While as a category, paid search will always be high revenue generation per impression (for the search engines), the overall number of impressions that exist are segmented into very small pools of inventory. Each small pool (denoted by a single keyword) tends to be relevant only to a small number of advertisers -- meaning that per advertiser there just isn’t any way to buy very many impressions (even if you’re paying on a cost-per-click).
Keep in mind that while the paid search space boasts more than a half-million advertisers, the display space (across online display and even offline media such as television and print) really is made up of only about 3,000 to 5,000 brands that perform large-scale buys. There is an important take-away from that point. There is not enough inventory in paid search for it to be a large percentage of any one advertiser's budget overall (spreading the entire 4 percent of all spending -- see below -- across hundreds of thousands of advertisers versus online display spreading spend across 3,000 to 5,000 advertisers).
US Ad Spending across media -- 2008
Source: eMarketer (Barclays Capital March 12, 2009) and Eric Picard analysis
*Excludes the Direct Mail and 'Miscellaneous' categories
Paid search simply doesn't have enough viable inventory in any given category to enable any significant advertiser (large spender) to move large portions of their budget to paid search. Take an advertiser who spends $1 billion in the U.S. each year. One could assume that they follow the breakdown that I'm showing as the average in the chart above. However, it is highly unlikely that they are allocating even the 4 percent listed for paid search on this chart out of their total budget. There is simply not enough inventory for them to spend the money on.
People who do not understand advertising in general but do understand the paid search space frequently talk about how all ad dollars will move to paid search over time, "since it is so effective." When you measure your results against CPA during the life of the campaign, very few people will argue against the value of paid search. But when you look at the entire ad spend of a big-budget advertiser, and you look at the myriad KPIs that they use to measure the success of that advertising spend across brand and direct response, it is highly unlikely that paid search will be incredibly important to any one of those advertisers (beyond some retailers ith massive numbers of products they could buy against in an automated fashion, like eBay and Amazon).
Ultimately, paid search matters far more to the search engines than it does to any one advertiser. After all, before you buy a product you have to be aware that it exists, you have to consider whether you need it, you have to weigh your purchase of that product against all the various manufacturers, and then you have to decide where to go and buy it. Paid search certainly can help sell a product if you catch someone further down the purchase funnel, but it takes other methods to get them to that point.
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Eric Picard is the advertising technology advisor to the Advertising Platform Engineering team at Microsoft.
