1. Survey of Advertisers and Agencies Search Engine Marketing Professional Organization (SEMPO) February 2008 Executive Summary The State of Search Engine Marketing 2007

2. 2 Research Project Objectives  Understand the size of the industry in order to help promote its growth  Understand where marketer spending is going, among different recipients (search engine media companies, SEM agencies, in-house) and towards what types of SEM programs (paid placement, paid inclusion, organic SEO, SEM technology)  Identify key industry trends  Identify key industry issues SEMPO should address PROJECT OVERVIEW Radar Research, Inc oversaw the following research initiatives as part of this project: Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

3. 3 DEFINITIONS: Respondents Were Given the Following Definitions at the Start of the Survey  Search Engine Marketing (SEM): the entire set of techniques and strategies used to direct more visitors from search engines to marketing web sites, including all of the tactics and strategies defined below.  Paid Placement: Text ads targeted to keyword search results on search engines, through programs such as Google AdWords and Yahoo Search "Precision Match," also sometimes referred to as "Paid Placement," "Pay-per-Click" (PPC) advertising and Cost-per-Click (CPC) advertising.  Contextually Targeted Text Ads: Text ads targeted to the subject of writings on web pages, such as news articles and weblogs, using programs such as Google's "AdSense" and Yahoo Search’s "Content Match" programs.  Paid Inclusion: The practice of paying a fee (fee structures may vary) to search engines and similar types of sites (e.g., directories, shopping comparison sites) so that a given web site or web pages may be included in the service's directory, although not necessarily in exchange for a particular position in search listings, such as Yahoo Search’s "Site Match" program, formerly known as Inktomi)  Organic Search Engine Optimization: The practice of using a range of techniques, including augmenting HTML code, web page copy editing, site navigation, linking campaigns and more, in order to improve how well a site or page gets listed in search engines for particular search topics.  Search Engine Marketing (SEM) Service Provider: Agencies or individuals who assist companies with the various search engine marketing practices described above.  Search Engine Marketing Technology Provider: Makers of a software application specialized to assist in the execution of search engine marketing programs, with features such as "bid management," "campaign management," "portfolio management" and "dynamic optimization."  Web Analytics: Using a reporting platform for measuring and analyzing the results of any/all of your online marketing campaigns, including search engine marketing. PROJECT OVERVIEW Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

4. 4 Research Methodology Radar Research oversaw the following research initiatives as part of this project: PROJECT OVERVIEW  Development of SEM forecast model  Detailed online survey completed by 867 search engine advertisers and SEM agencies, administered via IntelliSurvey, Inc.  Extensive analysis of secondary research, reporting and commentary Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

5. 5 2007 North American SEM Industry Size Estimate, by Tactic RESEARCH HIGHLIGHTS Source: Radar Research Forecast, North America, 1/08 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

6. 6 North American SEM Expenditures to Reach $25.2B in 2011 (billions)  Growth will be driven by: –Advertiser demand –Rising keyword pricing and cost per click –Increase in small-to-midsize businesses using SEM –Greater consumer usage of search utilities –Better targeting and niche offerings Search Engine Marketing Projections, North America 2007-2011 Source: Radar Research Forecast, North America, 1/08 RESEARCH HIGHLIGHTS Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

7. 7 Google, Yahoo Most Popular Search Media Companies  Google AdWords is the most popular search advertising program, used by 97% of respondents  70% reported using Yahoo’s general “Sponsored Search" paid placement program (down from 86% last year)  MSN is third behind Google and Yahoo! – although it’s dropped in popularity since last year as well  Of the rest, Ask.com was the next most-popular search ad program, followed by Business.com, MIVA, and Looksmart, consistent with 2005 and 2006 surveys Most Popular Paid Placement Search Engine Networks Among Advertisers "Which of the following Paid Placement search engine networks do you run campaigns on?" [Multiple responses applicable] Advertisers n=240 ADVERTISERS > PAID PLACEMENT Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

8. 8 Brand, Sales, Leads and Traffic Are Top Objects of Paid Placement Programs Among Advertisers  Among advertisers, brand awareness is the top objective of Paid Placement campaigns, especially for larger firms  Selling products follows closely as an objective for Paid Placement Purpose of Search Engine Marketing Use "What is your company using search engine marketing to accomplish?" [Multiple responses applicable] Advertisers n=338 RESEARCH HIGHLIGHTS Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

