Internet Retailer Survey: Search engine marketing remains a top priority as new engines and techniques arise

Things are looking up for retail marketers searching for customers online.

28.0% of merchants report more than 25% of their site traffic stems from paid search advertisements while 51.5% say more than a quarter of their traffic comes from natural search. In the past year, 44.9% of merchants report that the conversion rate on pay-per-click search advertising went up, 16.3% say it went down and 38.8% say their conversion rate held steady. And 47% report more than 25% of their web sales stem from search engine marketing, according to Internet Retailer's new search engine marketing survey of 102 web-only retailers, chain retailers, catalogers and consumer brand manufacturers.

On top of that, 44.6% increased their paid search budgets in the past year and 49% say they will increase it in the year ahead.

"2009 was a peculiar year for search engine marketing. The first two quarters were exceptionally slow. It wasn't until back-to-school season that things really picked up, and then the holiday season was very strong," says Udayan Bose, founder and CEO of NetElixir Inc., a search engine marketing firm. "For the year, for our more than 60 online retail clients, the overall average conversion rate was up 15%. And January this year was a very strong month. All of this positive movement has resulted in exceptional confidence among search advertisers today."

The fundamentals

Search engine marketing is one of Internet retailing's fundamentals. It's the way a huge chunk of online shoppers find retailers and the products they're looking to buy. This is why web merchants keep pouring money into advertising on search results pages and on search engine optimization projects to move up in natural search results.

37.7% of respondents spent more than 50% of their online marketing budget on search engine marketing, both paid search and search engine optimization combined, according to the Internet Retailer survey of IRNewsLink e-newsletter readers conducted last month with e-mail marketing and survey firm Vovici Corp.

24.8% of respondents spent 5% or less of their online marketing budget on search, 3.0% spent 6% to 10%, 7.9% spent 11% to 15%, 2.0% spent 16% to 20%, 6.9% spent 21% to 30%, 13.9% spent 31% to 40%, 4.0% spent 41% to 50%, 5.0% spent 51% to 60%, 11.9% spent 61% to 75%, and 20.8% spent more than 75%.

And money's coming back. 27.0% report more than 50% of their online sales are attributable to search engine marketing. 3.0% report 41% to 50%, 9.0% say 31% to 40%, 8.0% say 26% to 30%, 9.0% report 21% to 25%, 7.0% report 16% to 20%, 11.0% say 11% to 15%, 9.0% say 6% to 10%, and 17.0% report 5% or less.

"Everything we see from the retail side indicates a considerable interest and investment in search related to the overall goal of driving more online sales," says Shar VanBoskirk, a vice president and principal analyst who specializes in search engine marketing at Forrester Research Inc. "All types of retailers are focused on driving more web sales, and search is a terrific way to drive that online sales goal."

A changing landscape

Google dominates the search engine landscape. 19.4% of respondents to the Internet Retailer survey say more than 90% of their search engine traffic comes from Google. 43.9% say 71% to 90%, 25.5% report 50% to 70%, and 11.2% report less than 50%. Yahoo has been the perennial second-place finisher.

But a relative newcomer on the scene, Microsoft Corp.'s Bing, has been making inroads since its launch in June 2009, and it's gaining increasing attention from retail marketers.

In the coming year, 43.4% of merchants plan to shift some paid search spending to Bing. That's no doubt because Microsoft and Yahoo have agreed that Bing will become the search engine used on Yahoo sites, a switch expected to occur within a year. Bing will then become the clear No. 2 to Google in traffic.

In terms of conversion, Google produces the highest conversion rate, says 69.4% of those surveyed, versus 14.3% for Yahoo and 11.2% for Bing. But some experts say Bing is performing better than those survey results suggest.

"For 40% of our online retail clients, Bing even surpasses Google in terms of conversion rates," says Bose of NetElixir. "And for those 40%, we are seeing a very clear shift from Yahoo to Bing. And the only reason is because the conversion rate derived for Bing is significantly superior to Yahoo and in many cases superior to Google."

And there's more, Bose says. "Bing has a higher average order value in most of the cases compared with Yahoo," he adds. "All of this would prompt me to advise any web retailer to look very seriously at Bing as your No. 2 option to Google. Perhaps those in the survey ranking Bing next to Yahoo and Google rate Bing lower because the overall budget is miniscule in comparison to Google. In 2010, more and more online retailers will shift more and more of their search engine spend from Yahoo to Bing."

Picture this

2010 may also see more retailers getting graphic with their search programs. Images in search results have begun popping up, especially on Google, whose Google Base, formerly Froogle, has been testing the use of product images when consumers search for product-related terms.

Type "wheelchair" in Google and within the high-value area of natural search results one will see under the headline "Shopping results for wheelchair" images of wheelchairs along with their names, prices and corresponding retailers. This service is in beta and select retailers provide their images and pricing to Google Base.

One service out of beta is Google Plus, which adds a plus sign to a paid search ad that consumers can click on to drop down images of products with more information. On a paid search ad for wheelchairs from SpinLife, a click on the plus sign displays images of six wheelchairs along with their names and prices. A click on the image or name takes the consumer to the page on the SpinLife site where they can make a purchase.

In the survey, 36.4% of retailers say they are working with search engines to incorporate images into paid and natural search results. 40.4% say they are not, but plan to; 23.2% say no and have no plans to do so.

The image effect

Images seem to be having an effect on consumers searching for products. 23.5% of retailers using images report a 1-5% increase in click-through rates, 17.6% say a 6-10% jump, 11.8% report an 11-15% boost, 2.9% report a 16-20% increase, 5.9% say a more than 20% jump, and 38.2% report no improvement.

"I find it surprising that 38% can have no improvement. You are boosting the text; an improvement has to be there," Bose says. "Images definitely have a positive impact on the overall return. The overall click-through rate has gone up for our clients 11-15%. As long as they are proving to be helpful to the marketer, images definitely will go up in importance in 2010."

Forrester's VanBoskirk agrees that images can enhance the click-through rate for a paid search ad or natural search result, and that the number of images consumers see in search results will increase. However, she feels retailers can make better use of their time elsewhere.

"There are a lot more sophisticated things a retailer can be doing than just throwing an image in the search results," she says. "How can you better tailor the content of your ad to the users' intent, for example. I'm a lot more cynical on the image front. The ultimate value images will show will be tempered by better keyword strategies and better deciphering of users' intent."

Whether it's digging in and enhancing paid keyword strategies, better optimizing an e-commerce site to appear higher in natural search results, trying out new search engines like Bing or testing new techniques like incorporating images into search results, one thing is clear: Retailers have to stay on top of search engine marketing because it is a marketing channel that not only brings in the customers but brings in the cash.

Pay-Per-Click (PPC) advertising is a great tool in the correct situation. Regardless of how small your advertising budget may be, it should be considered. As with any of the Web 2.0 marketing tools shown in the graphic below, PPC advertising has its pros and cons. In most cases though, the pros outweigh the cons.