Paid-Search Spending to Grow, ROI to Fall

NEW YORK Spending on search-engine marketing is expected to rise nearly 190 percent by 2009, driven by an increase in paid clicks and cost-per-click pricing, according to a JupiterResearch forecast released today.

The New York-based research firm, a part of Jupitermedia Corp., projected that the paid-search market will grow from $1.9 billion in 2003 to $5.5 billion in 2009. Contributing to the boost is the average click price, which according to JupiterResearch, will jump 62 percent from 29 cents last year to 47 cents in ’09.

With the rising prices, however, will come diminishing returns. The report suggested that marketers should make better use of measurement and optimization tools in order to continue to profit from search leads.

A JupiterResearch executive survey found that search-engine optimization tools and strategies are underutilized, with just one-third of marketers considering historical effectiveness data or the cost of goods sold when bidding for paid listings. Over half of search marketers use unsophisticated bid strategies or no specific bid strategy at all.

The report comes as Google, which derived 98 percent of its overall revenue in the first half from advertising, prepares an initial public offering.

According to an amended prospectus filed with the Securities and Exchange Commission late last month, the Mountain View, Calif.-based search behemoth posted second-quarter net income of $79.1 million on revenue of $700.2 million, up from earnings of $64 million on revenue of $651.6 million in the first quarter. While Google’s quarterly revenue increase totaled 7.5 percent, it was significantly lower than the 27.2 percent jump recorded from fourth-quarter 2003 to first-quarter 2004.