�was�up�24%�from�Q3’�10,�which�was�a�strong�quarter�a�year�ago.��

This�is�on�track�with�our�beginning�of�the�2011�forecast�for�the�high-tech�sector,�which�showed�spend�growing�by�15�–�20%�for�the�year,�with�regional�growth�of:

•�10�–�12%�in�North�America

•�25�–�30%�in�EMEA

•�35�–�40%�in�APAC

With�the�Q3’�11�numbers�now�in,�there�are�some�differences�regionally,�however,�overall�we�see�growth�up�by�20%�year-over-year�given�allocations�of�second�half�of�2011�budgets.��

North�America,�powered�by�the�US�and�Canada,�saw�strong�spending�growth�in�the�quarter.��Growth�in�North�America�was�up�21%�quarter-over-quarter�and�7%�year-on-year.��Last�year,�Q3’�10�was�a�very�strong�quarter,�so�the�year-on-year�growth�is�not�surprising.��We�believe�growth�annualized�will�be�in�the�12�–�14%�range�for�North�America,�slightly�above�our�projections�at�the�beginning�of��the�year.

In�EMEA,�growth�was�up�23%�quarter-on-quarter�and�24%�year-on-year.��We�DO,�however,�see�growth�slowing�in�EMEA.��The�second�half�of�2011�budgets�are�focused�on�a�few�key�economies,�particularly�Germany,�Benelux,�and�UK.��Slower�growth� in�Southern�Europe�shows�overall�budget�growth�for�the�year�in�the�20�–�25%�range,�instead�of�25�–�30%.��

APAC�is�where�the�major�growth�opportunities�for�paid�search�exists.��Quarter-on-quarter�growth�is�45%!��Year-on-year,�spend�is�up�over�100%�in�the�region.��The�reason�is�continued�investment�in�Japan,�China,�India,�and�ANZ�economies.��

The�following�chart�shows�how�spending�increased�from�2007�through�Q3’�11,�by�region.

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Source: Covario

Google�continues� to�be� the�major�beneficiary�of�growth�on�a�global�basis.� �We�saw�growth� in�global�spend�on�Google�of�26%�quarter-on-quarter�and�23%�year-on-year.��We�saw�muted�growth�for�The�Yahoo-Bing�Search�Alliance�(TSA),�with�is�up�1%�quarter-on-quarter�and�down�21%�year-on-year.��This�is�different�than�other�studies�in�the�market,�particularly�from�comScore,�which�showed�incremental�increases�in�spend�in�the�US�market�for�Yahoo-Bing.��We�are�investigating�the�reasons�for�this—but�we�are�not�seeing�this�market�share�gain�in�the�high-tech�sector.���

Baidu�is�the�major�beneficiary�of�the�growth�in�APAC�paid�search�advertising�spend.��Much�of�this�spend�is�going�to�China�where�Baidu�is�now�commanding�the�majority�of�the�market�share.��Quarter-on-quarter�growth�for�Baidu�was�54%;�up�nearly�200%�from�a�year�ago.��We�do�not�expect�these�growth�rates�to�continue�on�a�year-on-year�basis—as�it�was�Q3�¬–�Q4,�2010�when�we�started�to�see�large�increases�in�Baidu�spend—so�the�benchmark�for�year-on-year�comparison�is�becoming�more�stringent.

The�following�chart�shows�quarterly�spending�by�platform�since�2007.

Source: Covario

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On�a�global�basis,�Google�commands�77%�of�the�market�share,�Bing-Yahoo�17%�and�Baidu�6%.��

Please�note,�we�continue�to�see�creeping�2�–�3%�quarterly�cost�per�click�(CPC)� inflation.�This� is�covered�more� in�a�subsequent�section�of�this�report,�but�this�has�been�a�factor�in�the�market�since�Q3’�10.��There�are�two�main�reasons:��

(1)�Increased�spend�drives�more�competition�in�the�market,�particularly�for�relatively�expensive�“non-brand”�keywords.�

(2)��The�impact�of�Google�Instant�(which�we�have�documented�on�our�blog�and�in�other�reports).��We�see�this�continuing.��Impression�growth�is�there,�but�at�a�lower�rate�than�the�increases�in�spending.

