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  • 1. Third Quarter Paid Search Reboundsfrom Second Quarter LullForecast for 2012 is for 18 – 22% growth—powered byAsia-Pacific RegionBy Craig Macdonald
  • 2. industry report | quarterly global paid search spend analysisExecutive Summary• rowthinpaidsearchadvertisingwasup24%inthirdquarter,2011comparedtoayearearlier—reboundingfromaone-timelull G inQ2’11.Strong“BacktoSchool”spendingonconsumertechnologiesandstronggrowthinAPACpoweredthispaidsearch advertisingrebound.• 011 will end at 20% higher than 2010 paid search spend levels globally—the top-end of our 2011 forecast range from the 2 beginningoftheyear.• dvertisersareforecasting18–22%growthin2012 A -18–20%growthinNorthAmerica -15–18%growthinEMEA -40%+growthinAPAC• earofslowdownsinpaidsearchadvertisingspendduetoeconomicconcernsaremutedduetothemeasurabilityandresiliency F ofthemedium.• PCinflationcontinuestogrowat2–3%quarter-on-quarterforthe5thstraightquarter.Thismustbefactoredintoadvertiser C budgetplans.• aidsocialmediaspendingonFacebookisbecomingakeypartofthebudgetingprocessforpaidsearchadvertisersfor75% P ofthecustomersinthehigh-techsector.Growthinpaidsocialmediaisstrong,albeitoffamuchsmallercomparativebudgetto paidsearch.NOTE: We are no longer breaking out Yahoo/Bing spend in the report for Americas and EMEA markets.Third Quarter 2011 Global Spending OverviewSpendingonpaidsearchadvertisingisback.Spendingonpaidsearchadvertisingwasupby26%inQ3’11fromQ2’11.ThisisafterareductioninspendingbetweenQ1’11andQ2’11.Thestronggrowththisquarterwaspoweredby“BacktoSchool”spendingintheconsumerelectronicssector,continuedstrengthinthepersonalcomputingmarket,aswellasstrongspendinggrowthinAsiaPacific.Q3’11paidsearchspendingwasup24%fromQ3’10,whichwasastrongquarterayearago.Thisisontrackwithourbeginningofthe2011forecastforthehigh-techsector,whichshowedspendgrowingby15–20%fortheyear,withregionalgrowthof:•10–12%inNorthAmerica•25–30%inEMEA•35–40%inAPACWiththeQ3’11numbersnowin,therearesomedifferencesregionally,however,overallweseegrowthupby20%year-over-yeargivenallocationsofsecondhalfof2011budgets.NorthAmerica,poweredbytheUSandCanada,sawstrongspendinggrowthinthequarter.GrowthinNorthAmericawasup21%quarter-over-quarterand7%year-on-year.Lastyear,Q3’10wasaverystrongquarter,sotheyear-on-yeargrowthisnotsurprising. Webelievegrowthannualizedwillbeinthe12–14%rangeforNorthAmerica,slightlyaboveourprojectionsatthebeginningof theyear.InEMEA,growthwasup23%quarter-on-quarterand24%year-on-year.WeDO,however,seegrowthslowinginEMEA.Thesecondhalfof2011budgetsarefocusedonafewkeyeconomies,particularlyGermany,Benelux,andUK.SlowergrowthinSouthernEuropeshowsoverallbudgetgrowthfortheyearinthe20–25%range,insteadof25–30%.APACiswherethemajorgrowthopportunitiesforpaidsearchexists.Quarter-on-quartergrowthis45%!Year-on-year,spendisupover100%intheregion.ThereasoniscontinuedinvestmentinJapan,China,India,andANZeconomies.Thefollowingchartshowshowspendingincreasedfrom2007throughQ3’11,byregion. 2
