The State of the PPC Industry

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Since the inception of PPC advertising in 1998, advertisers have paid Google, Yahoo!, and Microsoft billions of dollars for targeted clicks. Despite the effects of a global recession, almost half of advertisers polled by MarketingSherpa said they intended to increase their PPC spending in 2009. Conversion rates for PPC campaigns have also been climbing steadily—almost half of the respondents in the same study reported that conversion rates have increased over the previous year.

After several experimental efforts in the mid-to-late 1990s, PPC advertising was popularized by the startup company GoTo which was developed at Bill Gross’s Idealab in 1998. GoTo had the PPC advertising field to itself until it was renamed Overture in 2001, and expanded as a back-end ad service platform for search engines such as Yahoo! and MSN. Figure 1.6 shows the original GoTo search screen.

GoTo, the earliest popular ad-supported search engineAs Overture became a significant driver of profit for its search engine partners, it continued to grow by acquisition, gobbling up dot-com pioneers such as AltaVista and AlltheWeb. In 2003, Overture was acquired by its biggest customer, Yahoo!.

Google quietly introduced search engine advertising in 1999, but initially advertisers paid on a CPM (cost-per-thousand) impressions basis—not a true PPC model. Google finally introduced PPC search advertising in 2002.

In 2003, Google introduced its AdSense program, whereby site owners could place Google AdWords ads on their site pages and earn a commission from Google whenever someone clicked on an ad. Google also introduced web-based software that simplified the task of creating and managing Google AdWords campaigns. Figure 1.7 shows ads appearing on Google’s search results page.

Google search results page

Yahoo!, ambivalent about its growth strategy, invested heavily in several directions. Some in the company wanted it to become a media player and compete with the established television networks and movie studios. Others wanted Yahoo! to diversify by creating a growing suite of web-based software services. Many believe Yahoo! neglected its PPC advertising business in the years between 2003 and 2005, allowing Google to pull ahead in market share and functionality. Figure 1.8 shows a Yahoo! search results page.

Microsoft entered the PPC fray late in 2006, and its market share has languished in the single digits. Microsoft has recently decided to focus more attention and resources on PPC and online advertising; this includes a technology-sharing agreement with Yahoo! whereby Microsoft ads will appear on Yahoo! search results pages. In mid 2009 Microsoft introduced a revised version of their Live Search engine, renaming it Bing. Figure 1.9 shows ads appearing on a Bing search results page.

Yahoo! search results page

Microsoft Bing search results page

Today the “Big Three” players in the PPC industry are Google, Yahoo!, and Microsoft—obviously correlating to the most frequently used search engines. But their share of the market is far from equal. Google earns the biggest chunk of advertising revenue—recent estimates have pegged its share at 85 percent. Yahoo! has a much smaller, but still relevant, share at 9 percent. Microsoft squeaks into third place with a 4–5 percent portion of revenue. The last 1 percent or so is earned by so-called “secondtier” search engines such as LookSmart, Ask, and 7Search.

The year 2009 has been a tough one for businesses worldwide, but advertisers continue to increase PPC advertising spending. In fact, there are indications that many advertisers, drawn by a high ROI and predictable results, are diverting ad dollars away from traditional print, TV, radio, and outdoor advertising to fund additional PPC advertising.

The Interactive Advertising Bureau reported the following in its 2008 Internet Advertising Revenue Report:

Despite a difficult U.S. economy, the report indicates that interactive advertising’s continued growth—though at a slower pace—confirms marketers’ increased confidence in the value in reaching consumers
online. Internet advertising revenues in the U.S. remain strong, with Q408 revenues hitting $6.1 billion, and revenues for the year topping $23 billion.

Spending on PPC advertising seems to be growing faster than spending on other forms of online advertising. The New York Times reported that in 2008, PPC accounted for 57 percent of online advertising, up from 52 percent in 2007.

Most advertisers will be well served by advertising on all of the Big Three search engines. Although Yahoo! and Microsoft deliver much lower click volumes, many advertisers find that conversion rates are better than on Google (due to lower competition, for example), and hence profitability is higher. The combined available clicks from the second-tier search engines is so small that for most advertisers it’s not worth the time and effort to use them. That’s why this book describes the similarities and differences of creating and managing campaigns just on the Big Three.