Search Advertising - Up, Down, Or Flat?

This week, Thursday at 4:30pm eastern to be exact, we’ll get some important information about the search market when Google announces it’s fourth quarter results. I recently sold my Google stock because I didn’t want to be long until we get more information about the underlying fundamentals of Google’s core business. I’d like to get back into Google at the right time and the right price and their fourth quarter results will be telling.

Jessica Vascellaro has a story in today’s WSJ that paints the contrasting views on the search ad market. One one hand:

U.S. search advertising spending fell 8% in the fourth quarter of 2008
from the same period in 2007, according to a new study from search
advertising firm Efficient Frontier, which had been tracking mostly
flat growth for 2008.

On the other hand:

Industry research firm eMarketer recently projected that, despite the
recession, U.S. search advertising will still grow 14.9% in 2009, down
from a 2008 growth rate of 21.4%.

The Efficient Frontier study is based on actual data whereas the eMarketer numbers are projections (presumably based on real data too). But they paint very different pictures.

I’ve heard a lot of anecdotal evidence that suggests that marketers are moving their budgets to performance oriented channels and that bodes well for search. I’ve also heard anecdotal evidence that online retailers maintained a strong search spend during the holiday season, and that was mentioned in Jessica’s WSJ piece.

So the fourth quarter results from Google will not tell us everything we need to know about the search market because they will be heavily influenced by the holiday season. It could well be that a decent fourth quarter could be followed by an awful first quarter. That is often the case in the advertising business and I’ve seen it enough to be worried about it this year.

And, of course, the US search market is only half of the story. The search market is global and Google, in particular, has been making up for slow growth in the US with good growth overseas. If overseas growth slows, that will be bad news as well.

So in addition to everything else going on this week, we’ll be getting some numbers that are important to Google’s investors and everyone who is invested in the Internet economy. I’ll blog some more about this when the data is out.

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