global search advertising trends 2012 by kenshoo

© Kenshoo, Inc. 2012 1

GLOBAL SEARCH ADVERTISING TRENDSOctober 2012 Edition

© 2012, Kenshoo, Inc. | CO-04-1001


ContentsIntroduction .............................................................................................................................................. 3Global Paid Search Ad Spend and Campaign Metrics ....................................................................... 4 Budgets Significantly Higher in 2012 but Effects of Seasonality Less Pronounced ................................................................... 4

Average Cost-per-Click Higher Each of Past 2 Quarters but Still Trailing 2011 Rates ................................................................ 5

Impression Volume Declining But Click Volume Holding Steady .................................................................................................... 5

U.S. Search Engine Performance .......................................................................................................... 7 Yahoo! Bing Network Average Click-through Rate and Cost-per-Click Consistently Higher than Google .......................... 7

Paid Search Budgets Growing Faster on Yahoo! Bing Network than Google ............................................................................. 8

Yahoo! Bing Network Outperforms Google in Return on Ad Spend but Only Delivers a Fraction of Click Volume ............. 9

Regional Search Ad Spend and Cost-per-Click ................................................................................. 11 U.S., U.K, and E.U. Paid Search Budgets Up Year-over-Year .................................................................................................................. 11

U.K. Paid Search Average Cost-per-Click Rising; Nearly Reaching U.S. Rates .......................................................................... 12

Google Shopping and Product Listing Ads ........................................................................................ 13 Product Listing Ads Outperform Text Ads on All Key Metrics ......................................................................................................... 13

U.S. Mobile Device Breakdown ........................................................................................................... 15 Mobile Devices Account for More than 1 in 5 U.S. Paid Search Clicks ........................................................................................ 15

Tablets Represent Strong Share of Paid Search Conversions but Relatively Low Cost-per-Click ....................................... 16

Insights and Implications ..................................................................................................................... 17Methodology ......................................................................................................................................... 18About Kenshoo ..................................................................................................................................... 18Contact ................................................................................................................................................... 18


IntroductionKenshoo Global Search Advertising Trends is the first in a new series of reports reflecting aggregate

campaign data across search engines like Google, Yahoo!, Bing, Baidu, and Yahoo! Japan.

More than $3 billion in annual paid search budgets are managed through Kenshoo™ by the most

sophisticated advertisers and agencies in the world.

Kenshoo clients include 4 of the top 5 U.S. travel websites, 6 of the top 10 global hotel chains, 7

of the top 10 global retailers, 8 of the top 10 global telecoms, 10 of the top 10 global ad agency

networks and 24 of the Fortune 50 companies.

This report includes paid search trends segmented by the following categories:

• Key Campaign Metrics

• Search Engines

• Geographic Regions

• Product Listing Ads

• Mobile Devices

Included at the end are 6 marketplace insights and implications for search advertisers.


Global Paid Search Ad Spend and Campaign Metrics› Budgets Significantly Higher in 2012 but Effects of Seasonality Less Pronounced

Through the first 3 quarters of 2012, paid search budgets were significantly higher year-over-year (YoY). However, there has not

been as much fluctuation in ad spend quarter-over-quarter (QoQ) as we observed in 2011. Last year, there was a large ramp-up

in Q3 but this year, advertisers increased their budgets early and consistently throughout the year.

Global Search Advertising Spend

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

Quarter-over-Quarter (QoQ) Delta

Baseline 23% 32% -14% 4% 4%

Source: Kenshoo Global Search Advertising Trends, © 2012, Kenshoo, Inc.

Global Search Advertising Spend

Q1 2012 Q2 2012 Q3 2012

Year-over-Year (YoY) Delta

52% 46% 24%


Note: YoY comparisons for Q1 2012 are based on a set of Kenshoo clients active over past 7 quarters, whereas calculations for remaining quarters

are based on clients active over past 6 quarters.

