Survey of Advertisers and Agencies Search Engine Marketing Professional Organization (SEMPO) December, 2005 Complete Results for SEMPO Member The State.

Survey of Advertisers and Agencies Search Engine Marketing Professional Organization (SEMPO) December, 2005 Complete Results for SEMPO Member The State of Search Engine Marketing 2005

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 2 Research Project Objectives  Understand the size of the industry in order to help promote its growth  Understand where marketer spending is going, among different recipients (search engine media companies, SEM agencies, in-house) and towards what types of SEM programs (paid placement, paid inclusion, organic SEO, SEM technology)  Identify key industry trends  Identify key industry issues SEMPO should address PROJECT OVERVIEW Radar Research, LLC oversaw the following research initiatives as part of this project:

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 3 DEFINITIONS: Respondents Were Given the Following Definitions at the Start of the Survey  Search Engine Marketing (SEM): the entire set of techniques and strategies used to direct more visitors from search engines to marketing web sites, including all of the tactics and strategies defined below.  Paid Placement: Text ads targeted to keyword search results on search engines, through programs such as Google AdWords and Yahoo Search "Precision Match," also sometimes referred to as "Paid Placement," "Pay-per-Click" (PPC) advertising and Cost-per-Click (CPC) advertising.  Contextually Targeted Text Ads: Text ads targeted to the subject of writings on web pages, such as news articles and weblogs, using programs such as Google's "AdSense" and Yahoo Search’s "Content Match" programs.  Paid Inclusion: The practice of paying a fee (fee structures may vary) to search engines and similar types of sites (e.g., directories, shopping comparison sites) so that a given web site or web pages may be included in the service's directory, although not necessarily in exchange for a particular position in search listings, such as Yahoo Search’s "Site Match" program, formerly known as Inktomi)  Organic Search Engine Optimization: The practice of using a range of techniques, including augmenting HTML code, web page copy editing, site navigation, linking campaigns and more, in order to improve how well a site or page gets listed in search engines for particular search topics.  Search Engine Marketing (SEM) Service Provider: Agencies or individuals who assist companies with the various search engine marketing practices described above.  Search Engine Marketing Technology Provider: Makers of a software application specialized to assist in the execution of search engine marketing programs, with features such as "bid management," "campaign management," "portfolio management" and "dynamic optimization."  Web Analytics: Using a reporting platform for measuring and analyzing the results of any/all of your online marketing campaigns, including search engine marketing. PROJECT OVERVIEW

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 4 Research Methodology Radar Research oversaw the following research initiatives as part of this project: PROJECT OVERVIEW  Extensive analysis of secondary research, reporting and commentary  Development of SEM forecast model  Detailed online survey completed by 553 search engine advertisers and SEM agencies, conducted via IntelliSurvey, Inc.

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 5 Key Research Conclusions  Advertisers and agencies are approaching their pricing limits. While most advertisers felt keyword pricing has risen in the past year, four out of five advertisers claimed they could still afford an increase in keyword pricing in 2006. Less than a quarter claimed they were currently at maximum efficiency. Yet even among advertisers who report the capacity to increase their ad expenditure, the vast majority can only absorb increases of less than 30%.  Most advertisers are relying on both paid and organic search strategies. Although most of the SEM budget is allocated to paid search media, strategic SEO is a high priority. To the extent that the search engines can support the legitimate efforts of marketers to get their sites found when relevant to searchers, there is both an opportunity to capture more revenue and better service those business customers.  SEM agencies will have to prove their worth to advertisers. Two-thirds of advertisers report they intend to manage 100% of their SEM initiatives in-house. While this indicates that advertisers are viewing their SEM holistically, it also implies this is a stop-gap measure as the SEM agency marketplace undergoes consolidation and contraction. Agencies must show demonstrable ROI to clients. PROJECT OVERVIEW

About Respondents

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 7 Most Respondents Are U.S. Companies  In total 553 respondents completed the survey  North American firms (U.S. and Canada) made up almost three-quarters of all respondents  Respondents from other countries included Argentina, Australia, Belgium, Canada, Costa Rica, France, Germany, Hong Kong, India, Italy, Netherlands, Norway, South Africa, Spain, Sweden Location of Surveyed Companies "What country is your company located in?" Total n=553 ABOUT RESPONDENTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 8 Agencies Comprise Two Thirds of Respondents  Two thirds of global respondents are agencies  47 of the 161 advertiser respondents are from firms of 500-plus employees  Three quarters of advertiser respondents have budget or strategic oversight or are directly involved in SEM. Business Descriptions "Please choose whichever of these options best describes your business" ABOUT RESPONDENTS Total n=553

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 9 Most Advertiser Respondents Have Hands-on SEM Roles  Most advertiser respondents are directly responsible for SEM programs  12% of advertiser respondents are senior managers with little or no hands-on SEM experience but familiarity with and oversight of the programs Personal Role At Company Regarding Search Engine Marketing Programs "What is your personal role within your company as regards search engine marketing programs?" Advertisers n=161 ABOUT RESPONDENTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 10 Vast Majority of Advertiser Respondents Influence Budget Decisions on SEM Programs  Over a third of advertiser respondents have ultimate budget authority for SEM programs, especially at agencies  Well more than half significantly influence budget decisions on SEM, even if someone else has final sign-off responsibility Level of Involvement on Budget Decisions "What is your level of involvement on budget decisions as pertains to spending on search engine marketing programs?" Advertisers n=161 ABOUT RESPONDENTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 11 Online Is Top Sales Channel for SEM Advertisers  Roughly three quarters of advertiser respondents using SEM cite their web site as among their top three sales channels; smaller firms by an even wider margin  The popularity of phone as a sales channel has fallen significantly from about half last year to 38% Top Three Sales Channels "What are your top three sales channels?" ABOUT RESPONDENTS Total n=553

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 12 Advertiser Respondents Spanned Several Service Sectors Survey Participants’ Industry Sectors “What best defines your industry sector?”  Business services, computer manufacturing, retail, communications, financial services, and electronics manufacturing are the top sectors represented by advertiser respondents. Total n=553 ABOUT RESPONDENTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 13 Large Revenue Firms Well Represented Among Advertiser Respondents  A quarter of all advertiser respondents expected their firms to book more than $100 million in revenue in 2005  A third of all advertiser respondents expected their firms to book less than $1 million in revenue in 2005  The majority of small firms (<500 employees) expected to book between $1 and $100 million in revenue in 2005 Revenue Expected for 2005 “How much revenue do you expect your business to book in 2005?” Advertisers n=161 ABOUT RESPONDENTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 14 Advertiser Respondents Represent a Broad Range of Sizes  The majority of advertiser respondents (56%) have 100 or fewer employees, nearly a quarter have over 1,000 employees  Most agency respondents (51%) have 10 or fewer employees Number of Employees "How many employees does your company have?" Total n=553 ABOUT RESPONDENTS