Paid Social Media—Facebook SpendCovario�ran�a�survey�recently�of�how�organizations�allocate�their�budgets�for�paid�social�media—and�by�paid social media,�we�really�mean�spending�on�Facebook.��The�thinking�was�that�social�media�budgets�were�run�by�either�an�independent�group,�the�public�relations�department,�or�the�display�advertising�group.��The�answer�to�the�survey�was�surprising.

Source: Covario

In�34%�of� the�cases,� the�budgets�are�run�by� the�search�marketing�managers�as�part�of�an� integrated�search�and�social�media�budget.��As�such,�we�are�starting�to�track�Facebook�budgeting�processes�and�performance�dynamics.��For�our�customers,�we�will�be�including�recommendations�on�Facebook�budgets�and�objectives�as�part�of�this�report�on�an�ongoing�basis.��

In�2011,�we�saw�the�following:

•�55%�of�our�customers�are�doing�Facebook�advertising�in�some�way.

•��Those�budgets�totaled�~10�–�20%�of�the�annualized�paid�search�advertising�budget.��They�did�not�come�out�of�the�paid�search�budget,�but�rather,�this�is�a�benchmark.��If�the�paid�search�budget�is�$10�million�in�2011,�then�Facebook�budget�is�between�$1�–�2�million.

•�We�have�seen�that�budget�grow�by�130%�over�2010.��

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The�metrics�our�customers�are�using�to�optimize�Facebook�spend�are�as�follows:

Source: Covario

In�only�35%�of� the�cases,� the�goal� is� to�drive�commerce� through� the�Facebook�page,�and� that�only� through�promotions� in� the�consumer�electronics�space—usually�for�lower�priced�products.��In�the�other�65%�of�the�cases,�the�objectives�are�“soft”,�making�ROI�ill-defined.��

As�such,�we�see�continued�investment�in�Facebook�advertising,�but�not�revolutionary�increases�in�spending.��Our�understanding�from�our�customers�is�that�their�Facebook�advertising�programs�in�2012�will�look�something�like�this:

•�Budgets�will�be�15�–�20%�of�paid�search�advertising�budgets.

•�Approximately�75%�of�our�customer�plan�to�engage�in�Facebook�advertising�programs.

•�Overall�growth�will�be�in�the�50-75%�range�over�2011—targeted�on�Sponsored�Stories�and�targeted�banner�ads.

One�key�aspect�of�the�Facebook�programs�is�that�the�budgets�are�global.��Facebook,�with�the�exception�of�China,�is�ubiquitous,�and�the�budgets�tend�to�be�the�same�for�high-tech.��We�will�continue�to�track�this�progress�through�future�reports.

Budget Recommendation for 2012 Given�that�it�is�budget�time�for�2012,�we�want�to�provide�guidance�to�our�customers�on�their�budget�allocations�for�paid�search.���We�provide�this�information�so�our�customers�have�a�benchmark�on�what�the�industry�is�doing,�so�they�can�ensure�that�they�are�allocating�budget�appropriately�to�maintain�their�paid�search�advertising�market�share.��

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We�have�talked�to�our�media�buyers�and�looked�at�the�trends�in�ROI�and�here�is�what�we�recommend�for�2012:

•�Overall�growth�in�paid�search�spend�will�grow�18�–�22%�in�2012.��� -�North�America�growth�will�be�18�–�20%�� -�EMEA�will�be�15�–�18%� -�APAC�will�be�30�–�35%

•���Google�will�continue�to�command�the�majority�of�this�spend,�with�75%�of�the�market�share.��The�Yahoo-Bing�Search�Alliance�will�be�15%—focused�on�the�US.��Baidu�market�share�will�grow�to�8%�globally�focus�on�China.��

•��Mobile�will�account�for�no�more�than�3�–�5%�of�the�overall�market�share�in�paid�search�advertising.��Most�organizations,�if�they�are�executing�focused�mobile�strategies�in�search,�are�doing�so�in�search�engine�optimization�and/or�web�development.��

There�is�some�trepidation�about�the�impact�of�a�potential�market�slowdown�and�its�impact�on�search.��Most�of�our�customers�believe�this�will�have�muted�impact.��Following�the�huge�market�shock�of�2008,�budgets�went�down�by�10�–�15%�for�paid�search�in�2009.��Then�the�budgets�rebounded,�while�overall�advertising�budgets�were�cut�by�30�–�50%�in�some�cases.��Paid�and�organic�search’s�measurability�and�position�at�the�“bottom�of�the�buying�funnel”�make�it�quite�resilient�to�market�gyrations.��The�impact�tends�to�be�on�CPCs,�which�go�down�faster�than�decreases�in�growth�rates�on�impression�volume.