  • 3. industry report | quarterly global paid search spend analysisSource: CovarioGoogle continues to be the major beneficiary of growth on a global basis.  We saw growth in global spend on Google of 26%quarter-on-quarterand23%year-on-year.WesawmutedgrowthforTheYahoo-BingSearchAlliance(TSA),withisup1%quarter-on-quarteranddown21%year-on-year.Thisisdifferentthanotherstudiesinthemarket,particularlyfromcomScore,whichshowedincrementalincreasesinspendintheUSmarketforYahoo-Bing.Weareinvestigatingthereasonsforthis—butwearenotseeingthismarketsharegaininthehigh-techsector.BaiduisthemajorbeneficiaryofthegrowthinAPACpaidsearchadvertisingspend.MuchofthisspendisgoingtoChinawhereBaiduisnowcommandingthemajorityofthemarketshare.Quarter-on-quartergrowthforBaiduwas54%;upnearly200%fromayearago.Wedonotexpectthesegrowthratestocontinueonayear-on-yearbasis—asitwasQ3¬–Q4,2010whenwestartedtoseelargeincreasesinBaiduspend—sothebenchmarkforyear-on-yearcomparisonisbecomingmorestringent.Thefollowingchartshowsquarterlyspendingbyplatformsince2007.Source: Covario 3
  • 4. industry report | quarterly global paid search spend analysisOnaglobalbasis,Googlecommands77%ofthemarketshare,Bing-Yahoo17%andBaidu6%.Pleasenote,wecontinuetoseecreeping2–3%quarterlycostperclick(CPC)inflation.Thisiscoveredmoreinasubsequentsectionofthisreport,butthishasbeenafactorinthemarketsinceQ3’10.Therearetwomainreasons:(1)Increasedspenddrivesmorecompetitioninthemarket,particularlyforrelativelyexpensive“non-brand”keywords.(2) heimpactofGoogleInstant(whichwehavedocumentedonourblogandinotherreports).Weseethiscontinuing.Impression T growthisthere,butatalowerratethantheincreasesinspending.Paid Social Media—Facebook SpendCovarioranasurveyrecentlyofhoworganizationsallocatetheirbudgetsforpaidsocialmedia—andbypaid social media,wereallymeanspendingonFacebook.Thethinkingwasthatsocialmediabudgetswererunbyeitheranindependentgroup,thepublicrelationsdepartment,orthedisplayadvertisinggroup.Theanswertothesurveywassurprising.Source: CovarioIn34%ofthecases,thebudgetsarerunbythesearchmarketingmanagersaspartofanintegratedsearchandsocialmediabudget.Assuch,wearestartingtotrackFacebookbudgetingprocessesandperformancedynamics.Forourcustomers,wewillbeincludingrecommendationsonFacebookbudgetsandobjectivesaspartofthisreportonanongoingbasis.In2011,wesawthefollowing:•55%ofourcustomersaredoingFacebookadvertisinginsomeway.• hosebudgetstotaled~10–20%oftheannualizedpaidsearchadvertisingbudget.Theydidnotcomeoutofthepaidsearch T budget,butrather,thisisabenchmark.Ifthepaidsearchbudgetis$10millionin2011,thenFacebookbudgetisbetween$1–2 million.•Wehaveseenthatbudgetgrowby130%over2010. 4
  • 5. industry report | quarterly global paid search spend analysisThemetricsourcustomersareusingtooptimizeFacebookspendareasfollows:Source: CovarioIn only 35% of the cases, the goal is to drive commerce through the Facebook page, and that only through promotions in theconsumerelectronicsspace—usuallyforlowerpricedproducts.Intheother65%ofthecases,theobjectivesare“soft”,makingROIill-defined.Assuch,weseecontinuedinvestmentinFacebookadvertising,butnotrevolutionaryincreasesinspending.OurunderstandingfromourcustomersisthattheirFacebookadvertisingprogramsin2012willlooksomethinglikethis:•Budgetswillbe15–20%ofpaidsearchadvertisingbudgets.•Approximately75%ofourcustomerplantoengageinFacebookadvertisingprograms.•Overallgrowthwillbeinthe50-75%rangeover2011—targetedonSponsoredStoriesandtargetedbannerads.OnekeyaspectoftheFacebookprogramsisthatthebudgetsareglobal.Facebook,withtheexceptionofChina,isubiquitous,andthebudgetstendtobethesameforhigh-tech.Wewillcontinuetotrackthisprogressthroughfuturereports.Budget Recommendation for 2012Giventhatitisbudgettimefor2012,wewanttoprovideguidancetoourcustomersontheirbudgetallocationsforpaidsearch. Weprovidethisinformationsoourcustomershaveabenchmarkonwhattheindustryisdoing,sotheycanensurethattheyareallocatingbudgetappropriatelytomaintaintheirpaidsearchadvertisingmarketshare. 5