Research Highlights

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 16 Key Research Highlights: 2005  SEM was a $5.75 billion industry in North America in 2005, and will grow to $11.1 billion in 2010  Brand awareness is advertisers' top objective for SEM programs, particularly large firms  Organic SEO is the most popular form of SEM, with 4 out of 5 advertisers using this method, with paid placement a very close second at 76%  ROI is in line with inflation: Four out of five advertisers say they could afford to pay a mild increase in the price of paid placement, while three-quarters of advertisers and all agencies report moderate price hikes this year.  SEM is poaching budget from other marketing channels for the vast majority of advertisers – especially from affiliate marketing and web site development.  Senior executives consider SEM a high business priority with almost half of advertiser respondents (47%) saying that senior management at their companies were "very involved" in SEM programs, especially among companies with fewer than 500 employees  Most advertisers plan to manage the majority of their SEM spending in-house in 2006. SEM agencies will see a significant decline in business as a result. RESEARCH HIGHLIGHTS Source: Radar Research Forecast, North America, 12/05

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 17 2005 U.S. & Canadian SEM Industry Size Estimate, by Tactic RESEARCH HIGHLIGHTS Source: Radar Research Forecast, North America, 12/05

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 18 SEM growth will be driven by both its global reach and improved local services Time Growth of SEM revenue Inventory Limits N. American market maturity Maximum adv efficiency Second wave of SMB using SEM Greater emphasis on branding value Growth of niche and local SEM Global growth RESEARCH HIGHLIGHTS Source: Radar Research Forecast, North America, 12/05

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 19 North American SEM Expenditures to Reach $11.1B in 2010 (billions)  Growth will be driven by: –Increased emphasis on branding value of search –Second wave of small-to-mid size businesses using search –Growth of niche and local search –Increase in broadband users –Rising cost per click Search Engine Marketing Projections, North America 2005-2010 Source: Radar Research Forecast, North America, 12/05 RESEARCH HIGHLIGHTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 20 Organic SEO Most Popular of SEM Programs With Advertiser Respondents Engagement in SEM Programs "Do you currently engage in …?"  Four out of five advertiser respondents engage in organic search engine optimization  More than three-quarters (76%) engage in paid placement  Two out of five advertisers engage in paid inclusion, a slight decline from 44% in 2004 RESEARCH HIGHLIGHTS Advertisers n=161

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 21 Organic SEO Surpasses Paid Placement as Top SEM Service Offered by Agencies SEM Program Offerings "Do you currently offer the following SEM services …?"  Paid placement and Organic SEO were offered by the vast majority of agency respondents  Organic SEO has surpassed paid placement as the top SEM service in 2005  Paid inclusion has fallen significantly in 2005, in line with lower supply RESEARCH HIGHLIGHTS Agencies n=299

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 22 Agencies and Advertisers Closely Share Opinions Regarding Best Practices  There was strong agreement that abuse of search optimization was "a major problem" and that there was a need for industry standards on the question  Most respondents did not believe, however, that legislation was the best solution to the problem  Advertisers and Agencies agreed closely about best practices, within a tenth of a point on a 5-point scale Statements Concerning Industry Standards for “Search Optimization” Best Practices "Do you agree or disagree with the following statements concerning industry standards for 'search optimization' best practices?" Strongly Agree Strongly Disagree RESEARCH HIGHLIGHTS Total n=553

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 23 Site Traffic, Conversion Rate, Click-Thru and ROI are Top Performance Metrics for SEM Programs  More than 50% of respondents tracked the following success metrics for the SEM campaigns: site traffic, post-click conversion, click-thru rate, ROI, cost-per-click, cost-per-action (e.g., sale), and total number of conversions  Agencies were more likely to track all metrics by about a margin of 10% in the case of all metrics Metrics Tracked To Gauge the Success of SEM Programs "What metrics do you track / measure / generally pay attention to gauge the success of Search Engine Marketing programs?" Total n=553 RESEARCH HIGHLIGHTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 24 Brand, Sales, Leads and Traffic Are Top Objects of Paid Placement Programs Among Advertisers  Among advertisers, enhancing brand awareness is the top objective of Paid Placement campaigns (albeit by a narrow margin)  Selling products follows closely as an objective for Paid Placement, especially among smaller firms  Larger firms are more interested in driving leads and traffic via Paid Placement than smaller firms Purpose of Search Engine Marketing Use "What is your company using search engine marketing to accomplish?" [Multiple responses applicable] Advertisers n=161 RESEARCH HIGHLIGHTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 25 Paid Placement Prices Have Risen Moderately Changes in Paid Placement Prices Compared to Last Year "Have you observed prices for Paid Placement ads change in the last year for the keywords you routinely bid on?" Advertisers n=123; Agencies n=229  Advertisers and agencies are experiencing similar trends in overall pricing  Over three-quarters of advertiser respondents felt that prices for their common keywords rose in the past 12 months; 100% of agencies thought prices went up  Nearly a quarter of advertisers do not know whether they are paying more for paid placement in 2005 versus the previous year RESEARCH HIGHLIGHTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 26 Most Advertiser Respondents Could Still Tolerate Further Price Rises, at Moderate Levels  Four out of five respondents said they could tolerate further rises in paid placement prices  21% report they cannot afford to pay more for leads/conversions because they are currently at maximum efficiency.  Even among advertisers who report the capacity to increase ad expenditure, the vast majority can afford 30% or less.  Despite increasing ad spend and year-to-year growth in the value of search engine marketing, we are likely nearing a pricing plateau as advertisers near their maximum efficacy. Ability to Afford Further Price Escalation in Paid Placement Ads "Given the current efficiency you experience with Paid Placement programs, and the quality of the leads that this tactic generates, how much more could you afford to pay for the leads / conversions this channel provides before you could not justify the expense?" RESEARCH HIGHLIGHTS Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 27 Faced With Escalating Keyword Prices, Advertisers Would Increase Program Efficiency Reaction to 2-Year Steady Increase in Paid Placement Costs "How would you likely react to hypothetical scenario where the cost of Paid Placement steadily increased for the next two years?"  Paid placement advertisers would address price rises by improving the efficiency of their programs before cutting back on spending  Improving site conversion efficiency and improving the overall efficiency of bidding programs would be first steps in maintaining paid placement programs intact  Larger firms more likely to assign branding value to their search programs than smaller firms Advertiser: n=123 RESEARCH HIGHLIGHTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 28 Majority of Respondents Shift Budget Away From Other Marketing Programs for Paid SEM Programs  Only 27% of respondents said their funding for paid placement and paid inclusion programs came from newly created budgets, a significant drop from 2004, indicating a growing maturity among advertisers  Most respondents said they were shifting in whole or in part budgets from other marketing programs to fund these new initiatives Source of Budget for Paid Placement and Paid Inclusion Programs "Where is the budget coming from for your Paid Placement and Paid Inclusion programs?" Advertisers n=161 RESEARCH HIGHLIGHTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 29 Majority of Respondents Shift Budget Away From Other Marketing Programs for Organic SEO  Only 30% of respondents said their funding for organic search engine optimization programs came from newly created budgets, again dropping from last year  Most respondents said they were shifting in whole or in part budgets from other marketing programs and/or web development budgets to fund these new initiatives Source of Budget for Organic Search Optimization Programs "Where is the budget coming from for your Organic Search Optimization programs?" RESEARCH HIGHLIGHTS Advertisers n=161

