Search dominates online advertising

Gordon Peters
Tuesday, 23 November 2010 13:36

IT Industry - Market

Growth in the Australian market for online search and directories slowed slightly from 27 percent in the 2009 financial year to 21 percent this year, but nevertheless remains the fastest growing segment within the overall online advertising sector and is now worth $1,139 million.

According to a new intelligence report from Frost & Sullivan, of the total online search and directories segment, search accounted for 73 percent of revenues and directories for 27 percent.  

Not surprisingly, Australia's online search and directories market continues to be dominated by Google and Sensis respectively during 2010, with each having about 90 percent share of expenditure in their segments. However, competitive activity is increasing in the market following the 2009 launch of the Bing search engine, the re-positioning of Yahoo! Search Marketing and the emergence of online directories such as TrueLocal and Hot Frog. 

Frost & Sullivan report that allocation of budgets to search advertising and search engine optimisation services, and to online directories advertising has been continually rising over the past five years, and that as the Australian economy has slowly recovered from the effects of the GFC, 'optimism has been restored with significantly fewer advertisers indicating a decrease in their 2010 online search advertising budgets when compared to 2009.' (13% in Frost & Sullivan's 2010 advertiser survey compared to 22% in the prior year's survey).

Overall, with 54% of advertisers indicating that their budget allocation to search advertising was unchanged in 2010 from the previous year, advertiser satisfaction with the benefits of expenditure on online search advertising in particular remains high.

Phil Harpur, senior research manager, Frost & Sullivan, predicts that the online search market will continue to outpace the online directories market over the next five years. According to Harpur, the search market is expected to grow at a compound annual growth rate of 16 percent between 2010 and 2015, compared to a predicted rate of eight percent for the directories market. 'During the same period the proportion of the total online search and directories market accounted for by search is predicted to increase from 73% to 80%.  As the market matures growth rates of both sectors are expected to subside.'

Harpur notes that the online search and directories market is a market in transition and that Frost & Sullivan expect some interesting changes in the next few years. 'The boundaries between online search and online directories are becoming blurred and as a result the search market is increasingly encroaching on online directory territory.  At the same time search functionality is being continually improved and refined. 

'Online search advertising remains the stand-out growth segment of the online advertising industry.  The percentage of users whose first port of call is a search engine rather than a directory is increasing and the willingness of advertisers to pay for listings continues to decline.'

On the online directories market, Frost & Sullivan say that market is fragmented, being served by both multi-industry and industry-specific online directories, with the leading directories being the Sensis Yellow Pages and White Pages properties. 

However, despite pressure from the search advertising market, Frost & Sullivan believes Sensis' online directories business model remains 'reasonably solid', but  predicts that market consolidation is inevitable and that over time the number of players will reduce to three or four mainstream online directories.

One notable trend in 2010, according to Frost & Sullivan, was the rapid development of the mobile market for both online search and online directories. Although revenues from directories on mobile devices is still a negligible component of the overall online directory market, very high uptake is predicted once a critical mass of smart phones reaches the Australian market in the next one to two years, according to the firm.