  • 6. industry report | quarterly global paid search spend analysisWehavetalkedtoourmediabuyersandlookedatthetrendsinROIandhereiswhatwerecommendfor2012:•Overallgrowthinpaidsearchspendwillgrow18–22%in2012. -NorthAmericagrowthwillbe18–20% -EMEAwillbe15–18% -APACwillbe30–35%• ooglewillcontinuetocommandthemajorityofthisspend,with75%ofthemarketshare.TheYahoo-BingSearchAlliancewill G be15%—focusedontheUS.Baidumarketsharewillgrowto8%globallyfocusonChina.• obilewillaccountfornomorethan3–5%oftheoverallmarketshareinpaidsearchadvertising.Mostorganizations,iftheyare M executingfocusedmobilestrategiesinsearch,aredoingsoinsearchengineoptimizationand/orwebdevelopment.Thereissometrepidationabouttheimpactofapotentialmarketslowdownanditsimpactonsearch.Mostofourcustomersbelievethiswillhavemutedimpact.Followingthehugemarketshockof2008,budgetswentdownby10–15%forpaidsearchin2009. Thenthebudgetsrebounded,whileoveralladvertisingbudgetswerecutby30–50%insomecases.Paidandorganicsearch’smeasurabilityandpositionatthe“bottomofthebuyingfunnel”makeitquiteresilienttomarketgyrations.TheimpacttendstobeonCPCs,whichgodownfasterthandecreasesingrowthratesonimpressionvolume.Regional Allocation AnalysisAtthebeginningoftheyear,wesuggestedcustomersallocatetheirspendingregionallyasfollows:•Americasregionat55%ofspending—growingat8–12%over2010levels.•EMEAregionaccountingfor25%ofspending—growingat20–25%over2010.•APACregionaccountingfor20%ofspending—growingat30–35%over2010.YTD,thisallocationisholding,exceptgrowthinEMEAis15–20%andgrowthinAPACis40–45%.Herearetheregionalplanningassumptionsupdated.PLANNING ASSUMPTION AMERICAS:  We recommend that advertisers budget for increases in paid search spending in theAmericasregionof18–20%in2012.Thisbudgetshouldhave75–80%ofspendallocatedtoGoogle,inordertoaccountfortheneedtoovercomesystematicshiftsintraffictopaidsearchfromGoogleInstant.Theother20–25%shouldgotoYahoo-Bing. Secondaryengineswillaccountfor<1%ofspendoverall.ForQ3’11spendingintheAmericasregionwasup21%fromQ2’11,andup7%fromQ3’10. 6
  • 7. industry report | quarterly global paid search spend analysisGooglecommands75–80%ofspendingmarketshareintheAmericasin2011.TheYahoo-Bingplatformmarketshareisstabilizedat20–25%intheAmericasfor2011.Thisisdownfromthetraditionalmarketshareofthecombinedentityof25–30%.Weexpectnoimpactfromsecondarysearchengineplatformsontheoveralldynamicsofpaidsearch—otherthanlocalsearch—in2012.PLANNINGASSUMPTIONEMEA:Forlargehigh-techadvertisers,werecommendbudgetincreasesof15–18%inEMEApaidsearchspendingfor2012.Werecommend95%ofthisspendbeallocatedtoGoogle,exceptinEasternEuropewherespendingonYandexwilldominatebudgets.ForQ3’11,spendingintheEMEAregionwasup23%overQ2’11,andupby24%fromQ3’10.Note,Q3’10wasrelativelyslowforEMEA,sothebasewasrelativelyweak.Weexpectspendingintheregiontoincreaseby15–18%nextyear(inU.S.