Search Engine Advertiser Update – Q109
April 13, 2009

Although difficult to see from the outside, the first quarter typically brings with it major budget shifts in the search marketing world. As retailers back off their massive fourth quarter spends, the travel industry steps in to take their place. Things are no different this year, other than the surprising additions of Bank of America and several used car resellers to the top tier of search advertisers (see "Top 25 US Advertisers by Search Engine" located at the end of this report).

The important question, however, is will these shifts in budget significantly alter Google’s search revenues from analysts’ expectations of about 11%? Unlike in previous quarters, there are no clear signs.

The best guide we have is ad coverage. In Q1, we saw large increases in the average number of ads shown per keyword. This figure reached a high of 5.5 in February in the US, up from its low of 3.1 in September 2008. This upward trend was even more pronounced when considering international search properties.

While ad coverage has historically been a good directional indicator of search revenues, this statistic diverged significantly from the estimated growth in active advertisers in Q109. AdGooroo estimated a 1.3 percent drop in first-page advertisers throughout the quarter. An increase in the number of ads coinciding with a decrease in the number of advertisers suggests an artificial change in ad coverage, perhaps in response to sluggish advertising activity, quite different than the organic growth which fueled revenues in previous quarters.