First published November 30, 2006 in Mediapost’s Search Insider

If you haven’t heard, or received your invite, the annual SEMPO State of the Market survey is currently looking for search marketers to give us this year’s snapshot of the industry. You can find a link to the survey at the SEMPO site. Now in its third year, this survey has become the definitive year-over-year look at search marketing.

Knowing that we’re in Chicago next week for Search Engine Strategies, we paused long enough to take some on the fly data points which we’ll be sharing at a special SEMPO meeting on Monday night. I can share one of them with you in this column.

Why the Survey?

First, why do we do this? Simple. In something as dynamic as search, it’s tough to keep your bearings. Obviously, year-over-year sizing of the markets is one yardstick, but there are a lot of other factors that we like to keep an eye on. We track advertiser’s acceptance of different strategies, including paid placement (or sponsored search), paid inclusion and organic optimization. Late- breaking info on this in a moment. This year, we’ll also be asking more questions about local search and what other marketing channels advertisers use.

We also check in with advertisers on issues like click fraud and how prevalent they feel it is, as well as use of search marketing technology and contextually targeted ads. Of course, we’re very interested in where those search engine budgets are being placed and where those budgets are coming from. Is search poaching from other budgets, or has it established itself as its own line item?

We try to determine the maturity of search by asking how much executive participation there is in search marketing decisions. We can also look at the different groups that answer the survey (advertisers, agencies and affiliate marketers) to see if there are variations in attitudes toward search amongst them.

Wake-Up Call for SEM Agencies

Last year, a key finding was the attitude of advertisers toward search marketing agencies. It was clear that there was a trust disconnect, with a full 65% looking to bring both paid and organic search capabilities in-house. For SEM agencies, it was a clear signal to up the ante in terms of measurable results.

We spend a fair amount of time in the survey digging into how companies conduct their search campaigns, the percentage that’s done in-house versus outsourced, whether this is a growth strategy for them, and trying to determine some of the hidden costs, such as the expense of internal staff to conduct the campaigns.

And of Course, There are Those Click Costs

One of the hottest data points from the survey tends to be around acceptance of current bid prices. Again, we get quite granular in determining the extent of price elasticity on paid placement. Last year, we saw a flattening out, with 21% of advertisers saying they were maxed out on bid prices, and another 37% saying they could go as high as 10 to 20% more.

If you want to find out more about the 2005 findings, make sure you visit the Learning Center at http://www.SEMPO.org.

Hot Off the Spreadsheet

So, how is the data shaping up this year? Well, I just pinged our number crunchers–and based on the results in so far, it looks like organic optimization is holding the lead as the most popular strategy when it comes to search. Last year, it barely edged out paid placement, with 80% of respondents saying they were using it, compared to 76% of respondents using paid placement. This year, adoption of both strategies increased, with 83% of respondents using organic optimization, and 80% using paid placement. Remember, this is very preliminary data, and will likely change a bit as we get more survey completions. We have a few other preliminary data points that we’ll be sharing in Chicago next week at Search Engine Strategies. Look for the SEMPO event, Monday, Dec. 4t at 6 p.m.

Call to Action

If you’re working in search, we need your participation. The more respondents, the better the data. Everyone will have access to a summary of the report, and SEMPO members can download the full report. Once again, you can take the survey at http://www.sempo.org/learning_center/research/sempo_research/sempo_2006_state.

First published October 26, 2006 in Mediapost’s Search Insider

While pondering topics for this week’s column, I was in a quandary. I could join the 1.65 billion people who are penning about the GoogTube deal. I could do something timely about Danny Sullivan’s decision to stick it out with Incisive and Search Engine Strategies for a little longer (yes, if you haven’t heard, it appears they’ve kissed and made up, kind of, and Danny will be around for the New York, San Jose and Chicago conferences, although he’ll be transitioning to a new chair) or I could chat about meeting Marissa Mayer last week (albeit briefly), the person in charge of user experience at Google.

I pick… none of the above!

I’ll loop back to Marissa in a later column, but I’m angling for an interview to talk about some of the things I’ve learned in my rather obsessive detailing of user behavior on Google, so put that on the back shelf for now.