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 30 SEM Is Poaching Budget From Established Marketing Program  The biggest shares of budgets for SEM programs are being shifted away from web development, affiliate marketing, email marketing, yellow pages, TV and direct mail. Shift of Marketing / IT Funds to Search Marketing Programs "From which marketing/IT programs are you shifting budget away and moving it to your search marketing programs?" RESEARCH HIGHLIGHTS Advertisers n=28

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 31 Senior Executives Appreciate the Value of SEM  Almost half of all advertiser respondents said that senior management at their companies were "very involved" in SEM programs and considered them "a high priority," especially among companies with fewer than 500 employees  Another 37% said senior execs were "moderately aware and interested" in SEM programs; almost half of larger firms agreed with this statement Extent of Senior Management’s Interest in SEM Practices "To what extent is your senior management interested in and aware of Search Engine Marketing practices your company engages in?" RESEARCH HIGHLIGHTS Advertisers n=168

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 32 Advertisers See Increases in SEM Spending Across the Board  Agency respondents anticipate 2006 revenue increasing faster than advertisers plan to increase spending  Agencies expect paid placement rates to double next year Anticipated Increase in 2006 over 2005 for Specific SEM Programs "How much more or less do you expect to spend in 2006 compared to 2005 for [each of the following SEM programs]?" RESEARCH HIGHLIGHTS Advertisers n=299, Agencies n=161

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 33 Majority of 2006 Paid Placement Spending Will Be Managed In-House, Not Outsourced to Agencies  Two-third of advertiser respondents said they plan manage all of their 2006 paid placement spending in-house; larger firms were more likely to outsource more of their campaign budgets  Only 13% of advertisers plan to outsource more than half of their paid placement expenditures in 2006. Management of Planned 2005 Paid Placement Spending "How much of your planned spending next year (2006) for Paid Placement programs are you likely to manage with in-house resources versus through an external search engine marketing service provider?" Advertisers n=122 RESEARCH HIGHLIGHTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 34 Management of Planned 2006 Organic Search Engine Optimization Spending "How much of your planned spending next year (2006) for Organic Search Engine Optimization programs are you likely to manage with in-house resources versus through an external search engine marketing service provider?" Majority of 2006 Organic SEO Spending Will Be Managed In-House, Not Outsourced to Agencies  Like paid placement, nearly two-thirds of advertiser respondents said they plan to manage all of their 2006 organic SEO spending in-house; larger firms were more likely to outsource more of their campaign budgets  Only 11% of advertisers plan to outsource the majority of their organic SEO spending in 2006 Advertisers n=129 RESEARCH HIGHLIGHTS

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 35 Management of Planned 2006 Paid Inclusion Spending “How much of your planned spending next year (2006) for Paid Inclusion programs are you likely to manage with in-house resources versus through an external search engine marketing service provider?” Majority of 2005 Paid Inclusion Spending Will Be Managed In-House, Not Outsourced to Agencies  Like paid placement and organic SEO, two-thirds of advertisers said they plan to manage all of their 2006 paid inclusion spending in-house; larger firms were more likely to outsource more of their campaign budgets  The consistency in the data suggests an opportunity for agencies, if they can prove their value- add to clients. Agencies must prove that they can provide superior service in contrast to an advertiser bringing SEM in-house. Advertisers n=65 RESEARCH HIGHLIGHTS

Advertisers > Paid Placement

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 37 The Vast Majority of Advertiser Respondents Buy Paid Placement Ads on Search Engines  More than three quarters of all advertiser respondents participate in paid placement programs  Small advertisers are more likely to buy paid placement ads than larger firms Engagement in “Paid Placement” Programs "Do you currently engage in “Paid Placement” programs?" ADVERTISERS > PAID PLACEMENT Advertisers n=161

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 38 Most Respondents Have Been Advertising With Paid Placement for at Least Three Years Year of First “Paid Placement” Program Engagement "What year did you first engage in “Paid Placement” programs?" ADVERTISERS > PAID PLACEMENT  The majority of advertisers (56%) began using Paid Placement within the last three years  On average, larger advertisers began using paid placement earlier than smaller ones Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 39 Respondents Report Heavy Spending on Paid Placement  On average, 6% of total spending went to SEM agencies, and 7% to internal expenses.  19% of respondents reported planning to spend over $1 million on paid placement in 2005  Larger marketers (with staffs of 500 or more) were spending on average more than twice as much (135% more) than marketers with staffs of fewer than 500 2005 Annual Spending on Paid Placement by Cost Category "Approximately what is the amount you expect your company will spend in 2005 on Paid Placement programs in each of the following three areas: Media costs; SEM service providers; internal costs?" ADVERTISERS > PAID PLACEMENT 89% $1.02M $0.74M $1.73M Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 40 Most Internal Time on Paid Placement is Spent on Analytics and Strategy  On average, respondents said they dedicated a total of 106 hours a month to internal management of paid placement programs  Most of the time marketers allocated internally to paid placement was on marketing strategy and measurement and analytics  Analytics have outstripped Marketing as the top expense in terms of hourly resources Hours Spent Monthly on Paid Placement Internally by Function "Please estimate the monthly hours allocated towards Paid Placement by internal staff in the following roles" ADVERTISERS > PAID PLACEMENT Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 41 Few Marketers Account for Internal Costs in their Paid Placement Budgets  Fewer than 1 in 3 respondents explicitly separated staff costs in their paid placement budget allocations  However, this number (29%) has more than doubled since last year’s survey (14%) HR Costs of Internal Paid Placement Staff vs. SEM Budget "Do you account for the HR costs of internal staff engaged in Paid Placement towards your SEM budget(s)?" ADVERTISERS > PAID PLACEMENT Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 42 Advertisers Plan to Increase Their Spending on Paid Placement Moderately in 2006  83% of respondents planned to increase their spending on paid placement campaigns in 2006  Over half of advertiser respondents plan to increase spending on Paid Placement by 30 percent or less Spending Expectations for 2006 "How much more or less do you expect to spend in 2006 compared to 2005 for 'Paid Placement" programs (including all forms of expenditures noted above)?" ADVERTISERS > PAID PLACEMENT Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 43 Google, Overture Most Popular Search Media Companies  Google AdWords is the most popular search advertising program, used by 95% of respondents  59% reported using Yahoo’s general "Precision Match" paid placement program  MSN is third behind Google and Yahoo! – an enormous feat considering the site just debuted in the survey this year  An equal number of respondents (46%)said they used each leader's contextual advertising programs (Google AdSense and Yahoo’s Content Match)  MIVA (formerly FindWhat) was the next most- popular search ad program, followed by AskJeeves, Business.com, Looksmart, and Kanoondle Most Popular Paid Placement Search Engine Networks Among Advertisers "Which of the following Paid Placement search engine networks do you run campaigns on?" [Multiple responses applicable] Advertisers n=123 ADVERTISERS > PAID PLACEMENT

