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Paid Search Engines Endure Advertising Slowdown

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, according to research from Jupiter Media Metrix.

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, making paid search engine listings at win-win situation. 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. Jupiter analysts see this as a sign 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 at Jupiter Media Metrix. "Their ability to succeed has been driven largely by their efficiency for both consumers and marketers. Jupiter Consumer Survey data reinforces the need for marketers, particularly retailers, to diversify their ad placements to include paid search engines."

Advertisers have spent millions over the last few years for inclusion in portals' shopping channels and banners related to keywords, but consumer behavior suggests that search results are far more important to their response. According to a Jupiter Consumer Survey, 28 percent of consumers go to a search engine when looking for products online and enter the type of product they're looking for, while only 5 percent go to the shopping channel of a search engine. Jupiter analysts said 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.

How Consumers Search for Products Online
Method 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%
Source: Jupiter Media Metrix

Current market conditions have forced advertisers to seek out solutions that are cost-effective and require low up-front investments, making paid search engines a natural choice. 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 of 2000. At the same time, many other ad-supported sites experienced double-digit declines. LookSmart, another paid search engine, fared much better than others in the media sales business, with a less than 7 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."