Instead, I’m continuing to pick up the thread from last week’s column. The idea of search marketing crossing the chasm perked up a few ears, notably amongst financial analysts, so I thought I’d spend a little more time exploring the concept and what it means for search. Ironically, the day after the column ran, Google was heading for a new stock high and I was scrambling from building to building and meeting to meeting at the Google complex in Mountain View. I must say, everyone seemed to be smiling. I think the surge in stock prices had everything to do with my column running and nothing to do with their quarterly earning report, but some may argue differently.

If search marketing is indeed crossing the chasm, there are some rather interesting aspects to look at.

Who’s Crossing First?

The ideal strategy for crossing chasms is to gain critical mass in a particular vertical, and then market to adjacent markets that share similar pains, gradually reaching the tipping point where everybody jumps on board. Geoffrey Moore refers to this as the Bowling Alley strategy, hitting the head pin and knocking down the adjacent ones.

Search is well down this road (or alley). Over the last few years, search has gained this critical mass in the verticals that tend to be proficient in direct response marketing. Categories like travel are heavy users of search, and we’re starting to see this extend into areas such as consumer electronics, software and other B2C consumer categories.  Hard on the heels of these head pin categories are financial services and automotive. These verticals will be the first to jump.

It will take longer for search to gain critical mass in the B2B sectors, but the early adopters in these verticals are already laying the foundations.

The last to cross will be the local Mom and Pop shops. There are still some challenges to be addressed in gaining local traction, the most notable being a lack of a quality Web presence. But every month that goes by, the functionality of online local search increases to the point where it will be the users driving adoption, since local businesses can no longer ignore the fact that this is where people are searching prior to purchasing. And this is where search can open up vast tracts of unexplored potential.

Reducing the Pain With a Total Solution

Another trend that is becoming more apparent is the assembling of a total solution. The chasm can only be crossed when a significant portion of pain and risk is eliminated from the equation. Early adopters can stomach this, but pragmatists will avoid it like the plague.

The early markets are comfortable with cobbling together pieces of solution from disparate sources, providing the glue that holds them together and investing significant resources in coming up with an advantage over their competitors. This is exactly where search is right now. You need a pretty savvy inside person who can make search click for most organizations. It’s still far from a turnkey solution.

But look at what’s currently happening with the engines: The belated release of Yahoo’s Panama platform. New targeting capabilities from MSN. Google’s offering of free analytics and landing page optimization tools. All these speak to one goal: eliminate the pain for a mainstream market by assembling a total solution. The engines are putting together the package they need to appeal to a mainstream buyer.

Who’s the Gorilla?

The biggest question: Who will the winner be? There can only be one 800-pound gorilla, despite all the talk from the three engines that there’s more than enough market to go around. Google’s current marginalization of Yahoo’s business model speaks to this. The fact is, the marketers will crown the winner, based primarily on market share, which is dictated on the best user experience. Google wins this battle hands down. While it seems as if the engines have up to now been willing to cede the pole position to Google, if they don’t want to end up in the chorus, they have to get serious about this race. It goes quickly–and right now, Google has a huge head start. I’m beginning to think it may be uncatchable. Perhaps that share price isn’t as ridiculous as it seems.

I drop one last King Kong-sized hint for the engines. You can’t pay enough attention to the user experience. And right now, Google’s eating your lunch, and your afternoon snack. Ad management platforms only matter if you have a market to target the ads to.

What This Means for SEMs

So, if we’re crossing the chasm, do SEMs get shut out? No, in fact, the opportunity has never been greater. We can ride along with the main players in this chasm crossing, the engines. But we have to be nimble and fleet of foot. There are plenty of opportunities to add value along the chain as the engines assemble the total solution. But remember, the aim of the total solution is to reduce the pain points, not increase them. Therefore, the engines will be working hard to identify where mainstream buyers experience pain and try to introduce new solutions to eliminate it. That means if a SEM finds a spot where they can add value, i.e. bid management, they have to be prepared for the engines to introduce a solution and wipe out their business model overnight. Another strategy is for SEMs to gain deep vertical expertise in one particular industry, because the engines will be caught in a vortex of demand and will be stretched far too thin to be all things to all people.

So there will be a lot of opportunity, but be prepared for it to be transitory. While this holds true for service-based SEMs, it applies to a much greater degree to technology developers. Sure, this might make it tough to navigate, but if the tornado develops, you really have no choice. Either you hang on for the ride, or you sink.

