Search marketing growth to slow by 2007

The study, entitled “Europe’s Search Engine Marketing Forecast, 2004–2010” from Forrester Research, forecast that by 2010, European marketers will spend almost EU3bn, up from EU856 million in 2004 on search marketing.

While many large companies have implemented search into their marketing campaigns; however, small- to medium-sized enterprises (SMEs) are now also set to include search marketing as part of their marketing mix, according to Forrester.

In the UK, the largest online ad market in Europe, search marketing will grow to over EU1bn in 2010, up from EU763m at the end of 2005. Growth will be lead by marketers in the travel, finance, auto, and retail sectors.

However, the research firm found that there are indications that search marketing growth will slow by 2007, as it will be very difficult for some companies to pay for the heavy prices of paid ads against a possible backlash of consumers and clients.

In addition, the rise of rich media ads, enabled by increased residential broadband access, will pull ad spending away from other forms of offline and online advertising, causing the cost of keyword search to increase.

Hellen Omwando, consumer markets analyst at Forrester Research and author of the report, said: “Growing numbers of online shoppers, online advertising budgets, and pay-for-performance search marketing models will attract both large and small firms.

“But while search spending will more than triple, its share in online advertising will decline by 2007, as consumer mistrust of paid listings takes effect, rich media ads gain prominence, and as prices of keywords rise, ” Omwando added.

Meanwhile, France is the biggest growth market with 19% of search marketing spend in Europe by the end of 2005 and 31% by 2010.

Germany was Europe’s second largest search marketing spender in 2004 with a spend of EU165m. However, spending will slow down and will reach EU399m in 2010 — a CAGR (compound annual growth rate) of 11% in the next five years.

By the end of 2005, the Netherlands will spend 40% of online advertising on search marketing; in Sweden, 26% of online ad spending will go to search marketing.

The rest of the Western European countries will contribute just 4% of search marketing spend in 2005; and this will change little in the next five years.

Omwando added: “While it’s unlikely that prices in Europe will reach the same levels as in the US, where the same keyword might command five times the price than in Europe, increases will be significant enough to make it difficult for some marketers to justify the ROI of high prices; they won’t be able to compete for popular keywords.”

Forrester concludes that key industry players will begin to blend display ads and sponsored keyword listings together, as exemplified by the New York Times.com.

In addition, Search engines will respond with advertising services that combine the display ads and search, such as personalised search marketing linked to email conversations and viewing histories.