9. 9 Site Traffic, Conversion Rate, Click-Thru and ROI are Top Performance Metrics for SEM Programs  More than 50% of respondents tracked the following success metrics for the SEM campaigns: site traffic, post- click conversion, click-thru rate, ROI, cost-per-click, cost-per-action (e.g., sale), and sales volume  Agencies were more likely to track all metrics by about a margin of 10-20% in the case of all metrics  These figures are very consistent with the 2006 survey Metrics Tracked To Gauge the Success of SEM Programs "What metrics do you track / measure / generally pay attention to gauge the success of Search Engine Marketing programs?" Total n=867; advertisers n=338; agencies n=529 RESEARCH HIGHLIGHTS Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

10. 10 SEM Is Poaching Budget From Both Online and Off-line Marketing Programs  The biggest shares of budgets for SEM programs are being shifted away from offline marketing such as print, direct mail and TV advertising, as well as online marketing such as Web site development  Both print advertising and Web site development face significantly higher levels of cannibalization than in 2006 Shift of Marketing / IT Funds to Search Marketing Programs "From which marketing/IT programs are you shifting budget away and moving it to your search marketing programs?" RESEARCH HIGHLIGHTS Advertisers n=234 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

11. 11 Paid Placement Prices Have Risen Moderately Changes in Paid Placement Prices Compared to Last Year "Have you observed prices for Paid Placement ads change in the last year for the keywords you routinely bid on?" Advertisers n=240; Agencies n=382  Advertisers feel greater price increases than agencies -- a switch from 2006  About two-thirds of advertisers and agencies reported a price increase -- a significantly lower portion than in 2006  Eleven percent of advertisers do not know whether they are paying more for paid placement in 2007 versus the previous year, a significantly lower number than in previous years, and a number in parity with agency respondents RESEARCH HIGHLIGHTS Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

12. 12 Most Advertiser Respondents Could Still Tolerate Further Price Increases, at Moderate Levels  Over three-quarters of respondents said they could tolerate further rises in paid placement prices  21% report they cannot afford to pay more for leads/conversions because they are currently at maximum efficiency, a slight decrease from 2006, and on par with 2005  Even among advertisers who report the capacity to increase ad expenditure, more than half can afford 30% or less  Despite increasing ad spend and year-to-year growth in the value of search engine marketing, we are likely nearing a pricing plateau as advertisers near their maximum efficacy. Ability to Afford Further Price Escalation in Paid Placement Ads "Given the current efficiency you experience with Paid Placement programs, and the quality of the leads that this tactic generates, how much more could you afford to pay for the leads / conversions this channel provides before you could not justify the expense?" RESEARCH HIGHLIGHTS Advertisers n=240 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

13. 13 Advertisers Would Improve Their Marketing Efficiency Rather Than Cut Back On Budget  Improving site conversion efficiency and improving the overall efficiency of bidding programs would be advertisers’ first steps in maintaining paid placement programs  An almost equal percentage of respondents said they’d rely more on outside SEM providers (15%) and rely less on outside SEM providers (14%) Advertisers tk "How would you likely react to hypothetical scenario where the cost of Paid Placement steadily increased for the next two years?” [Multiple Responses Allowed] RESEARCH HIGHLIGHTS Advertisers n=237 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

14. 14 Advertisers Are Overwhelmingly Interested in Behavioral Targeting Opportunities  Four out of five advertisers indicated they were wiling to pay more for behavioral targeting opportunities, particularly for in-market consumers  There is also strong interest in demographic targeting that allows marketers to reach certain demographics such as age and gender, however advertisers are not particularly enthralled by the prospect of daypart targeting  Advertisers on average would pay 11% more for both behavioral and demographic targeting, and 9% more for daypart Willingness to Pay More for Certain Types of Targeting "Are you willing to bid more for clicks based on the following types of targeting criteria" RESEARCH HIGHLIGHTS Advertisers n=237 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008

15. 15 Search Retargeting Based on Behavior Is Still In Its Infancy But Interest Is Strong  While advertiser interest in behavioral targeting is very strong, actual investment is still low  Two in five advertisers said they are not currently targeting or retargeting searchers but plan to in the next 12 months  Over a third (35%) said they are not currently targeting or retargeting searchers and do not plan to in the next 12 months  Over a third (37%) said they were targeting searchers either through an ad network, a portal or who had previously visited their site Advertisers Interest in Behavioral Targeting for Search Retargeting "Are you using behavioral targeting solutions for search retargeting? [Multiple Responses Allowed] RESEARCH HIGHLIGHTS Advertisers n=237 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, December 2007. Global Results. Copyright © 2008