First published October 19, 2006 in Mediapost’s Search Insider

Last week, I gathered in New York with 12 other search marketers for SEMPO’s twice-yearly planning retreat. To kick off, we did a bit of brainstorming about the current state of the search marketing industry. Observations included the current build-or-buy-search- marketing-capabilities dilemma faced by the big agencies, the red-hot demand for anyone with search marketing experience, the sudden development of search marketing in-house groups in large organizations, and the current push for industry-wide certification of SEM practitioners.

Also, more than a few at the table mentioned that they’ve noticed a significant change in the prospects they’re talking to–and the contact points within those companies. Today, our sales leads are more often Fortune 1000s than the latest online start-up. With increasing frequency, we’re starting to get C-level interest at the table when talk turns to search.

“My God!” I thought to myself as we jotted our observations down on a flip chart, “Search is crossing the chasm!”

Chasm Dead Ahead

Geoffrey Moore’s book Crossing the Chasm belongs on that small and select shelf of “must-reads” in technology marketing. It explores the fundamental break between early adopter and mainstream markets, and why so many companies founder in trying to make the transition between the two. For the ones that do, the reward is a sudden firestorm of demand.

Exactly three years ago now, I wrote a column asking if search marketing had crossed the chasm yet. My conclusion, (reinforced by a note of endorsement from Moore) was that search marketing had yet to do this. Until recently, I still thought we were squarely in the early adopter camp. Either search was practiced by aggressive, early adopter companies or by individuals in larger organizations that fit the early adopter profile. Budgets allocated to search by most “mainstream” organizations made it clear that it was an interesting experiment of limited scope, nothing more.

Calling All Pragmatists

But it seems that the climate is changing. One thing to remember about mainstream markets is that when they move, they tend to do so en masse. Search marketing is starting to show the early signs of a marketing channel that’s ready to make the leap from early adopters to mainstream markets.

What does this mean for search? First of all, search is too limiting a definition. There is a built-in inventory bottleneck with search that will keep it from meeting the demand that will be generated when large advertisers move large budgets into the arena. People only search so much. The relatively tame growth curve of search usage will soon be outstripped by the steep incline of advertiser demand.

So we look to two additional markets that will move across the chasm in lockstep with search. I’ll call them by more generic, all-inclusive labels. First of all, there’s “consumer-initiated marketing.” Search is the literal embodiment of this, but the search publishers will be finding other ways to enable consumers to reach out and connect with advertisers on the consumers’ timeline, not the advertisers’. Secondly, there’s “targeted accountable marketing.” These are the channels that allow advertising messages to be more precisely targeted through behaviors, geography, demographics or areas of contextual interest, providing unprecedented accountability to the advertiser. Every single search publisher is heavily invested in this area, and this will continue.

The Local Search Wildcard

Another category of new advertising inventory that will begin to crack in 2007, and will turn into a flood in 2008, is local search. According to InfoUSA and the Kelsey Group, there are about 350,000 Web-based businesses in the US, and 4 million businesses with a brochure-ware site. That leaves almost 10 million businesses without a Web site at all. That’s a total of almost 15 million businesses. There are no hard numbers for Google’s advertiser base, but an educated guess would put it somewhat north of 300,000. So, even with businesses with a Web site, that means Google only has 6.9% market penetration currently. If it seems like search marketing is old-hat and everybody’s doing it, it’s probably because you’re an early adopter and so are the people you hang out with. Add the businesses without Websites, most of which are only interested in local markets, and that penetration drops to an infinitesimal 2.3%. That’s a ton of upside potential which all sits in the local market, currently throwing its money at other channels, such as the yellow pages, newspaper and radio.

And You Thought Google Had Too Much Money Now?

Let’s do a little more math. Based on Google’s reported revenue of approximately $6 billion, that averages out to about $20,000 per advertiser. That may sound impressive until you remember that a substantial portion of Google’s advertisers are large, multi-million-dollar companies.

Let’s assume that over the next three years search marketing does cross the chasm, and Google manages to capture 50% of businesses with a Web site. Also, let’s assume that budgets loosen up substantially as search moves into the mainstream and more advertising options are open, increasing average spend up to $50,000. Neither of these predictions is overly optimistic, given a chasm-crossing scenario. And that doesn’t even touch the 10 million Web-less businesses that are likely prospects of local search, or the global market. That puts Google’s potential revenue at $208 billion. Currently, that would put Google at number 3 on the Fortune 500, right behind Exxon and Wal-Mart, and ahead of GM and Ford. Even if I’m wildly optimistic, those are numbers to pay attention to.