1.23

1.00

1.40

1.62 1.46 1.52

QUARTERLY GLOBAL SEARCH ADVERTISING SPEND VOLUME

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012


Note: Volume metrics have been normalized to a factor of 1 based on the initial quarter of data. Data points from subsequent quarters are based on a multiplier from the first quarter - for example, 1.52 means that volume is 52% greater than volume in initial quarter measured (Q2 2011).


› Average Cost-per-Click Higher Each of Past 2 Quarters but Still Trailing 2011 Rates

Following 4 consecutive quarters of falling rates, global paid search average cost-per-click (CPC) rose in both Q2 and Q3 of 2012.

After bottoming out at $0.40 in Q1, CPC rates have now risen back to $0.46, which nearly equals the average CPC rate of $0.47

during Q3 in 2011. However, this is still down from an 18-month high of $0.52.

› Impression Volume Declining But Click Volume Holding Steady

In Q3, total search ad impression volume dropped for a second consecutive quarter and is down 23% overall since Q1. This represents

a steeper decline than click volume, which has been relatively flat for the past 4 quarters, albeit higher YoY. Accordingly, average paid

search click-through-rate (CTR) has risen for the second consecutive quarter and now stands at an 18-month high of 1.31%.

$0.47

$0.52

$0.40

$0.47$0.43

$0.46

QUARTERLY GLOBAL SEARCH ADVERTISING COST-PER-CLICK RATES

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012


Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

1.29

1.00

1.87

1.65 1.68

1.44

QUARTERLY GLOBAL SEARCH ADVERTISING IMPRESSION VOLUME




1.17%1.09% 1.06%1.20% 1.14%

1.31%

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

QUARTERLY GLOBAL SEARCH ADVERTISING CLICK-THROUGH RATES

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

1.37

1.00

1.801.81 1.75 1.73

QUARTERLY GLOBAL SEARCH ADVERTISING CLICK VOLUME



U.S. Search Engine Performance› Yahoo! Bing Network Average Click-through Rate and Cost-per-Click Consistently Higher than Google

Over the past 6 quarters, the Yahoo! Bing Network (YBN) has delivered sequential increases in search ad CTR in every quarter

except Q1 2012, in which CTR was flat QoQ. Meanwhile, Google AdWords CTR has oscillated, hovering near 1% with a significant

uptick to 1.25% in Q3 2012. 6 quarters ago, the gap between YBN and Google CTR was miniscule. Today YBN CTR is 29% higher

than Google. Similarly, the 2 engines were very close in CPC back in Q2 of 2011 but now there is a considerable gap with YBN

CPC 46% higher than Google. During that time, YBN CPC increased significantly from Q2 to Q3 2011 and then remained relatively

flat, while Google CPC has come down from an 18-month high of $0.61 to $0.45 in Q3 2012.


QUARTERLY U.S. SEARCH ENGINE AVERAGE CLICK-THROUGH RATES

GoogleYahoo! Bing Network

1.09%1.03%

1.18%

1.08%

1.49% 1.49%

1.10%

0.89%

1.56%

1.01%

1.61%

1.25%

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

1.80%

1.60%

1.40%

1.20%

1.00%

0.80%

0.60%

0.40%

0.20%

0.00%


QUARTERLY U.S. SEARCH ENGINE AVERAGE COST-PER-CLICK RATES ( IN USD)


$0.57$0.61 $0.63

$0.49

$0.65$0.67

$0.49

$0.40

$0.66

$0.43

$0.66

$0.45

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

$0.80

$0.70

$0.60

$0.50

$0.40

$0.30

$0.20

$0.10

$0


› Paid Search Budgets Growing Faster on Yahoo! Bing Network than Google

For Q3 2012, YBN ad spend was up 10% QoQ and 35% YoY. This represents a faster rate of growth than Google, which was up 7%

QoQ and 28% YoY. In terms of clicks, YBN grew faster QoQ but Google grew faster YoY.


