First Quarter Paid Search Builds on Fourth Quarter Swell

With the first quarter of 2012 in the books, it’s time to update our quarterly paid search spend analysis of key trends across the globe in search advertising  and offer guidance for the remainder of the year.

Among the highlights:

  • Growth in paid search advertising in the high-tech and consumer electronics sector was up 22% in the first quarter compared to a year earlier, and up 1% over Q4 ’11; plus
  • While current trends indicate a deceleration of growth from the sizeable amount of spending that occurred in the second half of  last year, they are largely in line with our expectations.

The chart above shows how paid search spending has increased since 2009.  Note that  ad spend for our clients has been normalized such that Q1 ’09 equals 100.

The Americas, powered by the U.S. and Canada, saw modest spending growth in the quarter, which was up 2% quarter-on-quarter and 15% year-on-year. Google continues to dominate spend, commanding 79% of the paid search market, while the Yahoo-Bing alliance held roughly at 19%. Yahoo-Bing may be benefiting from the recent implementation of “broad match,” and showed 2% sequential growth.

In EMEA, spending was down 2% from this time last year, and has remained relatively flat since last quarter. Due to the sustained weakness we have witnessed in the European online advertising markets, we will continue to monitor this region very carefully and update our projections for the second half of 2012 accordingly.

Spending in APAC was up 1% over Q4 ’11, and up 80% from Q1 ’11. While China, Japan, India, and the Australia/New Zealand economies are certainly where major growth opportunities exist for the high-tech industry, we do not expect year-over-year spending to continue to increase at this rate.

Google continues to adjust its ad formats and matching algorithms for paid search results.   For the second straight quarter, advertisers are benefiting from a 3% deflation in keyword prices. Similar to Q4 ’11, impressions experienced only a moderate increase in volume, compared to the more dramatic increase we observed for clicks and CTR.

Looking forward, there are two key insights:

Actionable Insight #1: We expect sequential growth to remain in the 1 – 4% range for Q2 ’12, and then momentum to resume again in the third and fourth quarters.  Advertisers in all verticals are expected to benefit from one-off drivers, such as the Summer Olympics, the U.S. presidential elections, and the European Football Championships, while the PC industry, in particular, is poised for enormous marketing pushes on behalf of Windows 8 and the flurry of new laptops and Ultrabooks set to debut with it.

Actionable Insight #2: Although keyword pricing has declined for the second straight quarter (down 3% from Q4 ’11), we believe this trend is due primarily to search engine algorithm changes, and expect it to stabilize in the second half of 2012.

Covario’s Q1 2012 Global Paid Search Spend Analysis is now available on our website.