Tuesday, July 31, 2001

Paid Search Engines Picking Up Slack For Depressed Online Ad Market

Jupiter Media Metrix, a global leader in Internet and new technology analysis and measurement, today reports that paid search engines are faring well during the soft online ad market because they are among the few that have successfully aligned the needs of both consumers and marketers. The latest Jupiter online advertising research reveals that paid search placement models are succeeding because consumers are finding relevant listings much faster on paid search engines, while advertisers are only paying for qualified lead traffic on a per-click basis. Media Metrix ratings data reveal that visitors to GoTo.com, a paid search engine, spend an average of just 56 minutes on the site, while the average user of Yahoo!'s proprietary search engine spend 106 minutes—an indication, say Jupiter analysts, that consumers are much more satisfied with their findings from paid search engines.

"Most advertising sellers have faced a depressed market and are reporting slow growth, but paid search engines have experienced much better results," said Marissa Gluck, senior analyst, Jupiter Media Metrix. "Their ability to succeed has been driven largely by their efficiency for both consumers and marketers. Jupiter Consumer Survey data reinforce the need for marketers, particularly retailers, to diversify their ad placements to include paid search engines."

Key findings and forward-looking analysis from the latest Jupiter online advertising research include the following:

- As advertisers spent millions over the last few years for inclusion in portals' shopping channels and banners related to keywords, consumers' behavior suggests that search results are far more important to their response. According to a Jupiter Consumer Survey, when searching for products online, 28 percent of consumers go to a search engine and enter the type of product they're looking for, while only five percent go to the shopping channel of a search engine (Table A below). Jupiter analysts say that while there is definite value to placement in shopping channels and online advertising, marketers must include low cost, highly relevant paid search engines in their digital marketing mix.

- Jupiter analysts have found that current market conditions have forced advertisers to seek out solutions that are cost-effective and require low investments up-front. SEC filings show that advertisers indeed turned to paid search engines increasingly during the first quarter of 2001, as GoTo.com managed nearly 30 percent revenue growth from the fourth quarter while many other ad-supported sites experienced double-digit declines. Looksmart, another paid search engine, fared much better than others did in the media sales business, with a less than seven percent decline.

"While the paid search model has emerged and is proving the need for relevancy in online advertising, advertisers still face certain constraints," Gluck said. "It's difficult for large advertisers to build volume simply because keyword inventory is limited. That's why even the successful and growing paid search engines are having trouble attracting larger, more established advertisers."

Table A:
How Consumers Search for Products Online
Method and Percentage of Consumers
Type product name in search engine 28%
Go straight to store URL 23%
Type brand name in search engine 9%
Type store name in search engine 5%
Go to shopping channel of search engine 5%

Table B:
Total Usage Minutes for Major Search Engines
Search Engine Average Monthly Minutes/User
Google 269
AskJeeves 190
MSN 140
Yahoo 106
GoTo 56