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Research: Optimism Fueled SEM Growth in Q4, But ROI Lagged

Spending on search engine marketing (SEM)  grew 23% year-over-year in the fourth quarter of 2010, signaling optimism both from marketers and consumers, according to the latest report from Efficient Frontier, a search marketing agency that manages more than $1 billion in annual spend for its clients.

The company attributed the strong growth to increases in cost-per-click, indicating larger budgets and competition among advertisers for coveted keywords. Consumers’ likelihood to click on ads also increased, the 4Q report indicates. Interestingly, while spend increased, return-on-investment dropped 10%. Advertisers sought volume through their greater spending, but didn’t see as much value in that spend.

The travel category saw the greatest year-over-year growth, of 42%; automotive was next with 33% growth from the previous year. Next came finance, with a 30% year-over-year increase, and retail showed a 18% growth rate over the fourth quarter in 2009.

The bulk of Q4 spend, or 79%, went to Google, while 21% went to Yahoo and Bing. Though Google gained 5% market share from the fourth quarter of 2009 to the same period in 2010, all of the momentum toward Google occurred before the migration of Yahoo ads to Bing. From the third to the fourth quarter of 2010, Bing and Yahoo held onto their existing market share.

Google bested Yahoo and Bing both on impression growth, and growth in paid clicks, as compared to the previous year. Cost-per-click has increased on both engines — 102% at Bing and 122% on Google.

The company expects search to continue to grow in 2011 because of continued increases in the cost-per-click paid by advertisers. Search spend will grow by 15% year-over-year in 2011, with Bing’s spend share climbing, according to Efficient Frontier forecasts.

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