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 44 Most Firms Bid on Their Own Trademarks, But Policies for Competitors and Affiliates Vary Trademarks vs. Paid Placement Programs "How do your trademarks factor into your Paid Placement programs?" ADVERTISERS > PAID PLACEMENT  The majority (but not all) advertisers bid on their own trademarks as keywords; more than half bid on misspellings  Larger advertisers are far more aggressive in defending their trademarks than smaller firms Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 45 Over a Third of Respondents Would Pay More for Keywords With Small Icons and Larger Fonts Premiums for Paid Placement Enhancements “How much more would you pay for Paid Placement if they included the following type of enhancement?” ADVERTISERS > PAID PLACEMENT  Banner ads and a small icon were the most popular ideas for premium features that would make advertisers pay more for paid placement keywords  Banners, rich media and audio enhancement warrant the highest premiums among those willing to pay. Larger firms put the highest premium on rich media, while smaller firms would pay the most for banners Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 46 Agencies Would Set Different Priorities for Keyword Enhancements Compared to Advertisers Premiums for Paid Placement Enhancements "How much more would you pay for Paid Placement if they included the following type of enhancement" ADVERTISERS > PAID PLACEMENT  Rich media and audio caught the fancy of agencies as keyword enhancements more than advertisers  Larger and colored fonts impressed advertisers more than agencies Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 47 SEM Generalist Agency Most Popular Type of Service Provider for Paid Placement Advertisers  Nearly half of advertiser respondents (48%) used a firm specialized in a variety of types of search engine marketing practices for their paid placement programs  One quarter used a firm specialized specifically in paid placement  Very few respondents used a general marketing agency or an Internet marketing agency Type of SEM Providers for Paid Placement Programs "What type of SEM service providers do you rely on for Paid Placement programs?" ADVERTISERS > PAID PLACEMENT Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 48 Advertiser Respondents Estimate Their Paid Placement Agency Employs 25-30 People, on Average  More than a quarter of respondents (27%) estimate that their paid placement agency employs 5 or fewer people  The average estimate is 25-30 employees Number of SEM Provider Employees "According to your best estimate, how many employees does the primary SEM service provider you engage for Paid Placement programs employ?" ADVERTISERS > PAID PLACEMENT Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 49 Efficiency and Specialized Tool Sets Are Best Cases for Agencies  Lack of in-house tools, efficiency and economy top the list of reasons for outsourcing  Complexity and keeping abreast of best practices were not significant issues Reasons For Using Outside SEM Providers for Paid Placement Programs "What are your reasons for using an outside SEM service provider for Paid Placement programs?" [Multiple responses allowed] ADVERTISERS > PAID PLACEMENT Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 50 Revenue Models That Advertisers Paid SEM Agencies Vary Widely  Flat agency fees and an additional percent on top of media spend to search engines are the most common pricing models that advertisers pay to SEM agencies Typical Fee Structure Paid to SEM Providers "What is the typical fee structure you pay to the SEM service provider that you engage for Paid Placement programs?" [Multiple responses applicable] ADVERTISERS > PAID PLACEMENT Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 51 Two Thirds of Respondents That Pay Agencies a Spiff on Keyword Ad Spend Pay Less Than 15%  Of advertiser respondents who pay their SEM agencies a percent on top of their ad spend for paid placement campaigns 79% say the cut is not more than 11%;  On average, respondents who pay agencies such a fee on top of keyword ad spend say it is 10% Typical Percent Paid to SEM Service Providers “What is the typical percent you pay to SEM service providers for Paid Placement programs on top of the ad spend with search engines?” ADVERTISERS > PAID PLACEMENT Advertisers n=123

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 52 Advertisers report mixed results for their satisfaction level with their agencies  Just one third (33%) of respondents said they were happy ("moderately" or "very") with their SEM agencies for paid placement campaigns, down from 62% last year  A quarter of respondents are unhappy (“moderately” or “very”)  Over 2/5 of advertisers report “mixed results” when asked for their satisfaction level Opinion on SEM Service Providers "How happy have you been in the past year with the services delivered by the primary SEM service provider you engage for Paid Placement programs?" ADVERTISERS > PAID PLACEMENT Advertisers n=43

Advertisers > Organic Search Engine Optimization (SEO)

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 54 ORGANIC SEARCH ENGINE OPTIMIZATION 9 out of 10 Respondents Engage in Organic Search Engine Optimization  Organic SEO was the most popular form of SEM with advertisers in the survey  SEO is almost as popular with larger firms as smaller ones Engagement in Organic Search Engine Optimization "Do you currently engage in Organic Search Engine Optimization?" ADVERTISERS > ORGANIC SEO Advertisers n=161

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 55 Average Advertiser Respondent Plans to Spend a Quarter More on Organic SEO in 2005  Two-thirds of advertiser respondents said they expected to spend between 10% and 50% more on organic SEO in 2006 compared to 2005  This is a significant chance from 2004, when just 40% of advertisers reported they were going to increase organic SEO spending at all  Large firms (500+ employees) were likely to increase spending on SEO by a larger percentage than smaller companies, who tended to report smaller overall increases in spending for 2006 Spending Expectations for 2005 "How much more or less do you expect to spend in 2006 compared to 2005 for “Search Engine Optimization” programs?" ADVERTISERS > ORGANIC SEO Advertisers n=129

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 56 Organic SEO has come of age since 2001  About half of respondents (50.4%) began conducting Organic SEO programs in the past three years  More than three-quarters of respondents (76.7%) began conducting Organic SEO in the past five years Year of First Organic Search Engine Optimization Engagement "What year did you first engage in such Organic Search Engine Optimization programs?" ADVERTISERS > ORGANIC SEO Advertisers n-129

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 57 Advertisers Estimate Spending 59 Hours of Internal Resources on Organic SEO Monthly  Larger companies will spend significantly greater hourly resources on creative/design/copywriting and analytics/trafficking/administration than smaller companies  Internal time resources are balanced across marketing and IT functions regardless of company size Hours Spent Monthly on Paid Placement by Function "Please estimate the monthly hours allocated towards Organic Search Engine Optimization by internal staff in the following roles" ADVERTISERS > ORGANIC SEO Advertisers n=1n=129

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 58 Minority of Advertiser Respondents Account for Staff Time Allocated to Internal SEO Programs  Almost one third of respondents count staff time allocated to internal organic SEO resources as part of their SEM budget  This is a significant change from 2004, when only one in five responded positively HR Costs of Internal Organic Search Engine Optimization Staff vs. SEM Budget "Do you account for the HR costs of internal staff engaged in Organic Search Engine Optimization towards your SEM budget(s)?" ADVERTISERS > ORGANIC SEO Advertisers n-129