$).Wehavechangedthisplanningassumptiongiventhemacro-economicslowdownintheregion.Google’smarketsharefortwoyears.OnlyinRussiaandEasternEuropeisanyspenddirectedtowardnon-Googleplatforms,however,theseregionsaccountforlessthan5%oftheoverallEMEAspend.YandextendstobethedominateperformerinEasternEurope,andwesawquarteronquarterincrementalgrowthof50%andyearonyeargrowthofover250%.Asmoneyflowsmoreglobally,regionalenginesclearlyarebeingusedbyhightechadvertisersandtheiragenciestopreciselytargettheopportunity.We do expect Bing to make continued improvements to its integrated platform with Yahoo in order to allow more efficient pan-Europeancampaigndeployment,whichmaycipher3–5%ofspendtothecombinedplatformacrosstheyear.However,wehaveNOconfirmationthatadvertisersarebakingthisintotheir2012plans.PLANNINGASSUMPTIONAPAC:Werecommendthatadvertisersplanonincreasesof40–45%fortheAPACmarketin2012. ChinesemarketinvestmentsshouldfavorBaiduwith60%ofthebudget.Japan’sbudgetshouldbe60/40GoogleandYahoo,whiletheoverallregionalbudgetshouldbe35%Baidu,40%Google,and25%Yahoo.SpendinginAPACinQ3’11wasup45%overQ2’11,andover100%fromQ3’10.Wedonotexpectspendingtocontinuetoincreaseatthisrate.However,wedobelievespendingwillincreasebetween40–45%inAPACduring2012. 7
  • 8. industry report | quarterly global paid search spend analysisClearly,marketshareinChinahasbeenre-benchmarked—withBaidunowaccountingfor60%ofthepaidsearchspendbyglobalCovarioclientswhomarketintheregion.TheaccelerationinBaiduspendisobviousfromthechartabove.Search Engine Performance ComparisonCPC’scontinuetoriseglobally.Thereasonsarethese:•Spendingincreasesaregoingtorelativelyhighpriced“generic”keywords.• ing-hoooptimizationsaresettinganewCPCbarthatisslightlyhigherthanthecombinedweightedaverageofthepastCPCs B oftheseparateengines.•BaiduCPC’sareincreasingduetoincreasesinspendintheregion.Thetablebelowshowsthefour-yeartrendsincostsperclickforthemajorplatformsglobally.WehaveseenconsistentuptickinCPCssinceQ3,2010.GoogleInstantisdrivingincrementalclicks,andincrementalspend,toGoogle.Also,asadditionalbudgetcomesintothechannel,themoneyisgoingtowardrelativelyexpensive“generic”termsthataredrivingupCPCsandkeepingimpressiongrowthlower.Weexpectthistrendtocontinue.CostperClickAnalysis 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 8
  • 9. industry report | quarterly global paid search spend analysisAbout the StudyThisisthefifthyearofCovario’squarterlyGlobalPaidSearchSpendAnalysis.Wenowhave19quartersofdataonthespendingpatternsofCovariocustomers,whichconsistofglobalhigh-techandconsumerelectronicsfirms.Ourclientsrepresentapproximately$400Minannualspendingonpaidsearchprogramsglobally.Thepurposeofthisreportistoshareourexpertiseandknowledgeofthespendingpatternsofouruniquecustomerset,inordertohelpourcustomerswiththeirplanningassumptionsandbudgetmanagement.Ourclientsareuniqueinthattheyareglobaladvertisers.Theyleveragepaidsearchadvertisinginmorethan45different countries globally and on many different search engine platforms.  This provides Covario with a view into how globaladvertisersarechangingtheirallocationsinspending,aswellasdifferencesintheperformanceoftheirprograms,inawaythatallowsplannerstomoreaccuratelydevelopglobalmarketingcampaignsandbudgets.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