Q3 2012 U.S. YAHOO! BING NETWORK PERFORMANCE

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

Impressions Clicks Ad Spend CPC CTR

6%

-5%

10%

29%

7%

35%

1%4% 3%

37%

QoQYoY


Q3 2012 U.S. GOOGLE PERFORMANCE

50%

40%

30%

20%

10%

0%

-10%

-20%

-30%

Impressions Clicks Ad Spend CPC CTR

-18%

20%

2%

39%

7%

28%

5%

-8%

24%

16%

QoQYoY


› Yahoo! Bing Network Outperforms Google in Return on Ad Spend but Only Delivers a Fraction of Click Volume

During each of the past 6 quarters, YBN has outperformed Google in paid search campaign return on ad spend (ROAS), ending

Q3 2012 with the largest gap of the 18-month period at 28%. While YBN delivers more converting traffic, Google delivers more

overall traffic – 684% more in Q3 2012.

QUARTERLY U.S. SEARCH ADVERTISING RETURN ON AD SPEND BY SEARCH ENGINE

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012


Notes: ROAS figures are calculated from an aggregate of Kenshoo clients tracking direct online sales revenue through the platform. Metrics have been normalized to a factor of 1 based on the quarter of data with the lowest search engine ROAS. Data points from other quarters are based on a multiplier from that baseline quarter - for example, 1.23 means that volume is 23% greater than volume in

baseline quarter measured (Google Q2 2011).


1.27

1.14

0.991.00

1.201.24 1.30

1.04

1.23

0.96

1.29

1.05



Notes: Volume metrics have been normalized to a factor of 1 based on the initial quarter of search engine data. Data points from subsequent quarters are based on a multiplier from the first quarter - for example,

11.38 means that volume is 1138% greater than volume in initial quarter measured (YBN Q2 2011).

QUARTERLY U.S. SEARCH ADVERTISING CLICK VOLUME BY SEARCH ENGINE

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012


1.00

8.17

1.12

5.20

1.32

11.48 11.30

1.49

11.38

1.45

11.29

1.21


Regional Search Ad Spend and Cost-per-Click› U.S., U.K., and E.U. Paid Search Budgets Up Year-over-Year

Paid search ad spend is up 29% YoY in the U.S., growing faster than the U.K. and broader E.U. However, each of these regions

show increased search ad spend YoY for each quarter in 2012.


1.27

1.00

1.42

1.76

1.521.64

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

QUARTERLY U.S. SEARCH ADVERTISING SPEND VOLUME

2.00

1.50

1.00

0.50

0.00


1.101.00

1.181.23

1.11 1.12

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

QUARTERLY U.K. SEARCH ADVERTISING SPEND VOLUME

2.00

1.50

1.00

0.50

0.00



Notes: U.K. excluded from E.U. data set. For all regional ad spend volume figures, YoY comparisons for Q1 2012 are based on a set of Kenshoo clients active over past 7 quarters, whereas calculations for remaining

quarters are based on clients active over past 6 quarters.

1.121.00

1.311.24

1.33 1.25

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

QUARTERLY E.U. SEARCH ADVERTISING SPEND VOLUME

2.00

1.50

1.00

0.50

0.00

› U.K. Paid Search Average Cost-per-Click Rising; Nearly Reaching U.S. Rates

Comparing CPC among the different regions, we see a major drop in the U.S. during 2011 while CPC in the E.U. and the U.K. fell

just slightly. However, in 2012, each of these 3 regions has shown steady CPC increases QoQ (though EU increase over the last

quarter was slight). If growth rates remain consistent, CPC rates in the U.K. could match the U.S. CPC by Q4 2012.

$0.60

$0.50

$0.40

$0.30

U.S.U.K.EU

QUARTERLY REGIONAL AVERAGECOST-PER-CLICK ( IN USD)

Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

$0.48

$0.45

$0.37


Google Shopping and Product Listing Ads › Product Listing Ads Outperform Text Ads on All Key Metrics

Starting on October 17, 2012, Google Shopping results in the U.S. will come only from merchants who are buying Product Listing Ads

(PLA). Overall, PLA outperforms text search ads in CTR (68% higher), conversion rate (38% higher) and return on ad spend (25% higher).