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 59 Organic SEO Advertisers Have a Good Sense of Best Practices  By and large, advertiser respondents had a reasonably good sense of which SEO tactics were best practices (e.g., keywords in title tags and headlines, avoiding frames and query URLs) while not being mislead by red herrings in our list (e.g., avoiding keywords in meta tags, avoiding red text)  All in all, smaller sites seemed to have a better sense than larger sites about actual best practices Best Practices to Improve Volume of Visitors "Which of the following techniques would you say is a "best practice" when it comes to increasing the volume of interested visitors to your site through organic search engine optimization?" ADVERTISERS > ORGANIC SEO Advertisers n=129

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 60 Most Respondents Agreed that Abuse of SEO Practices Was a Problem  There was strong agreement that abuse of search optimization was "a major problem" and that there was a need for industry standards on the question  Most respondents did not believe, however, that legislation was the best solution to the problem and would prefer the industry to self- regulate rather than face government regulation Statements Concerning Industry Standards for “Search Optimization” Best Practices "Do you agree or disagree with the following statements concerning industry standards for 'search optimization' best practices?" ADVERTISERS > ORGANIC SEO Advertisers n=129

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 61 Vast Majority of Advertiser Respondents Use Only One Organic SEO Agency  The vast majority (92%) of advertisers prefer to deal with a single agency for their organic search engine optimization  This is an increase from 2004, when 80% of advertiser respondents were using a single agency, indicating a shift towards consolidation Number of SEM Providers Currently Used "How many SEM service providers do you use currently to help you with your Organic Search Engine Optimization programs?" ADVERTISERS > ORGANIC SEO Advertisers n=129

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 62 Majority of Advertiser Respondents Have Worked With Only One SEO Agency Ever  The majority (65%) of respondents have ever worked with only one SEO agency, increasing from 56% in 2004  Very few advertisers (12%) have worked with more than two SEO agencies Number of SEM Providers Since First Organic Search Engine Optimization Program "How many different SEM service providers have you used in total to help you with your Organic Search Engine Optimization programs since you first started with these programs?" ADVERTISERS > ORGANIC SEO Advertisers n=48

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 63 Almost Half of Advertiser Respondents Use a Generalist SEM Firm for Their SEO Agency  Almost half (48%) of respondents use a generalist SEM agency for help with their organic SEM, a decrease from two-thirds in 2004  Two in five marketers prefer to use a firm that specializes in organic SEO  Only 2% of respondents use a generalist Internet marketing firm for SEO, and no respondents used a traditional (online/offline) marketing firm Type of SEM Providers for Organic Search Engine Optimization Programs "What type of SEM service providers do you rely on for Organic Search Engine Optimization programs?" ADVERTISERS > ORGANIC SEO Advertisers n=48

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 64 More Than Half of Advertiser Respondents Estimate Their SEO Agencies Employ 25 or Less  52% of advertiser respondents estimate that their organic SEO agencies employ not more than 25 staff members  44% believe their SEO agencies have 10 or fewer employees  One in five respondents are working with firms that employ between 2 and 5 people  More than 20% of respondents have no idea what how many people are employed by their SEO firm Number of SEM Provider Employees "According to your best estimate, how many employees does the primary SEM service provider you engage for Organic Search Engine Optimization programs employ?" ADVERTISERS > ORGANIC SEO Advertisers n=48

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 65 Outsourcing Organic SEO Seen by Advertisers as More Efficient Than Doing It Internally  Almost half of advertiser respondents report their primary reason for outsourcing organic SEO are time constraints and difficulty staying abreast of ‘best practices’  Only a third thought it was “too complicated,” compared to 40% who cited that issue when it came to outsourcing paid placement  Less than a third of respondents (28%) cite greater economic efficiency increased effectiveness are primary reasons to outsource, suggesting agencies must improve their ability to communicate efficacy to clients. Reasons For Using Outside SEM Providers for Organic Search Engine Optimization Programs “What are your reasons for using an outside SEM service provider for Organic Search Engine Optimization programs?” [Multiple responses allowed] ADVERTISERS > ORGANIC SEO Advertisers n-47

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 66 Flat Fees Are by Far the Most Common Pricing Structure Advertisers Pay Organic SEO Agencies  Just over half of advertiser respondents (53%) cited flat fees as the pricing model by which they paid their agency for organic SEO services, down from three-quarters in 2004  Only 15% cited performance objectives (namely price per click and commission for marketing objectives other than sales), dropping from 20% in 2004  More than a third of respondents (38%) reported compensating their agency based on time and materials, up from 17% last year Typical Fee Structure Paid to SEM Providers “What is the typical fee structure you pay to the SEM service provider that you engage for Organic Search Engine Optimization programs?” [Multiple responses allowed] ADVERTISERS > ORGANIC SEO Advertisers n=48

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 67 One Thirds of Advertiser Respondents Are happy With Their SEO Marketing Firm  There is slightly greater displeasure with agencies this year than in 2004. Almost a quarter of advertiser respondents report they are moderately or very unhappy with their SEO agency, up from 20% last year  Almost half of respondents (45%) report mixed results  Almost a third of respondents (32%) report they are moderately to very happy with their SEO agency, a dramatic decrease from 2004, when two-thirds of advertiser respondents reported they were happy with their SEO firm Opinion on SEM Service Providers “How happy have you been in the past year with the services delivered by the primary SEM service provider you engage for Organic Search Engine Optimization programs?” ADVERTISERS > ORGANIC SEO Advertisers n=48

Advertisers > Paid Inclusion

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 69 Two Out of Five Advertiser Respondents Engaged in Paid Inclusion Programs  Two out of five advertisers currently engage in paid inclusion, down slightly from 44% in 2004  In terms of paid inclusion participation, there was no difference between large and small firms in 2005 Engagement in Paid Inclusion Programs "Do you currently engage in Paid Inclusion?" ADVERTISERS > PAID INCLUSION Advertisers n=161

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 70 Most Advertiser Respondents Doing Paid Inclusion Have Done So for Only Two Years  Almost a third of respondents (30%) began conducting paid inclusion programs in 2005  Two thirds of respondents (66%) that have been conducting paid inclusion programs began in the past three years Year of First Paid Inclusion Engagement “What year did you first engage in such Paid Inclusion programs?” ADVERTISERS > PAID INCLUSION Advertisers n=67

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 71 Most Advertisers Predict a Modest Lncrease in their Paid Inclusion Spending for 2006  Almost one in three respondents plan to spend 10% more in 2006 compared to 2005  A quarter of respondents were unsure how their paid inclusion spending will change in 2006  The average amount by which advertisers expected to increase paid inclusion programs was 19% Spending Expectations for 2006 “How much more or less do you expect to spend in 2006 compared to 2005 for ‘Paid Inclusion’ programs?” ADVERTISERS > PAID INCLUSION Advertisers n=65

