How a Once in a Century Financial Event will Impact Digital Advertising

The Internet Strategy Forum October 23, 2008

Overview

• Review of spending trends and growth rates

• How organizations are reacting to trends

– Driving consistent metrics of success– Leveraging SEO more effectively– Integrating search more effectively into other forms of advertising

• Major challenges

– Universal search making things more complex– Keyword price inflation

• Q&A

Study Overview

• Covario high tech customers (B2B and B2C)

• Represents estimated $225-250M in 2008 spending

• US/Canada-based firms

• Conducting global advertising programs

Major Highlights

• Year on Year growth rates for Q3 were up– Q2’07 to Q2’08 = 43.3%– Q3’07 to Q3’08 = 51.2%– This growth was driven by EMEA/APAC – US growth increase was only 32%– Covario estimates ~5% resulting from one-time Olympics related spending

• Google continues to dominate spending with 83% market share in US and 95% in EMEA

• Continued erosion of Yahoo CPCs, while CPC rates on other engines went up

Year On Year Growth Rates for Q3

• Overall growth was 51%

• EMEA growth was 204% over same time in 2007

• US growth rate has decreased steadily throughout the year

• Growth driven by Olympics advertising (~5%)

Regional Spend Analysis

• Spending in US accounted for 82% of total

• Allocation to EMEA trimmed to 20% —consistent with 2007

• APAC spending at 10%

Regional Spend Analysis — North America

• Google commands 82% of the spending allocation — up slightly

• Yahoo’s gains in Q2 are consistent in Q3

• 83% of customers in the study are conducting spending on Ask —small amounts

Regional Spend Analysis — EMEA

• Google dominance continues to grow — 95% market share!

• Yahoo market share is 4%

• Investments in Russia running largely through Yandex and Rambler (80%)

Regional Spend Analysis — APAC

• Baidu did not see any appreciable growth given Olympics

• Google surge is largely Olympics related

Trends in CPCs

• CPCs are down 8% Y-o-Y on average

• Google CPCs are at $1.14 with Yahoo at $1.03 (for consistent keyword sets)

2007 2008

Search Engine Q1 Q2 Q3 Q4 YE Q1 Q2 Q3

Baidu $0.14 $0.11 $0.14 $0.13 $0.13 $0.11 $0.12 $0.18

Google $1.06 $1.03 $1.23 $1.28 $1.22 $1.13 $1.09 $1.14

MSN $1.02 $1.21 $1.13 $1.42 $1.28 $1.67 $1.51 $1.60

Yahoo! $1.38 $1.41 $1.50 $1.72 $1.59 $1.55 $0.16 $1.03

Yandex $0.75 $1.37 $1.26 $1.15 $1.16 $0.98 $1.23 $1.17

Total $0.98 $0.92 $1.18 $1.30 $0.19 $1.14 $1.07 $1.09

Going Forward

• Growth rates are going to revise down– Display will be hit worst, this is already being seen in Yahoo results– Search will slow from 40% Y-o-Y growth to ~20%

• Currency• EMEA/APAC

• Google will gain more share

• CPCs will go up as inventory contracts– Would plan on paying 5–10% more over next 18 months for same number

of clicks

What To Do? Prime Real Estate Is Going to Be More Valuable

52.6% in Organic Pos 1–4

11.9% in Paid Pos 1–3

Total = 52.6%64.5%

PAGE 1 TOTAL

93.1%

Source: Enquiro

Better Leveraging Organic

#1 Organic

#1 Paid

What does our PvO analysis do?

Paid Organic

Con

vers

ions

100

20

85

ROIpaid = 20ROIincremental = 5

Impact of Paid Listing on Organic Traffic (Branded Query)

0

200

400

600

800

1000

1200Visits

Day

Organic

Paid

Paid campaign paused

Organic traffic jumps

Maximize Traffic

Optimize Bookings

Optimize Ad Revenue

Optimize Ad Revenue

Building an Integrated View of Marketing

Purpose is to Integrate and Optimize Media Mix

Consumers

Maximize Traffic

Optimize Orders and Bookings

Optimize Ad Revenue

Optimize Customer Engagement

Display

Mobile

Advertisements

Visitors

Search

Site #1

Site #3

Site #4

Site #5

Site #6

Site #7

Site #2

Video

Universal Search Results Making SEO More Complex

News

Books

Video

Shopping

Web

…And Changing the Value of the Real Estate

Heat mapregular results

Heat map blended results

Source:

Trends in CTRs — Expect Inflation

• CTRs were down on Google from same period last year

• Yahoo has the lowest CTR rates of the major platforms

• MSN has consistently had the highest CTRs for the past 6 months

2007 2008

Search Engine Q1 Q2 Q3 Q4 YE Q1 Q2 Q3

Google 2.20% 1.80% 2.40% 2.60% 2.40% 2.20% 2.10% 1.90%

MSN 1.70% 1.30% 3.00% 2.60% 2.60% 1.70% 2.80% 2.20%

Yahoo! 1.10% 1.80% 0.90% 1.00% 1.00% 0.90% 0.90% 1.00%

Yandex 0.60% 1.00% 1.10% 1.60% 1.20% 2.40% 2.70% 3.00%

Google 2.20% 1.80% 2.40% 2.60% 2.40% 2.20% 2.10% 1.90%

Overview

• Review of spending trends and growth rates

• How organizations are reacting to trends

– Driving consistent metrics of success– Leveraging SEO more effectively– Integrating search more effectively into other forms of advertising

• Major challenges

– Universal search making things more complex– Keyword price inflation

• Q&A

Thank you!Craig MacdonaldVice President, Products and Marketing

858-397-1500 cmacdonald@covario.com