Paid search industry due for a shakeup

The future of paid search advertising lies in quantitative data analysis, coupled with real-time campaign optimisation. There are, however, not many companies which can provide all of this, and the industry may see a natural consolidation in 2011 and beyond.

The growing spend in paid search campaigns by international companies does not come without expectations and agencies and specialist companies will have to prove their mettle.

The proof, as they say, is in the pudding. Unless companies can deliver real returns they will not retain paid search business. This is not necessarily a bad thing though. For too long the industry has suffered from a glut of organisations who deliver ‘set-up-and-leave’ campaigns, simply looking for a percentage of adspend and billing management fees. And I don’t exclude the big search engines in my criticism.

The US and UK have seen a seismic shift in ad spend, with 2009 online ad spend accounting for 25 and 23 percent of total ad spend respectively. In the UK, paid search accounts for a whopping 61 percent of total online ad spend with the US at a more conservative, but not insignificant, 48 percent.

South African figures are not audited as yet, but industry sources estimate that only 3 percent of total ad spend – R800 million – was spent on advertising online in 2009, and of that, around 50 percent went to paid search.

The growth in paid search spend has been driven by the measurable return on investment (ROI) – a firm favourite with CFOs the world over. But there is still an ill-informed majority who are placing their spend with companies which merely ‘set up and leave’ simplistic, wasteful campaigns.

This was highlighted by figures from Black Friday. The ominously named Black Friday is the day following Thanksgiving in the United States, and traditionally heralds the start of the Christmas shopping season. For retailers the competition to attract and convert the (still limited) spend of consumers is fierce.

In the business where I work, we run the pay-per-click campaign for one the world’s biggest retailers. Figures show that when comparing Black Friday 2010 figures to those recorded in 2009, online sales for the retail giant increased 80 percent, conversion rate increased 55 percent, clicks increased by 13 percent, and more importantly, the cost per click reduced by 14 percent.

The only way we can achieve these results is because we adopt a deeply scientific approach to our campaigns, including sophisticated quantitative analysis, automated algorithms and industry leading in-house systems, allowing us to efficiently expand and optimise large scale campaigns on the fly.

This is the future of paid search – the combination of audits, data and human intervention. Companies relying on a rudimentary approach will be left behind and consensus from the top players is that we will see consolidation in the industry as a result.