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 72 Advertisers Commit Relatively Few Internal Hours Monthly to Paid Inclusion Programs  On average, those who engaged in paid inclusion programs estimate they spend just 9 hours per month on internal resources dedicated to such programs, mostly on strategy and analytics. This number has decreased from 2004, when advertisers reported an average of 17 hours per month of internal resources dedicated to paid inclusion Hours Spent Monthly on Paid Placement by Function “Please estimate the monthly hours allocated towards Paid Inclusion by internal staff in the following roles” ADVERTISERS > PAID INCLUSION Advertisers n=65

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 73 Three-quarters of Respondents Engaged in Paid Inclusion Do Not Account for Internal HR Costs  Just one quarter of respondents engaged in paid inclusion bother to track internal HR costs dedicated to these programs  While this number is low, it represents significant progress. In 2004, only 1 in 10 respondents bothered to track internal HR costs dedicated to these programs, suggesting better internal resource management HR Costs of Internal Paid Inclusion Staff vs. SEM Budget “Do you account for the HR costs of internal staff engaged in Paid Inclusion towards your SEM budget(s)?” ADVERTISERS > PAID INCLUSION Advertisers n=65

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 74 Two-thirds of Advertisers Plan to Manage Paid Inclusion Spending Internally  Two thirds of advertiser respondents that engaged in paid inclusion plan to control 100% of their paid inclusion spending in 2006 internally, increasing from about 40% last year  A little more than 10% plan to delegate their entire paid inclusion budget to an SEM service provider Management of Planned 2006 Paid Inclusion Spending “How much of your planned spending next year (2006) for Paid Inclusion programs are you likely to manage with in-house resources versus through an external search engine marketing service provider?” ADVERTISERS > PAID INCLUSION Advertisers n=65

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 75 Price per Click Is the Most Common Payment Model for SEM Agencies With Paid Inclusion  A flat agency fee is now the most popular pricing model for paying SEM agencies for paid inclusion programs, usurping price-per-click models, which was the dominant model in 2004  Almost 20% of respondents said they were paying their agencies with more than one pricing model for paid inclusion programs Typical Fee Structure Paid to SEM Providers "What is the typical fee structure you pay to the SEM service provider that you engage for Paid Inclusion programs?" [Multiple responses applicable] ADVERTISERS > PAID INCLUSION Advertisers n=22

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 76 Satisfaction With SEM Agencies Generally Strong for Paid Inclusion  Almost half of respondents are neutral on their satisfaction with their SEM agencies as regards paid inclusion programs  41% were "moderately happy" or "very happy"  Just 14% were “moderately unhappy” or “very unhappy” with their SEM agency’s paid inclusion services Opinion on SEM Service Providers "How happy have you been in the past year with the services delivered by the primary SEM service provider you engage for Paid Inclusion programs?" ADVERTISERS > PAID INCLUSION Advertisers n=22

Advertisers > General

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 78 Email, Direct Mail and Web Ads Are Next Most Popular Forms of Marketing for SEM Advertisers  In addition to SEM, email marketing was the most common form of marketing respondents cited as another vehicle their company used  Email,, public relations, web advertising, direct mail, conferences and print ads were all cited by a majority of respondents as other forms of marketing they also employed  Unsurprisingly, larger firms were much more likely to engage in expensive marketing vehicles such as TV, radio and magazine advertising Other Forms of Marketing and Advertising Used "What other forms of marketing and advertising does your company engage in?" [Multiple responses allowed] ADVERTISERS > GENERAL Advertisers n=161

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 79 Paid Placement, SEO, Email and Magazine Ads Top the List by Spending Among Respondents  Paid placement is the most popular form of marketing with more than a third of advertisers identifying it as their number one advertising expense annually  Paid placement, organic SEO, TV advertising, email marketing, and direct mail are the most popular forms of marketing among respondents by amount of spending Marketing Respondents Cited as Among Their Top Three by Spending "What are the top-three forms of advertising or marketing you spend the most money on annually?“ (ranked one) ADVERTISERS > GENERAL Advertisers n=149

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 80 Paid Placement and SEO Top the Chart for ROI Value  Paid placement and organic SEO provide the highest ROI for advertising respondents of any marketing vehicles in their marketing mix Marketing Vehicles Respondents Cited as Among Their Top Three by ROI "What are the top-three most-efficient forms of advertising or marketing you spend money on in terms of the return on investment (ROI) or return on ad spend (ROAS) that they yield?“ (ranked one) ADVERTISERS > GENERAL Advertisers n=149

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 81 Most Companies Have Just One Budget for All Forms of SEM  More than half of respondents (57%) have one source of budget for all types of SEM programs, dropping from two-thirds in 2004  Close to 1 in 5 firms keeps a separate budget for performance-based programs, giving them as much budget as they require so long as they generate a positive ROI  Another 17% report each SEM program they engage in has its own dedicated, fixed budget Budget Segmentation for Various SEM Programs "How do you segment budgets for various types of SEM programs?" ADVERTISERS > GENERAL Advertisers n=161

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 82 Majority of Respondents Shift Budget Away From Other Marketing Programs for Paid SEM Programs  Just over a quarter of respondents report their funding for paid placement and paid inclusion came from newly created budgets, a drop from 41% in 2004.  Two in five respondents report SEM programs are funded by a combination of new funds and budget shifted from existing marketing programs, reinforcing the efficacy of SEM Source of Budget for Paid Placement and Paid Inclusion Programs "Where is the budget coming from for your Paid Placement and Paid Inclusion programs?" ADVERTISERS > GENERAL Advertisers n=161

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 83 Majority of Respondents Shift Budget Away From Other Marketing Programs for Organic SEO  Almost a third of respondents said their funding for organic search engine optimization programs came from newly created budgets  Most respondents said they were shifting in whole or in part budgets from other marketing programs and/or web development budgets to fund these new initiatives Source of Budget for Organic Search Optimization Programs "Where is the budget coming from for your Organic Search Optimization programs?" ADVERTISERS > GENERAL Advertisers n=161

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 84 On Average, Advertiser Respondents Had Four Employees With Any SEM Responsibility Average Number of People With Some Responsibility for SEM Initiatives “How many people inside your organization have any responsibility for search engine marketing initiatives?” ADVERTISERS > GENERAL  Large firms (500 or more employees) had nearly twice as many staff members with some SEM responsibility compared to smaller firms: seven vs. three Advertisers n=160

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 85 Most Advertiser Respondents Have Fewer Than Two Employees Focused on SEM Full Time Number of People With Full-Time Responsibility for SEM Initiatives “How many people inside your organization have full-time responsibility for search engine marketing initiatives?” ADVERTISERS > GENERAL  On average, advertiser respondents had 2 employees devoted full-time to search engine marketing programs  For firms with 2 or more full time SEM employees, there was virtually no difference between larger and smaller firms  Almost a third of firms did not have any employees devoted full time to SEM, up from 20% in 2004 indicating a greater dependence on outsourcing Advertisers n=160

