Based on yearly reports by the Interactive Advertising Bureau, search advertising spending has been growing rapidly since 2001. In the second quarter of 2001 the total online advertising revenue amounted to $US1.9 billion, with search advertising revenues being only 3 percent of that. In the second quarter of 2004, search advertising revenues reached $US948 million and 40 percent of the total online advertising revenue. The growth rate compared to other online advertising vehicles has been staggering, as seen in the graph below. ( Interactive Advertising Bureau. )
The businesses of the United States have been mainly responsible for the exponential growth of search advertising spend, but other markets are also picking up the pace. Forrester Research, Inc. estimates that European search advertising spends will increase by 65% in 2005 to 1.4€ billion. Additionally, by 2010, European marketers are estimated to spend almost three billion euros in search advertising. (CRM Today 2005.) Regardless of the expected growth in many markets, the overall growth in search advertising revenues is expected to slow down in the next few years (Red Herring 2005).
One of the biggest reasons behind the tremendous growth rate of search advertising revenues is its cost effectiveness. According to a study by U.S. Bancorp Piper Jaffray, search engine advertising provides lower cost per lead than other measurable marketing methods, as illustrated in the figure below. (Sterling 2004.)
The cost per lead through search marketing is notably lower than that of any other marketing channel, according to this study. For example, compared to yellow pages advertising, which is very similar in nature and a very popular and effective marketing vehicle for businesses, the cost per lead of search marketing is more four times lower. The cost per lead for direct mail, which is also a more popular marketing channel than search, is staggeringly high.
This study did not include such popular media outlets as television, newspapers and radio, as the cost per lead of these marketing channels is very difficult to measure. It should also be noted that after the release of the study by U.S. Bancorp Piper Jaffray, competition and bid prices in PPC engines have increased, consequently increasing the cost per lead of search advertising. Nevertheless, search engine marketing has remained a very cost-effective marketing vehicle.