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Paid search market set to grow strongly in 2005

  • 27 June, 2005 13:05

<p>Sydney 27th June 2005 – According to a new report by Frost &amp; Sullivan, the Pay Per Click (PPC) paid search market is set to reach $130 million in 2005, growing by 85% over 2004 ($70 million). Frost &amp; Sullivan forecast industry revenues will reach $350 million by 2009, growing at a compound annual growth rate (CAGR) of 28% between 2005 and 2009.</p>
<p>The report finds that paid search was 18% of the total Australian online advertising market in 2004. This is set to grow to 27% by 2009 making it the fastest growing online advertising segment.</p>
<p>Industry revenue growth has been driven by a number of factors including the increased number of broadband users leading to greater usage of the internet and consequently search.</p>
<p>At the end of the calendar year 2004, there were approximately 9,000 active paid search advertisers in Australia with this figure expected to have reached around 13,500 by the end of 2005. The industry is still quite young despite many firms using paid search advertising for a number of years. Two thirds of advertisers started using paid search in the last two years.</p>
<p>The report found that Google was the market leader in 2004 followed by Overture and Sensis. Google distributes its advertising via its own sites, however Google is increasingly growing its distribution via the AdSense network. Overture’s main distribution network consists of Yahoo and Ninemsn, whilst Sensis distributes mainly through senis.com.au and telstra.com.</p>
<p>The industries that spent the most on paid search advertising in 2004 were; travel &amp; accommodation, technology and banking &amp; finance, together making up almost half of the market. The fastest growing users of paid search are the healthcare, retail, cultural, recreation and personal services segments.</p>
<p>Very few agencies or companies in Australia have dedicated in-house search marketing professionals. There is currently a huge demand for people with these skills in Australia and this will only increase as the market grows. Many companies rely on third party Search Engine Marketing Firms (SEMs), especially larger companies that have complex and ongoing requirements.</p>
<p>The SEM services market is highly fragmented with over 30 active search engine marketing specialist firms and a number of participating interactive and traditional advertising agencies. In 2004, the market leader for SEM services revenue was 24/7 Search (formerly Decide Interactive). Revenues in SEM services are expected to grow strongly in line with the rest of the market and are forecast to exceed $40 million by 2009.</p>
<p>Most advertisers’ source of awareness of search marketing came through competitors ads (34%). This was in contrast with research in 2004 where “word of mouth” and “general knowledge” were quoted as main source of awareness. The effect of media was also considerable with news articles and advertising by vendors making a considerable impact.</p>
<p>One of the key benefits of search marketing is seen to be the measurable nature of the technology. Overall, advertisers using paid search are very pleased with the return they achieved from their search engine marketing. Of those measuring Return On Investment (ROI), 90% indicated that they had achieved ROI. A high percentage of respondents also indicated search marketing typically had a lower cost of customer acquisition when measured against other forms of advertising.</p>
<p>The main benefits from search marketing according to respondents were “new customer acquisition” (87%), “increased online revenue” (57%) and “positive effect on company's brand” (50%).</p>
<p>Advertisers indicated a number of challenges facing them in their search marketing activities. These included tracking the effectiveness of their company’s paid search marketing (when selling offline), increased competition for top ranking keywords, and challenges in using search marketing software tools. The issue of click fraud although flagged, was not significant for most advertisers.</p>
<p>The report suggests that the next battlefield will be targeted search where advertisers will be able to pinpoint their audience through contextual, demographic, behavioural and other ways. MSN is currently working on their product “adCenter” which will be a significant new entrant into the market in 2006, widely expected to provide targeted search advertising with detailed analytics.</p>
<p>The report concludes with unique commentary and insight on the future of media and technology convergence and what role search plays for the major market participants. With Google having the largest market capitalisation for any media company in the world, the report explores the ramifications this will have for the future of traditional publishers and media players deriving revenue from offline advertising in Australia.</p>
<p>The study involved over 150 interviews including a survey of paid search advertisers and discussions with vendors, SEM firms, traditional and interactive agencies as well as other industry participants.</p>
<p>About Frost &amp; Sullivan</p>
<p>Frost &amp; Sullivan, a global growth consulting company, has been partnering with clients to support the development of innovative strategies for more than 40 years. The company's industry expertise integrates growth consulting, growth partnership services and corporate management training to identify and develop opportunities. Frost &amp; Sullivan serves an extensive clientele that includes Global 1000 companies, emerging companies, and the investment community, by providing comprehensive industry coverage that reflects a unique global perspective and combines ongoing analysis of markets, technologies, econometrics, and demographics. For more information, visit www.frost.com</p>
<p>For more information on the report please contact:</p>
<p>Foad Fadaghi
Research Director
ICT Practice
Frost &amp; Sullivan Australia
+61 2 8247 8910
ffadaghi@frost.com</p>

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