Wednesday, February 27, 2008

Lending companies reduce online advertising

Lending companies reduce online advertising

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The day after the federal government cut interest rates, LendingTree.com saw record traffic to its site for connecting borrowers and lenders.

As a result, the marketing team at LendingTree pulled back on search engine advertising campaigns that are used to draw visitors, according to company spokeswoman Allison Vail.

"With the fed changes in January, we were driving natural traffic. It's smarter for us," said Vail, whose Charlotte, N.C., company can pay an average of $2.70 per click for a search engine listing on Google or Yahoo, according to industry estimates.

Trends from search-engine companies and some anecdotal evidence suggests that the biggest buyers of paid search and online advertising--financial services companies--have cut back on spending online in the face of a housing crunch. It seems like an obvious shift, but one that spooked financial analysts enough last year to trim earnings estimates for search engines like Yahoo and Google, as well as online advertising on the whole. (In 2007, online ad revenue jumped 25 percent year over year to a record $21.1 billion, according to a report out this week.)

Signs of slowing growth in spending by financial services companies haven't appeared until the first quarter of this year. According to research firm Nielsen Online, spending growth in the sector plummeted year over year in January 2008 compared with the previous year's rise. Financial services firms spent roughly $132 million on online ads--including paid search and banner ads--in January 2007, up 58 percent from the comparable month in 2006. But this January, overall spending in the category went up year over year by 12.7 percent to roughly $149 million, according to Nielsen.

Efficient Frontier, one of the largest buyers of paid search listings for marketers, has traced similar trends more specific to the search industry, but with even less percentage growth. Ellen Siminoff, chairman of Efficient Frontier, said search advertising spending in the financial sector has typically risen by 30 percent to 50 percent annually, but this year it's either flat or down for some companies. It's no wonder with companies like LendingTree and Countrywide struggling in a housing crisis. From January 2006 to January 2007, credit and mortgage advertisers raised their spending by 24 percent, but this year, their spending has risen only 3 percent year over year, according to its data.

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"It's either not the kind of growth we've seen in the past or there are spending changes altogether," Siminoff said.

How that might play out for the biggest search engines, Yahoo and Google, remains to be seen. Yahoo declined to comment for this story, and Google did not immediately respond to requests for comment.

The financial services sector spends as much as $2.7 billion annually on online advertising in the United States, and about one-third of that pie, or $900 million, is related to mortgages, according to estimates by Oppenheimer. Between 30 percent and 45 percent of those advertising dollars gets funneled into paid search and for that reason, Oppenheimer analyst Sandeep Aggarwal said, any pullback could affect earnings of sites that depend on paid search for revenue.

Siminoff and others were positive that growth in spending in other markets would offset any losses from the financial sector.

"Yahoo has bigger issues by being distracted by what's going on with Microsoft, but retail advertising spending is still strong," Siminoff said. "I do not think Google would be hugely impacted because they have enough growth outside the United States."

This week, Google's stock price fell by about 8 percent on fears that people weren't paying as much attention to its search engine ads. Research firm ComScore said this week that it tracked about flat growth in advertisements viewed on Google pages from January 2007 to January 2008. Google shares also fell on analysts' concerns that its overseas growth wouldn't be as strong this quarter.

The financial services spending slowdown could add to that concern. Financial services are the highest-spending category in online advertising, accounting for 15 percent to 20 percent of the revenue annually in the United States, according to figures from PriceWaterhouseCoopers and the Interactive Advertising Bureau. And the sector pays among the highest rates for search listings--nearly six times that of retail advertisers, according to industry estimates.

The average cost per click (or the amount the advertiser pays per click) for a mortgage or credit services ad in Web search results is $2.70, according to figures from Efficient Frontier. That's more than seven times what a retailer pays at about 36 cents per search click and almost four times what travel marketers pay at 65 cents per click. So cost-cutting in the lending sector is more meaningful in terms of dollars than cutbacks in retail, travel, or dating ads.

Similarly, financial services companies pay an average of $1.24 per click when their text ad appears next to related content. In comparison, retailers pay 24 cents per click and auto companies pay 58 cents per click for the same deal.

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