On Thursday, the public will find out how online search advertising – the biggest chunk of the Internet ad market – weathered the rocky fourth quarter when Google reports its results for the period.
The signals from one study, set to be released Tuesday, aren’t pretty.
U.S. search advertising spending fell 8% in the fourth quarter of 2008 from the same period in 2007, according to a new study from search advertising firm Efficient Frontier, which had been tracking mostly flat growth for 2008. The study — which covers an undisclosed portion the $750 million in annual spending the company manages globally — marks the first quarter of negative annual growth in the several years Efficient Frontier has been gathering such data, says James Beriker, president and CEO of the firm.
It’s difficult to predict exactly what the study might mean for earnings reports from Google and other tech giants that sell search advertising, like Yahoo and Microsoft. Google held its 76% market share from the third quarter, while Yahoo increased its market share during the quarter half a percentage point to 20%, Efficient Frontier found. Microsoft Live Search’s share dropped from 4.9 percent to 4.2 percent.
Analysts, who have been slashing their estimates, are still predicting that Google notched double-digit revenue growth in the fourth quarter. Industry research firm eMarketer recently projected that, despite the recession, U.S. search advertising will still grow 14.9% in 2009, down from a 2008 growth rate of 21.4%.
The Efficient Frontier study also found that retail marketers increased their spending 9% in the fourth quarter, compared to 2007, lending support to Google’s theory that some customers will respond to the recession by leaning more heavily on search advertising, widely considered one of the most cost-effective advertising methods.
Mr. Beriker says it is tough to predict whether next quarter will be better or worse but said there are some encouraging signs. He notes that many clients cut their budgets during the beginning of the fourth quarter after noticing fewer ads were converting to sales.
But he says spending started to pick up again towards the end of the quarter after clients adjusted their bidding strategies, modifying how much they were bidding for certain words and when. The last quarter “reconditioned the way advertisers think about the channel,” he says. “It could have been much worse.”
Some other highlights from the study:
Advertisers who spend less than $50,000 on search ads cut their spending by 23% year-over-year, while advertisers that spend more than $200,000 on search per month cut spending by 9% during that time. Purchases by advertisers who spend between $50,000 and $200,000 were relatively flat.
Finance and automotive advertising continued to deteriorate. Search-ad spending among financial advertisers fell 20% compared to the fourth quarter of 2007. Search spending from automotive advertisers declined 15% during that period.