Regional Allocation Analysis At�the�beginning�of�the�year,�we�suggested�customers�allocate�their�spending�regionally�as�follows:

•�Americas�region�at�55%�of�spending—growing�at�8�–�12%�over�2010�levels.

•�EMEA�region�accounting�for�25%�of�spending—growing�at�20�–�25%�over�2010.

•�APAC�region�accounting�for�20%�of�spending—growing�at�30�–�35%�over�2010.

YTD,�this�allocation�is�holding,�except�growth�in�EMEA�is�15�–�20%�and�growth�in�APAC�is�40�–�45%.��

Here�are�the�regional�planning�assumptions�updated.

PLANNING� ASSUMPTION� AMERICAS:� �We� recommend� that� advertisers� budget� for� increases� in� paid� search� spending� in� the�Americas�region�of�18�–�20%�in�2012.��This�budget�should�have�75�–�80%�of�spend�allocated�to�Google,�in�order�to�account�for�the�need�to�overcome�systematic�shifts�in�traffic�to�paid�search�from�Google�Instant.��The�other�20�–�25%�should�go�to�Yahoo-Bing.��Secondary�engines�will�account�for�<1%�of�spend�overall.

For�Q3’�11�spending�in�the�Americas�region�was�up�21%�from�Q2’�11,�and�up�7%�from�Q3’�10.

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Google�commands�75�–�80%�of�spending�market�share�in�the�Americas�in�2011.��The�Yahoo-Bing�platform�market�share�is�stabilized�at�20�–�25%�in�the�Americas�for�2011.��This�is�down�from�the�traditional�market�share�of�the�combined�entity�of�25�–�30%.��We�expect�no�impact�from�secondary�search�engine�platforms�on�the�overall�dynamics�of�paid�search—other�than�local�search—in�2012.��

PLANNING�ASSUMPTION�EMEA:��For�large�high-tech�advertisers,�we�recommend�budget�increases�of�15�–�18%�in�EMEA�paid�search�spending�for�2012.��We�recommend�95%�of�this�spend�be�allocated�to�Google,�except�in�Eastern�Europe�where�spending�on�Yandex�will�dominate�budgets.���

For�Q3’�11,�spending�in�the�EMEA�region�was�up�23%�over�Q2’�11,�and�up�by�24%�from�Q3’�10.��Note,�Q3’�10�was�relatively�slow�for�EMEA,�so�the�base�was�relatively�weak.��We�expect�spending�in�the�region�to�increase�by�15�–�18%�next�year�(in�U.S.�$).��We�have�changed�this�planning�assumption�given�the�macro-economic�slowdown�in�the�region.�

Google’s�market�share� for� two�years.� �Only� in�Russia�and�Eastern�Europe� is�any�spend�directed�toward�non-Google�platforms,�however,�these�regions�account�for�less�than�5%�of�the�overall�EMEA�spend.��Yandex�tends�to�be�the�dominate�performer�in�Eastern�Europe,�and�we�saw�quarter�on�quarter�incremental�growth�of�50%�and�year�on�year�growth�of�over�250%.��As�money�flows�more�globally,�regional�engines�clearly�are�being�used�by�high�tech�advertisers�and�their�agencies�to�precisely�target�the�opportunity.

We�do�expect�Bing� to�make�continued� improvements� to� its� integrated�platform�with�Yahoo� in�order� to�allow�more�efficient�pan-European�campaign�deployment,�which�may�cipher�3�–�5%�of�spend�to�the�combined�platform�across�the�year.��However,�we�have�NO�confirmation�that�advertisers�are�baking�this�into�their�2012�plans.��

PLANNING�ASSUMPTION�APAC:��We�recommend�that�advertisers�plan�on�increases�of�40�–�45%�for�the�APAC�market�in�2012.��Chinese�market�investments�should�favor�Baidu�with�60%�of�the�budget.��Japan’s�budget�should�be�60/40�Google�and�Yahoo,�while�the�overall�regional�budget�should�be�35%�Baidu,�40%�Google,�and�25%�Yahoo.��

Spending�in�APAC�in�Q3’�11�was�up�45%�over�Q2’�11,�and�over�100%�from�Q3’�10.��We�do�not�expect�spending�to�continue�to�increase�at�this�rate.��However,�we�do�believe�spending�will�increase�between�40�–�45%�in�APAC�during�2012.