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 86 Three Quarters of Advertiser Respondents Are Coordinating SEM With Other Marketing  Two thirds of advertiser respondents said they were coordinating their SEM initiatives to a moderate or great extent with other types of marketing programs  Advertiser respondents who report they are coordinating to a great extent rose from a quarter in 2004 to over a third in 2005, indicating greater commitment and sophistication  Only 10% were not doing so at all; 22% were doing so minimally Extent of Coordination Between SEM Campaigns and Other Marketing Programs “To what extent do you coordinate your Search Engine Marketing campaigns with other types of marketing programs (brand advertising initiatives, public relations, promotions, other web marketing initiatives, etc.)?” ADVERTISERS > GENERAL Advertisers n=161

Agencies > Overview

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 88 Agency Description “Which of the following best describes your agency?” AGENCIES > OVERVIEW Most Agency Respondents Are All-around SEM or SEO Specialists  Almost a third of agency respondents are all-around SEM generalists  Almost a quarter of respondents were Internet Marketing specialists who also do general SEM  No agency respondents specialized specifically in Paid Inclusion Agencies n=368

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 89 Most SEO Agency Respondents Offer Paid Placement Services In-house SEM Program Offerings "Do you currently offer clients 'Paid Placement' program services?”  Almost three-quarter of agency respondents offer clients paid placement programs in-house  Just 13% of agencies do not offer that service  Another 5% of agencies who sub-contract paid placement expect to build their own capability in 2006 AGENCIES > OVERVIEW Agencies n=368

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 90 Average Clients Spending Five Times More on Paid Placement Than on PI or SEO  Agency respondents say on average their biggest clients are spending nearly $2 million (gross) on Paid Placement programs, and $200,000 for the average client  By comparison, they say average clients are spending at least five-times less on average for SEO and Paid Inclusion and the biggest spenders are putting only a tenth or less as much into those programs compared to Paid Placement Gross Client Spend Estimates “Approximately how much will your average / largest client spend with you gross on the following SEM programs in 2004?” Ask jonathan AGENCIES > OVERVIEW

Agencies > Paid Placement

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 92 Paid Placement has Come of Age since 2001 Year First Engaged in “Paid Placement” Programs “What year did you first engage in such ‘Paid Placement’ programs?” AGENCIES > PAID PLACEMENT  Paid placement in the agency community has experienced steady growth since 1999, building expertise over the past seven years  The number of agencies that just began practicing paid placement dropped significantly in 2005, to 6%, as the agency industry almost ubiquitously adopts paid placement services Agencies n=284

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 93 Almost Two Thirds of Agency Respondents Expect Not More Than 20 Clients in 2005 for Paid Placement  46% of agency respondents expect 10 or fewer Paid Placement clients in 2005  62% of respondents expect 20 or fewer, virtually the same as 2004 Number of Clients Paying for Paid Placement Programs in 2004 “How many clients do you expect your firm will receive payments from in 2004 for Paid Placement programs?” AGENCIES > PAID PLACEMENT Agencies n=282

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 94 Agencies View Paid Placement’s Time and Complexity as the Primary Frustrations Their Clients Face  Almost three-quarters of agency respondents assume their clients outsource paid placement programs to them because these programs are “too time consuming” and “too complicated”  Less than a third (31%) cited their agency’s industry contacts as a primary motivator for outsourcing Reasons For Using Outside SEM Providers for Organic Search Engine Optimization Programs “What do you believe are the reasons your clients use an outside SEM service provider for Paid Placement programs as opposed to doing it in-house themselves?” [Multiple responses allowed] Agencies n=282 AGENCIES > PAID PLACEMENT

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 95 Most Agencies Include Some Contextual Ads in Paid Placement Programs, But Not a Lot  Three-quarters of agency respondents include contextually targeted text ads in their Paid Placement campaigns  63% do not typically include more than 20% of the overall Paid Placement campaign budget on contextual ads Percentage of Overall Spending on Paid Placement Programs Spent on Contextually Targeted Ads “Approximately what percentage of your overall spending for an average Paid Placement program is spent in the form of Contextually Targeted Text Ads?” AGENCIES > PAID PLACEMENT Agencies n=213

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 96 Agencies Exhibit Growing Concern Over Click Fraud  The percentage of agencies who claim click fraud is a significant problem and they are tracking it has quadrupled since last year, from 4% to 16% in 2005  However, an almost equal percentage of agencies claim click fraud is not a significant concern  A third of agency respondents report it’s a moderate problem they are tracking and another third claim that while they are not tracking it, it is a concern for them Click Fraud vs. Paid Placement "In your experience, how much of a problem is "click fraud" with regard to Paid Placement?" AGENCIES > PAID PLACEMENT Agencies n=282

Agencies > Organic SEO

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 98 On Average Agency Respondents First Began Organic SEO Programs in 1999  More than a quarter of agency respondents (27%) say they first began Organic SEO campaigns in 1998 or earlier  Only 18% have been doing so for two years or less, as agencies steadily began to adopt organic SEO programs between 1999 and 2004 Year of First Organic Search Engine Optimization Engagement "What year did you first engage in such Organic Search Engine Optimization programs?" AGENCIES > ORGANIC SEO Agencies n=299

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 99 Agencies Have More Clients on Average for Organic SEO Than for Paid Placement  Two out of five agency respondents expect more than 20 clients to pay for Organic SEO services in 2005  Nearly 60% of agency respondents report they expect 20 or fewer clients to pay for Organic SEO in 2005 Number of Clients Paying for Organic Search Engine Optimization Programs in 2005 "How many clients do you expect your firm will receive payments from in 2005 for Organic Search Engine Optimization programs?" AGENCIES > ORGANIC SEO Agencies n=299

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 100 Like Advertisers, Agencies Also Believe SEO Abuse Is a Significant Problem  Agencies fairly well agree with advertisers that SEO abuse is a problem but one best left to industry self-regulation, not legislation Statements Concerning Industry Standards for “Search Optimization” Best Practices "Do you agree or disagree with the following statements concerning industry standards for 'search optimization' best practices?" AGENCIES > ORGANIC SEO Agencies n=299

All Respondents > General

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 102 Niche Search Shows Limited Promise ALL RESPONDENTS > GENERAL  Respondents show interest in niche search engines (e.g., Business.com or SideStep.com) but are far from enthusiastic about results Level of Experience or Interest in Keyword Targeted Text Ads on “Niche Sector” Search Engines "What is your level of experience or interest in the following search marketing tactics: Keyword-targeted Text Ads on 'Niche Sector' Search Engines (e.g., Business.com, SideStep.com)" Total n=553