2.19%

1.49%

U.S. AVERAGE CLICK-THROUGH RATE BY AD TYPE FOR SELECT MERCHANTS

2.50%

2.00%

1.50%

1.00%

0.50%

0%

PLA Text Search Ads


2.05%

1.49%

U.S. AVERAGE CONVERSION RATE BY AD TYPE FOR SELECT MERCHANTS

2.50%

2.00%

1.50%

1.00%

0.50%

0%

PLA Text Search Ads



Note: PLA data reflects an aggregate of Kenshoo clients that are running PLA as well as Google campaigns with keywords covering similar product themes, excluding brand and head terms. Sample

size includes more than 1.5+ million clicks.

$3.96

$3.17

U.S. AVERAGE RETURN ON AD SPEND BY AD TYPE FOR SELECT MERCHANTS

$4.50

$4.00

$3.50

$3.00

$2.50

$2.00

$1.50

$1.00

$0.50

$0

PLA Text Search Ads


U.S. Mobile Device Breakdown› Mobile Devices Account for More than 1 in 5 U.S. Paid Search Clicks

In Q3 2012, 21% of all search advertising clicks in the U.S. were generated via mobile phones or tablets. These devices represented

13% of total U.S. paid search spend. Computers (desktops and notebooks) still produce the majority of search ad spend and clicks at

87% and 79% respectively.


79%87%

11% 10%6% 7%

Ad Spend Clicks

Q3 2012 U.S. SEARCH ADVERTISING SPEND AND CLICKS BY DEVICE

100%

80%

60%

40%

20%

0%

ComputerPhoneTablet



Note: All mobile device data reflects an aggregate of Kenshoo clients in the U.S. who are tracking online conversions and revenue metrics within the Kenshoo platform.

$0.45

$0.22

$0.30

Q3 2012 U.S. SEARCH ADVERTISING COST-PER-CLICK BY DEVICE ( IN USD)

$0.50

$0.40

$0.30

$0.20

$0.10

$0

Computer Phone Tablet


90.6%

0.6%

8.8%

Conversions

Q3 2012 U.S. SEARCH ADVERTISING CONVERSIONS BY DEVICE

100%

80%

60%

40%

20%

0%

ComputerPhoneTablet

› Tablets Represent Strong Share of Paid Search Conversions but Relatively Low Cost-per-Click

Despite 11% of all search ad clicks and 6% of all spend coming from mobile phones, these devices only represented 0.6% of all

conversions. Meanwhile, tablets generated 8.8% of all conversions with 10% of total clicks and just 7% of total ad spend. Computers

are still the primary source of conversions with more than 90% coming from desktops and laptops. In turn, computers have the

highest average paid search CPC at $0.45 followed by tablets at $0.30 and phones at $0.22.


Insights and Implications

1 Search Advertising is a Vibrant Industry

Search advertising already represents the biggest share of digital marketing spending but has not reached its peak. With annual growth

rates in the 24-52% range each quarter in 2012, paid search marketing continues to create opportunities for all the various industry

stakeholders – advertisers, search engine publishers, marketing service providers, technology platforms, etc.

2 Rising Cost-per-Click Rates Will Require Increased Q4 Investment and Optimization by Marketers

With average paid search CPC rising in each region during each of the past 2 quarters, the trend is likely to continue through the

competitive Q4 holiday shopping season. To achieve desired traffic and conversion volumes, marketers will have to increase search ad

budgets and/or develop sophisticated optimization strategies.

3 The Yahoo! Bing Network is a Must Buy

SEM 101 has traditionally mandated the maximizing of campaigns via Google before expanding efforts to other search engines. This

conventional wisdom was based on the notion that scarce resources (manpower and ad budgets) are best managed through the network

with the most volume. However, with YBN consistently delivering better ROAS and advanced technology tools available to easily manage

campaigns across multiple search engines, the new imperative for marketers is, at the very least, to be active on YBN, if not make it the

first place resources are allocated and maximized.

