The Upside of Search Engine Marketing

    August 3, 2004

One thing you can count on at an SES conference is a solid staple of presenters. Safa Rashchty, managing director of Piper Jaffray certainly qualifies. Mr. Rashchty holds a master’s from Boston University, a bachelor’ degree in engineering from Purdue, and is a regular on CNBC and CNNfn. In other words, he knows what he’s talking about.

Safa was a panelist in the first session I attended on Monday and he had some interesting thoughts as to what investors might find appealing about the search engine industry. There are several aspects of SEM that, according to Rashchty, might be extremely attractive to potential investors.

Discuss the upside of SEM at WebProWorld: Click Here

For starters search engine marketing is cost effective. It’s fairly accepted that consumers find search useful. Furthermore, consumer use of search to find commercial services has shown a healthy upward trend over the past few years. In other words, people use search engines to find what they’re looking for and more and more searchers are looking for commercial services.

Secondly, search engine marketing is already big business. Today, the search industry is expected to generate more that $4 billion and some estimates project search engine spending to exceed $11 billion by 2008. Growth in nascent regions like China and India only reinforce confidence in these expectations.

Some other factors to consider when weighing the merits of the search industry are developing technologies like contextual advertising, which has shown promising results in its early stages. Similarly, local search is an area in which search is coming into its own. Industry leaders like Google and Overture are paying a great deal of attention to their capabilities to harness new business by allowing clients access to more localized markets. Even larger advertisers are gradually beginning to recognize the branding value of search engine marketing. Thinking is gradually shifting away from the value of the click itself and more towards the lifetime value of the customer.

The search engine industry may have its roots in small business but big business is gradually beginning to recognize and realize some of its virtues. It is still an industry in its infancy in many ways and there are still relatively few investment opportunities but it’s growing up fast. That, as much as anything else keeps opportunistic investors looking for early entries payin close attention.

These things are all fine and good, and Safa made a number of good points as to the upside of the SEM industry. However, it seemed like there are still some questions that merit further discussion in regards to the risks in the industry. There were a couple other people on this panel actually and their prognostications weren’t necessarily as rosy as Safa’s. Before we get to their versions of the some of the potential downsides of the industry (coming to a post near you very soon) I’d be interested in hearing what you think about the issue. Is search engine marketing the wave of the future? What pitfalls (if any) do you see in the road ahead?

Mike is a manager at iEntry. He has been with iEntry since 2000.