Search Advertising Runs into the Recession

By Jessica E. Vascellaro

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.

E-Mail Works for Banks and Card Issuers

APRIL 8, 2008

They are getting better ROI than other industries.

If you have a mailbox, it will come as no surprise that US credit card companies and other financial services firms spent more on direct marketing in 2007 than any other industry. Banks and credit card issuers are masters of mailing targeted offers, and that mail accounts for nearly 42% of their direct marketing budgets.

E-mail is becoming part of this massive direct marketing effort as well, according to the Direct Marketing Association (DMA)'s "Direct Marketing Facts and Figures in the Financial Services Industry."

The DMA had previously released some information from the study in a press release, but a recent Marketing Charts article cited more, revealing e-mail as the number three direct marketing tactic in the industry.

The DMA also said that banks and credit card direct marketers had a better return on investment in 2007 than did any other industry, at $13.37 per dollar spent.

That may have something to do with the high open rate that the financial services industry gets.

E-mail list management company MailerMailer found that nearly 29% of direct marketing e-mails sent by financial services companies were opened during the second half of 2007—more than for any other industry.

eMarketer predicts that financial services spending on online advertising will also continue to increase through at least 2011. That means more offers on any given Web site, not just in your inbox.

Since e-mail marketing works for banks and card issuers, consumers can also expect more offers in their inboxes to join those in their mailboxes.

Banks Boost Direct Marketing Spend

MARCH 25, 2008

Paperless statements, paperless pitches.

US banks and credit issuers spent $13.4 billion in 2007 on direct marketing advertising, generating $178.8 billion in sales, according to the recently-issued Direct Marketing Association (DMA)'s "Direct Marketing Facts and Figures in the Financial Services Industry" report.

The DMA said direct marketing financial services ads will drive $286.2 billion in sales in 2012.

"Financial institutions are relying more and more on multichannel direct marketing to sell services and products to current and prospective customers," said Anna Chernis, senior research manager for the DMA.

"In fact," Ms. Chernis said, "DMA found that the financial, banks and credit institutions sector in 2007 was the number one American industry spending on direct marketing, and it ranked second in sales."

The DMA predicted that financial services commercial e-mail ad spending would grow 22.5% from 2007 to 2012, more than spending on any other media type.

During the same period, spending by the sector on Internet direct marketing ads was projected to grow by 17.8%.

What types of offers work best?

"The most common marketing ploy in the banking industry is to offer either higher interest rates or lower fees than the bank down the street," said Lisa Phillips, senior analyst at eMarketer.

More than half of respondents and panelists surveyed last April told comScore they would open an online account in order to receive $100. Only 13% said they would be swayed by a 6.5% interest rate on new deposits.

Offers of free credit reports, iPod shuffles and no-fee ATM use for the first year each garnered only single-digit enthusiasm, between 8% and 9%.

Forrester Research has also said that financial services providers that do not charge for online bill payment should promote that fact.

The company said in its “Five-Step Action Plan to Help Banks Compete with Biller Sites for EBPP Users" report that more than 40% of online consumers thought their banks charged for online bill payment. That is despite the fact that almost all major banks have dropped the fee in recent years.

Financial Firms Lead Web Ads, for Now

JANUARY 22, 2008

Some ad inventory could be up for grabs.

The most recent available online ad spending data may not be recent enough.

December 2007 data from Nielsen Online AdRelevance cited in a January 2008 MarketingCharts article show the financial services industry still leading online display advertising.

Nielsen found that financial services companies spent over a quarter of a billion dollars on online ads in December 2007, accounting for 29% of all online ad spending.

Yet major financial services industry and national economic trends make it risky to read these numbers as indicative of how online advertising will develop for the rest of the year.

For starters, Bank of America's acquisition of Countrywide Mortgage may well mean a pullback in that company's online display ads. Countrywide was one of the top buyers of online CPM-priced display ads in 2007.

Home prices may also take an ongoing hit. The Wall Street Journal's October 2007 "Economic Forecasting Survey" polled 60 economists, who predicted a decline in US home prices of 1.26% in 2007 and 2.55% in 2008. According to the report, home prices have never before declined two years in a row.

In eMarketer's July 2007 projections, financial services online ad spending reached into the billions, and the industry's spending represented about 15% of the annual Internet total.

