Global search advertising trends 2012 by Kenshoo

GLOBAL SEARCH
ADVERTISING TRENDS
October 2012 Edition

© 2012, Kenshoo, Inc. | CO-04-1001

© Kenshoo, Inc. 2012 1

Contents
Introduction .............................................................................................................................................. 3
Global 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 ..................................................................................................................... 17
Methodology ......................................................................................................................................... 18
About Kenshoo ..................................................................................................................................... 18
Contact ................................................................................................................................................... 18


Introduction
Kenshoo 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
Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012
Advertising Spend
Quarter-over-Quarter
Baseline 23% 32% -14% 4% 4%
(QoQ) Delta

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

Global Search
Q1 2012 Q2 2012 Q3 2012
Advertising Spend
Year-over-Year
52% 46% 24%
(YoY) Delta

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.

QUARTERLY GLOBAL SEARCH ADVERTISING SPEND VOLUME

1.62 1.52
1.46
1.40
1.23

1.00

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.

Q UA RTER LY G LO B A L S EA R C H
A DV E RT I S I N G C O ST- P ER - C L I C K R AT ES

$0.52
$0.47 $0.47 $0.46
$0.43
$0.40

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


› 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%.

Q UA RT E R LY G LO B A L S E A R C H
A DV E RT I S I N G I M P R E S S I O N VO LU M E

1.87

1.65 1.68

1.44
1.29

1.00

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



Q UA RT E R LY G LO B A L S E A R C H
A DV ERT I S I N G C L I C K VO LU M E

1.81 1.80 1.75 1.73

1.37

1.00

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


QUART E R LY GLO B A L S E A R C H
ADVE RT I S I N G C L I C K-T H R O U GH R AT E S

1.31%
1.20%
1.09% 1.17% 1.06% 1.14%

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



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 ENG INE
AVERAG E CLICK-THRO UG H RATES

1.80%
1.56% 1.61%
1.60%
1.49% 1.49%

1.40%
1.25%
1.18%
1.20%
1.09% 1.10%
1.08%
1.03% 1.01%
1.00%
0.89%

0.80%

0.60%

0.40%

0.20%
Google
0.00% Yahoo! Bing Network

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


Q UA RT E RLY U.S . S E ARC H E N G IN E
AV E R AGE C OST- P E R- C L IC K RAT E S (IN US D )

$0.80

$0.70 $0.67 $0.66 $0.66
$0.63 $0.65
$0.61 $0.57
$0.60
$0.49 $0.49
$0.50
$0.45
$0.43
$0.40
$0.40

$0.30

$0.20

$0.10
Google
$0 Yahoo! Bing Network

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



› 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 . YAHO O ! B I NG NE T WO RK PE RF O RM ANCE

50%

40% 37%
35%
29%
30%

20%
10% 7%
10% 6% QoQ
4% 3%
1% YoY
0%
-5%
-10%

-20%

-30%
Impressions Clicks Ad Spend CPC CTR


Q3 2012 U. S . G O O G L E PE RF O RM ANCE

50%

39%
40%

28%
30%
24%
20%
20%
16%

7%
10%
5% QoQ
2% YoY
0%

-10%
-8%

-20% -18%

-30%

Impressions Clicks Ad Spend CPC CTR



› 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.

Q UA RT E R LY U. S . S EA R C H A DV ERTI S I N G
R E T U R N O N A D S PE N D BY S EAR C H EN G I N E

1.29
1.27 1.24 1.30 1.23
1.20

1.14
1.04 1.05
1.00 0.99 0.96

Google
Yahoo! Bing Network

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).


Q UARTER LY U. S. SEARC H ADVERTISING
CL I CK VO LU ME BY SEARC H ENGINE

11.48 11.30 11.29 11.38

8.17

5.20

Google
1.12 1.49 1.21 1.32 1.45 Yahoo! Bing Network
1.00

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


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).


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.

Q UART E R LY U. S. SE AR C H
A DV E RT ISING SP E ND VO LUM E

2.00
1.76
1.64
1.52
1.42
1.50
1.27

1.00
1.00

0.50

0.00

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


Q UART E R LY U. K. SE AR C H

2.00

1.50
1.23
1.10 1.18
1.11 1.12
1.00
1.00

0.50

0.00

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



Q UART E R LY E .U. SE AR C H

2.00

1.50 1.33
1.31 1.25
1.24
1.12
1.00
1.00

0.50

0.00

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


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.

› 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.

QUARTER LY R EGIO N A L AV ER AGE
COST-P ER -CLICK (IN USD)

$0.60

$0.50
$0.48

$0.45
$0.40

$0.37
U.S.
U.K.
EU
$0.30

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


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).

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

2.50%
2.19%

2.00%

1.50%
1.49%

1.00%

0.50%

0%
PLA Text Search Ads


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

2.50%
2.05%
2.00%

1.49%
1.50%

1.00%

0.50%

0%
PLA Text Search Ads



U.S. AVE R AGE R E T U R N O N A D S P E N D
BY AD T Y P E F O R S E L E CT ME R CHA N TS

$4.50
$3.96
$4.00
$3.50
$3.17
$3.00
$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.


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.

Q 3 2 01 2 U. S. SE AR C H ADVE RT ISING
S P EN D AND C LIC KS BY D E VIC E

100%
87%
79%
80%

60%

40%

20%
Computer
11% 10%
6% 7% Phone
0% Tablet

Ad Spend Clicks



› 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.

Q 3 2 01 2 U. S. SE AR C H ADVE RT ISING
C O N VE R SIO NS BY D E VIC E

100% 90.6%

80%

60%

40%

20%
Computer
8.8% Phone
0.6% Tablet
0%
Conversions


Q3 2012 U. S . S E ARCH ADVE RT IS IN G
COST-PER-CL ICK BY D E VICE (IN U S D )

$0.50
$0.45

$0.40

$0.30
$0.30
$0.22
$0.20

$0.10

$0
Computer Phone Tablet


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.


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.


Methodology
To 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 Kenshoo
Kenshoo 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.

Contact
Ariel Rosenstein, Director of Marketing Research
Ariel.Rosenstein@Kenshoo.com


Global search advertising trends 2012 by Kenshoo

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