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Clearly,�market�share�in�China�has�been�re-benchmarked—with�Baidu�now�accounting�for�60%�of�the�paid�search�spend�by�global�Covario�clients�who�market�in�the�region.��The�acceleration�in�Baidu�spend�is�obvious�from�the�chart�above.

Search Engine Performance Comparison CPC’s�continue�to�rise�globally.��The�reasons�are�these:

•�Spending�increases�are�going�to�relatively�high�priced�“generic”�keywords.

•��Bing-hoo�optimizations�are�setting�a�new�CPC�bar�that�is�slightly�higher�than�the�combined�weighted�average�of�the�past�CPCs�of�the�separate�engines.

•�Baidu�CPC’s�are�increasing�due�to�increases�in�spend�in�the�region.��

The�table�below�shows�the�four-year�trends�in�costs�per�click�for�the�major�platforms�globally.

We�have�seen�consistent�uptick�in�CPCs�since�Q3,�2010.��Google�Instant�is�driving�incremental�clicks,�and�incremental�spend,�to�Google.��Also,�as�additional�budget�comes�into�the�channel,�the�money�is�going�toward�relatively�expensive�“generic”�terms�that�are�driving�up�CPCs�and�keeping�impression�growth�lower.�

We�expect�this�trend�to�continue.

��Cost�per�Click�Analysis

Search Engine CY 2007 CY 2008 CY 2009 CY 2010 Q1 ‘11 Q2 ‘11 Q3 ‘11

Ask $� 0.36 $� 0.38 $� 0.71 $� 0.69 $� 0.68 $� 0.67

Baidu $� 0.13 $� 0.14 $� 0.16 $� 0.25 $� 0.35 $� 0.42 $� 0.45

Google $� 1.22 $� 1.06 $� 0.72 $� 0.74 $� 0.79 $� 0.81 $� 0.83

Bing $� 1.28 $� 1.60 $� 0.64 $� 0.92 $� 1.02 $� 1.08 $� 1.05

Rambler � NA $� 0.06 $� 0.80 $� 0.00 $� 0.13 $� 0.13 $� 0.13

Yahoo $� 1.59 $� 1.16 $� 0.74 $� 0.79 � NA � NA � NA

Yandex $� 1.16 $� 1.09 $� 0.56 $� 0.61 $� 0.61 $� 0.62 $� 0.65

Total $ 1.19 $ 1.04 $ 0.71 $ 0.79 $ 0.79 $ 0.83 $ 0.85

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industry report | quarterly global paid search spend analysis

3611 Valley Centre Drive, Ste 500, San Diego, CA 92130 • 858.397.1500 | covario.com

©2011 Covario, Inc. All rights reserved. Covario and the Covario logo are trademarks of Covario, Inc. in the U.S. and various countries. 10.11.11

About the Study This�is�the�fifth�year�of�Covario’s�quarterly�Global�Paid�Search�Spend�Analysis.��We�now�have�19�quarters�of�data�on�the�spending�patterns�of�Covario�customers,�which�consist�of�global�high-tech�and�consumer�electronics�firms.��Our�clients�represent�approximately�$400M�in�annual�spending�on�paid�search�programs�globally.��The�purpose�of�this�report�is�to�share�our�expertise�and�knowledge�of�the�spending�patterns�of�our�unique�customer�set,�in�order�to�help�our�customers�with�their�planning�assumptions�and�budget�management.��Our�clients�are�unique�in�that�they�are�global�advertisers.��They�leverage�paid�search�advertising�in�more�than�45�different� countries�globally�and�on�many�different� search�engine�platforms.� � This�provides�Covario�with�a� view� into�how�global�advertisers�are�changing�their�allocations�in�spending,�as�well�as�differences�in�the�performance�of�their�programs,�in�a�way�that�allows�planners�to�more�accurately�develop�global�marketing�campaigns�and�budgets.


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