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Q&A More Firms Finding The Focused Benefits Of Paid Search Ads

By Doug Tsuruoka

New Methods Surfacing; Digital Marketing Outfit aQuantive Says Its Clients Want To Reach Consumers

November 17, 2004 – JupiterResearch says spending on paid search marketing will level off in two years as clients seek lower rates by haggling more on price.

Paid search marketing involves advertisers paying a search services provider such as Google to feature products prominently in its results. Advertisers typically bid for the placement they get.

Jupiter predicts advertisers will spend $2.6 billion on paid search this year, up from $1.9 billion in 2003. In 2005, the figure will rise to $3.2 billion, but Jupiter sees just a slight rise in 2006 to $3.8 billion.

Brian McAndrews, head of aQuantive, a Seattle-based digital marketing and tech services firm, says the spending slowdown is no big deal. He says long-term client interest in search ads remains strong because it's one of the most effective ways to reach consumers.

McAndrews says some online ad firms, including aQuantive, recently beefed up their ability to offer clients new types of search ads and marketing campaigns. AQuantive offers search ad products through its Avenue A/Razorfish unit. It also helps advertisers track Internet ad campaigns.

For its third quarter, aQuantive said sales rose 201% from the year-ago period to $46.7 million after taking out certain media costs from third-quarter 2003. Per-share profit, minus certain items, stayed flat at 5 cents.

McAndrews recently spoke with IBD about the latest trends in search ad marketing and online advertising.

IBD: What's the latest with search, from your perspective. McA

ndrews: Demand for search ads has grown tremendously and has been very successful for a lot of clients. So it's a hot subject of conversation in terms of what role search should play in the overall ad marketing mix and in the online marketing mix.

IBD: What else is helping fuel interest in search ads.

McAndrews: People, creativity and expertise. Clients have discovered that in online advertising, there's a real advantage in what we call focused, best-of-breed solutions. People at our Avenue A/Razorfish search unit, for instance, are more innovative and have great best practices that they bring to the online space.

IBD: How has aQuantive responded to continuing interest in search ads.

McAndrews: Our interactive agency, Avenue A/Razorfish, recently launched a new division that's essentially a search engine marketing agency. We've taken the different capabilities we have throughout our agency business to focus on serving our clients in the search business. We feel that focus is really key. When you spend all your time thinking about particular client problems in an innovative way, you solve them.

IBD: What new kinds of paid search ads are coming out.

McAndrews: There are a couple. One is so-called contextual advertising, where search terms are served alongside content like an article you're reading. For example, a content provider can make a relationship with a search engine company like Google. Certain search terms will pop up alongside the article that are related to content in the article. If the reader is interested in finding out more, the reader can click the search term.

IBD: Do these ads work as well as regular paid search ads.

McAndrews: The conversion rates on these ads are not as high as paid search because people aren't necessarily looking for what these ads are selling. But there's some benefit here for advertisers.

IBD: What's another new type of search ad.

McAndrews: Google has started to feature paid search-related banner ads. If I'm doing a search under a keyword, a banner ad may come up instead of the typical text link at the top of the page. If you click on the banner ad, it works just like a text link. It will take you to the advertiser's Web site.

IBD: Is there a downside to search marketing.

McAndrews: I think the market is maturing somewhat. Clients . . . particularly those who have been using the ads for a long time and who have gotten good at analyzing data and utilizing tools . . . have been dickering over price.

IBD: How do advertisers drive a harder bargain on price.

McAndrews: Advertisers won't bid higher than a certain price for certain (search) keywords. They arrive at a point, relatively quickly, on what the true market worth is of a keyword. So there's some maturing going on, but I think it's healthy.

IBD: Why is this healthy.

McAndrews: It shows that clients are getting better about analyzing data and using tools to make good decisions about using search ads. If they max out on search (due to price), they also have other options in the online mix of ads they can choose from to spend money on and acquire customers.

IBD: Will advertisers continue to plow money into paid search.

McAndrews: Yes. The money spent will continue to grow. Probably not at the (high) level it's grown the last few years, but it will grow.

IBD: Why.

McAndrews: Because paid search is what I call a foundational way to acquire customers. At the same time, it should not be exclusive of other ways to acquire customers online.