4 The E.U. is Ripe for Conquest

The economic hardships plaguing members of the European Union are clearly impacting the search advertising market. The E.U. was the

only region examined in this report that did not show sequential growth in Q3 2012 over Q2 2012. With a more conservative marketplace

and CPC rates below that of the U.K. and U.S. , the E.U. represents a great market for global advertisers to generate targeted traffic. Of

course, marketers must keep a close eye on conversion rates to ensure consumers are responding with the desired actions.

5 PLA or Die

U.S. retailers have no choice but to actively manage Product Listings Ads for placement on Google Shopping. With a richer format

including images, PLA units perform better than text ads on all key metrics. Key to success for marketers is leveraging a paid search

technology platform that can create and manage PLA while tracking clicks, conversions and revenue at the product level and deploying

custom bid optimization algorithms accordingly.

6 Tap Tablets for Strong Volume and Performance

Tablets boast a bigger screen and more affluent user-base than mobile phones and, as a result, represent a very lucrative targeting

opportunity for marketers. To capitalize on the 10% of all U.S. paid search clicks coming from tablets, marketers must create device-

optimized websites and/or apps to deliver a bespoke user-experience. And, with tablet CPCs 33% lower than computers, it’s also a best

practice to create separate SEM campaigns targeted different devices with unique keyword bids.


MethodologyTo analyze quarterly data in its historical context through the most uniform and largest sample possible, an aggregate data set was built

from Kenshoo clients who had been active during the previous 18 months.

This rolling data set covered several billion dollars in global paid search ad spend. While this sample better reflects changes over time

in the overall marketplace, there may be variations in numbers for future reports published by Kenshoo, as the rolling data set will be

dynamic each new quarter.

In cases where it was useful to compare data from the previous 18 months to even earlier data, only data from the set of Kenshoo clients

who had been active for the newly-defined and extended time period was utilized unless otherwise noted. All volume metrics have been

normalized to a factor of 1 based on the initial quarter of data (or other baseline quarter as noted). Data points from other quarters are based

on a multiplier from baseline quarter – for example, 1.55 means that volume is 55% greater than volume in baseline quarter measured.

To determine return on investment (ROAS), an aggregate data set was built from Kenshoo clients who had been active during the previous

18 months and tracking direct online sales revenue through the platform. For regional comparisons, U.K. was excluded from E.U. data

(even though it is a member country) so that it could be analyzed separately.

Mobile device data comes from a smaller subset of the above data reflecting Kenshoo clients in the U.S. who are tracking online

conversions within the Kenshoo platform.

Product Listing Ad (PLA) data is taken from an aggregation of Kenshoo clients that are running PLA as well as Google campaigns with

keywords covering similar product themes. To provide the closest comparison, brand and head keyword were excluded. For example, PLA

for “office furniture” were compared to campaigns and ads using keywords targeting “office furniture” related searches.

About KenshooKenshoo is a digital marketing software company that engineers technology solutions for search marketing, social media and

online advertising. Brands, agencies and marketing providers use Kenshoo Enterprise, Kenshoo Local and Kenshoo Social to

direct more than $25 billion in annual client sales revenue. The Kenshoo Universal Platform delivers automation, intelligence,

integration and scale to make better marketing investments. With campaigns running in more than 190 countries, Kenshoo clients

include CareerBuilder, Expedia, Facebook, KAYAK, Havas Digital, Hitwise, iREP, John Lewis, LendingTree, Resolution Media, Sears,

Starcom MediaVest Group, Tesco, Travelocity, Walgreens, and Zappos. Kenshoo has 16 international locations and is backed by

Sequoia Capital and Arts Alliance. Please visit www.Kenshoo.com for more information.

Kenshoo is a trademark of Kenshoo Ltd. Other company and brand names may be trademarks of their respective owners.

ContactAriel Rosenstein, Director of Marketing Research

[email protected]

www.kenshoo.com

www.kenshoo.com

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