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 103 Experience and Interest Extremely Limited For Targeted Ads on Shopping Portals ALL RESPONDENTS > GENERAL  Most respondents, both agencies and advertisers, had little experience with targeted text ads on shopping portals  Advertisers in particular express little interest in this approach Level of Experience or Interest in Keyword Targeted Text Ads on Shopping Portals "What is your level of experience or interest in the following search marketing tactics: Keyword-targeted Text Ads on Shopping Portals (such as MySimon, BottomDollar, BizRate)" Total n=553

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 104 Rich Media Text Ads Still Unfamiliar to Most ALL RESPONDENTS > GENERAL  Only 28% of respondents said they had any experience with rich media components to search ads  Interest in this technique is muted, with an almost equal percentage of respondents reporting they are “very” or “somewhat” interested or not interested at all Level of Experience or Interest in Keyword Targeted Text Ads with “Rich Media” "What is your level of experience or interest in the following search marketing tactics: Keyword-targeted Text Ads with a 'Rich-media' component (e.g., pictures and phrases jumping up from search results on mouse-over)" Total n=553

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 105 Contextually Targeted Ads Familiar to Most, But No Big Shakes ALL RESPONDENTS > GENERAL  The vast majority of respondents (79%) were familiar with contextually targeted text ads, exactly the same as 2004  Slightly more of those who had tried the technique were "not impressed" than those who said "it works great" Level of Experience or Interest in Contextually Targeted Text Ads "What is your level of experience or interest in the following search marketing tactics: Contextually Targeted Text Ads (using programs such as Google's 'AdSense' and Overture's 'Content Match')" Total n=553

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 106 Few Yet Experienced With Graphically Enhanced Paid Placement Ads, But Interest Exists ALL RESPONDENTS > GENERAL  Experience with paid placement ads with graphical elements is split almost 50/50, but enthusiasm for its effectiveness is low  Among those who have not yet tried it, interest is fairly high, with 37% reporting they were “very” or “somewhat” interested Level of Experience or Interest in Paid Placement Ads with Graphics "What is your level of experience or interest in the following search marketing tactics: Paid Placement ads enhanced with graphical elements (like small logos affixed to the text ads)" Total n=553

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 107 Keyword Targeted Banners Familiar to Most But Not a High Priority ALL RESPONDENTS > GENERAL  More than half of all respondents (57%) had experience with banner ads targeted to keywords  Of those, the majority were not terribly excited by the results Level of Experience or Interest in Banners and Other Display Ads "What is your level of experience or interest in the following search marketing tactics: Banners and other Web Display Ads targeted to search query terms" Total n=553

The click fraud problem

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 109 Advertisers and agencies are becoming increasingly concerned about click fraud  Nearly 2 out of 5 advertisers and nearly half of agencies have tracked fraud; 16% of advertisers say it's serious, nearly triple from 2004  Yet a quarter do not believe it's a problem  A third of advertisers and a third of agencies are concerned but not tracking fraud Click Fraud vs. Paid Placement "In your experience, how much of a problem is "click fraud" with regard to Paid Placement?" CLICK FRAUD Advertisers n=122; Agencies n=282

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 110 Over 2 out every 5 advertisers and half of all agencies have been a victim of click fraud  Over 40% of advertisers claim they’ve been a victim of click fraud and more than half of agencies.  Nearly 1/3 of advertisers do not know if they’ve been a victim of click fraud Prevalence of Click Fraud "Have you been a victim of click fraud?” Advertisers n=122; Agencies n=282 CLICK FRAUD

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 111 Competitive click fraud is less of a problem than publishers, networks and affiliates attempting to artificially inflate their clicks  More than three-quarters of advertisers claim their click fraud was due to publishers, networks or affiliates attempting to increase their revenue through non-authentic clicks  However, more than half also claim they have been a victim of competitive click fraud as well Type of Click Fraud "What type of click fraud did you experience?” Advertisers n=51; Agencies n=145 CLICK FRAUD

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 112 Majority of advertisers and agencies have received an incremental credit for click fraud  Nearly 80% of advertisers who have been a victim of click fraud have received an incremental credit from an engine  Agencies are far more proactive than advertisers in initiating credit requests from search engines  Engines tend to initiate credit for advertiser Compensation for Click Fraud "Have you ever received an incremental credit from a paid search provider for click fraud?” Advertisers n=51; Agencies n=145 Initiation for make-good "Was it based on your request or was the credit engine initiated ?” CLICK FRAUD

The rise of local search

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 114 High Interest in Locally Targeted Search LOCAL SEARCH  Nearly a quarter of respondents (mostly agencies) have tried locally targeted search ads and think "it works great"  Almost a third had tried them and thought "it works okay"  Only 13% had tried them and were "not impressed"  More respondents had tested local search than not, particularly agencies Level of Experience or Interest in Locally Targeted Search Keyword Text Ads "What is your level of experience or interest in the following search marketing tactics: Locally Targeted Search Keyword Text Ads"

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 115 Not surprisingly, Google and Yahoo! Search dominate local search  Google AdWords Local Targeting is the most popular local search advertising program, used by 79% of advertiser respondents, 83% of agencies  53% of advertisers reported using Yahoo! Search’s Local Match paid placement program  Agencies are more likely to spend with the established search players for local targeting, while advertisers are more willing to spend with yellow page providers for local targeting Most Popular Local Search Engine Networks Among Advertisers “Where have you bought inventory for local search marketing?" [Multiple responses applicable] Advertisers n=34; Agencies n=209 LOCAL SEARCH

Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2005. Global Results. Copyright © 2005 116 About the Research Partners  About the Search Engine Marketing Professional Organization (SEMPO) SEMPO is a non-profit professional association working to increase awareness and promote the value of search engine marketing worldwide. The organization represents the common interests of more than 315 companies and consultants worldwide and provides them with a voice in the marketplace. For more information, or to join the organization, please visit www.SEMPO.org  About Radar Research, LLC Radar Research is a Los Angeles-based research and consulting firm aimed at the nexus of media, technology, culture and commerce. It was founded by two former JupiterResearch analysts, Marissa Gluck and Aram Sinnreich. Radar conducts research on behalf of both corporate clients and non-profit organizations, such as DoubleClick, Sony Pictures Entertainment, Nielsen//Netratings, the Online Publishers Association and The Norman Lear Center. For more information, please visit www.radarresearch.com  About IntelliSurvey, Inc. IntelliSurvey helps organizations, including leading research firms and in-house researchers, make better business decisions by gathering intelligence from their customers, members, and prospects. For more information, please visit www.IntelliSurvey.com

Survey of Advertisers and Agencies Search Engine Marketing Professional Organization (SEMPO) December, 2005 Complete Results for SEMPO Member The State.

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Survey of Advertisers and Agencies Search Engine Marketing Professional Organization (SEMPO) December, 2005 Complete Results for SEMPO Member The State.

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Presentation on theme: "Survey of Advertisers and Agencies Search Engine Marketing Professional Organization (SEMPO) December, 2005 Complete Results for SEMPO Member The State."— Presentation transcript:

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