US economic prospects are also worse than they were even in November, when December ad spending decisions were made.

Financial services industry dominance of online ad spending is clearly in question for 2008.

"The December 2007 industry online ad spending data are something of a last gasp," said David Hallerman, senior analyst at eMarketer. "Those ads were contracted last fall, and the outlook has changed considerably since then."

Get the big picture for ad spending in 2008. Read eMarketer's US Advertising Spending report.

Internet groups brace for subprime fallout

By Richard Waters in San Francisco

Published: August 27 2007 20:30 | Last updated: August 27 2007 20:30

Internet companies are bracing for a possible fall-off in one of their biggest sources of advertising following the meltdown in the subprime mortgage market.

Besides mortgage advertising specifically directed at less credit-worthy borrowers, the ripples from the financial upheaval could extend to other forms of credit as well as the credit scoring agencies that are also big advertisers online, analysts warned.

Pricing could also be hurt more broadly on some classes of advertising on web search engines, because fewer advertisers are expected to be competing in the advertising auctions run by companies such as Google to have their messages displayed next to specific keywords.

“A lot of the subprime [advertising] has gone away,” said David Jakubowski, general manager of Microsoft’s MSN service.

This loss had yet to have a broader effect in the search business, he added.

“I haven’t felt a pricing hit because of it,” he said. “We haven’t seen anything crazy happen,” though he added that the company continued to keep a close eye on this area for more fallout.

Many online companies depend for a disproportionate amount of their income on financial services advertising, with subprime in some cases accounting for a large part of it.

Sixteen per cent of all online advertising comes from financial services companies, making it the second biggest source of advertising behind the retailing sector, said Sandeep Aggarwal, an internet analyst at Oppenheimer.

Companies that lent to subprime borrowers relied heavily on the internet to attract customers, concentrating the effect of the meltdown, said Rick Sizemore, an analyst at Multimedia Intelligence.

According to data from Nielsen/NetRatings, mortgage lenders Countrywide and Low Rate Source were two of the 10 biggest online advertisers in the US in July.

Experian Group and Privacy Matters, which advertise to consumers who are concerned about their personal credit scores, also numbered among the top 10.

Others, such as Lending Tree, the mortgage company, and Capital One, the credit card group, regularly rank among the biggest US advertisers on the web.

Online Ads Build Mortgage Awareness

JULY 19, 2007

But are some ads sending the wrong message?

Only one-third of US adults find mortgage ads and marketing credible, according to a Harris Interactive online poll conducted in May 2007.

That means that two-thirds of the 2,383 online adults polled thought mortgage ads were incredible — and not in a good way. One in five respondents actually thought that mortgage ads were "not at all credible."

Sanford Brumley of Harris said, "Given the large proportion of consumers who are riding the fence, now more than ever would be a good time for these institutions to examine their mortgage product advertising and marketing messages."

Although most respondents had a low opinion of mortgages in general, 71% were favorably inclined toward fixed-rate mortgages. More than half of respondents also thought highly of home equity loans.

Consumers generally had high levels of awareness and knowledge about mortgage options, but product ownership rates were low. Over half of consumers did not have mortgages at all, while a third had traditional fixed-rate mortgages and 16% had home equity loans. The ownership rate of all other product types was under 10%.

The dearth of mortgage product ownership is not for lack of online ad spending.

The top 25 mortgage companies ranked by advertising spending are throwing money at display ads. Online display advertising grew 66.9% in 2006, to $222 million, compared with $133.1 million in 2005, according to TNS Global data provided to American Banker. At the same time, overall ad spending by this group increased just 7.6%, to $732 million in 2006.

Mortgage applications typically are complex and time-consuming. This explains why online mortgage application growth has largely been stagnant over the past several years, according to eBrain Market Research's "2005/2006 National Technology Readiness Survey."

Even consumers who are willing to go through page after page of questions online still must trust the mortgage provider's security measures.

eMarketer Senior Analyst Lisa E. Phillips said, "Advertising builds awareness, but in this market it doesn't translate into credibility necessarily."

Find out more about marketing online financial services. Read the eMarketer Banking and Bill Paying Online: Chasing Those Digital Dollars report.