Most folks we talk to in the search ad industry are comfortable that Q3 was better than Q2. But we spoke to several major SEM agencies this week and found that there are not many signs that a major increase in search spending will occur in Q4.
We should note that we are only a few weeks into Q4. But investors and media executives will obviously be listening carefully to any comments Google makes about how its business has fared so far on this quarter.
THERE WAS AN UPTICK IN THIRD QUARTER BUT INCREASED STRONG GROWTH IN Q409 NOT materialising YET
After two down quarters (Q2 being the worst), most of the agencies we spoke with saw some sequential increase in spending during Q309. For the most part this came from strong companies looking to gain share from weaker companies, not a wholesale increase in spending across businesses.
One point of concern in the third-quarter was the fact that, despite a strong start, September appears to have been down slightly on a sequential basis from August (though up slightly on a Y-O-Y basis). There appears to be two drivers to this:
- Pent-up budgets spent in July/August after two quarters of being very conservative with ad spending.
- Back to school advertising from retailers was spent in August.
In addition, most agencies said in the first few weeks of October there weren’t any concrete signs of a material jump in the fourth quarter, indicating that at this stage another quarter of modest growth appears most likely. However, many retailers chose to essentially sit on the sidelines when it came to spending a lot on advertising last holiday season, so some sources think their clients would likely increase their spending this year. If this happens, Q4 should be up modestly over Q309 on a sequential basis. Anything less than this, of course, would be a disaster.
LOCAL BUSINESSES APPEARING TO SEE BENEFITS OF SEARCH
Search advertising by local businesses is still in its infancy, but both large national firms with small local divisions and those firms focused purely on local search spend saw a large increase in the number of clients the past year. So far, churn rates are much higher than for national advertisers (50% to 80% per cent in some cases) indicating a lot of businesses are still just dipping their toes.
Though local search is still small, it appears it could prove somewhat less cyclical than national search once it stabilizes. For example, an agency we spoke with saw many local clients decrease their spending during the downturn, but saw some of that spend replaced by services that perform well in downturns like bankruptcy attorneys, education, and employment services.
Interestingly, we heard that some local businesses have started spending on Facebook’s display on demand product instead of search, though this is still a small segment primarily made up of retailers. Some of this may have to do with what some said was “over-promising and underdelivering” from re-sellers of local search ads (which also likely accounts for the very high churn rates).
Among others we thank Efficient Frontier, Clickable, Performics, and Yodle for their contributions.
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