In light of all this uncertainty, what can we expect for the paid search marketing industry in the year to come?

If history serves as a guide, there’s a strong chance spending on search marketing will continue to thrive throughout a recession. Why? Because in a downturn, companies can’t afford not to spend on search. While other less measurable forms of advertising (TV, print, display) are being questioned and facing cuts, search is surviving because it’s linked more directly to revenue. For marketing programs not to face the guillotine in this economy, they must produce results. Search is extremely measurable, enabling advertisers to easily tie revenue and ROI back to the ad level. Such revenue accountability is crucial for advertisers in a down economy, when every penny counts.

In fact, the paid search industry was born (out of necessity) during the last economic downturn; Google rose to fortune from the ashes of the dot-com bust. Advertisers could no longer justify spending large sums on banner ads of dubious ROI and they needed a results-driven, revenue-generating marketing method. Search was the answer. In 2000, paid search accounted for 1.3 percent of online advertising spending, and by 2003 it accounted for 35 percent. During the lean years between 2000 and 2003, paid search advertising delivered the right value proposition to marketers who were expected to do more with less. Today, budgets in this area account for 43 percent of overall online ad spending, and are expected to maintain dominance in the years to come.

During this slowdown, now more than ever, marketers need to use online advertising methods that deliver real results, boosting revenues in a time when it matters most. Despite a softening economy and turmoil in some other ad media, U.S. spending on paid search advertising should grow solidly in 2009. In fact, eMarketer predicts that as U.S. advertisers continue to shift their budgets from traditional media to more cost-effective, measurable Internet advertising, paid search spending will not only rise in fiscal 2009, but double between 2009 and 2013 to reach nearly $24 billion.

According to an October research report from Marin Software and JupiterResearch, large advertisers would be spending more on paid search if they could: they are lacking the tools and technology to scale their campaigns. The report found that 92 percent of large search marketers spending more than $50,000 monthly on paid search advertising would increase their pay-per-click (PPC) spend on SEM programs an average of 22 percent if major technology and campaign management impediments were resolved. These impediments include insufficient personnel to manage programs, fear of risking ROI performance, inability to meet financial targets as costs per keyword rise, difficulty proving campaign effectiveness to management, and lack of available tools to handle large-scale needs.

The fortunes of Google and Yahoo may be at an uncertain juncture, just like every other company in today’s tough economic times, but all indicators seem to suggest that marketers will to continue to spend strongly on paid search advertising in the year to come. However, if a slowdown in consumer spending does occur, search marketers will need to elevate their game in order to continue to meet, if not beat, their ROI targets. That means using the best tools available to improve the financial performance of their campaigns and to operate their campaigns as efficiently as possible. That’s the best way for search marketers to hedge themselves against an uncertain future.

The mobile ad opportunity has everyone standing up and paying attention. According to some projections, worldwide revenue from the consumer consumption of mobile content will be worth approximately $92 billion by 2009 (Informa Telecoms & Media Sept 2006). Data services, in particular, are also becoming more popular. This isn’t surprising given mobile devices are becoming the consumer access point for local business information — for example, the majority of people calling 411 for business information these days are doing so from wireless phones.

As such, we marketers are hungrily circling. In the US, mobile advertising spending is projected to grow from $1.4 billion in 2006 to $2.9 billion in 2011 (Jup Research, Oct 2006).

Obviously consumer data services are headed toward ad-supported models across all kinds of platforms. Consumers are more tolerant of ads because the delivery has become less intrusive, and the ads themselves are being viewed as meaningful content — Google and Craigslist have both capitalized on this fact. The very ad-supported model that was such a gold-mine for search is now extending to mobile search.

But how advertisers will pay still seems up for grab. Will they purchase banners via fixed CPM models? Or will the performance-based ad approach rule, with advertisers buying clicks to their WAP-enabled websites? Both cases are likely to occur, yet neither seem an ideal fit for the consumer, when considering the screen size limitations of mobile devices. Nor do these approaches necessarily deliver every advertiser a qualified lead they can realistically convert to a sale.

Pay-Per-Call, which has been gathering steam as an alternative to pay-per-click advertising since its inception in 2004, has taken on new meaning in light of mobile. Pay Per Call has traditionally referred to the performance-based online advertising model that allows businesses to advertise on websites and search engines, but pay for resulting phone calls instead of clicks to a website. However, many see the model emerging as the primary monetization engine behind mobile advertising.

Pay-Per-Call Sweet Spot?

Logically, Pay-Per-Call is a very plausible pay-for-performance approach to mobile advertising. It makes sense for consumers, who already have the power to make a phone call in the palm of their hands. It makes sense for advertisers, who don’t need to mess with WAP-enabled web sites or optimizing a web presence for a mobile screen. Last, and definitely not least, it makes sense for portals and mobile publishers, because calls deliver more revenue (an average of $8-$10 per call on Ingenio’s system – which trumps clicks by an order of magnitude). These players stand to get a significant cut of the Pay Per Call pie.

This last point is especially interesting when considering the revenue expectations for mobile advertising. In fact, Google’s Eric Schmidt recently claimed that mobile phones will eventually be free, subsidized by the growth in mobile ads. Given the dollar value of a phone lead, coupled with the intuitive nature of a phone call in a mobile environment, it stands to reason that the Pay Per Call model will be a major component to the mobile advertising sector’s projected financial success. This is underscored by reports that both Yahoo! and Google are testing Pay Per Call ads in their mobile search implementations.

As the pay-per-click product enters its adolescent phase, new paid search models which extend the principal of performance-based advertising have emerged. Pay Per Call is one such model that has captured attention in the marketplace among both advertisers and publishers. Pay Per Call allows advertisers to purchase calls to their business (as opposed to clicks to their website) from targeted, online ad listings in a performance-based model. There’s hardly a search engine, portal or directory that hasn’t given it some consideration and many are in various stages of testing or rollout. Why? New monetization models are a means to not only attract new advertisers, but to broaden existing advertiser relationships.

The pay-per-click product will no doubt continue to attract advertisers and enjoy success for years to come. That said, even today, only a few percent of US businesses advertise on the web — the majority have yet to venture online. Consumers, on the other hand, show no such reticence; we are conducting more commercial searches online every day, and it is now estimated that 25 percent of all web search is local and commercial in nature. The result is a supply and demand disparity; consumers are increasingly using the web to access business information, but advertisers are lagging behind because the traditional pay-per-click model doesn’t necessarily fit the needs of their business.

In addition, our environments are becoming more complex by the minute. The term “search” no longer just refers to “web search” on a desktop, as new mediums and formats like mobile search and free 411 services are taking shape. As new technologies continue surface and consumer behavior shifts, a dizzying array of ad distribution channels have appeared, and dreaming up ways to monetize each new medium is forcing our industry to think outside the box. Simply put, our worlds have become more sophisticated than the pay-per-click model can support.

The bottom line is, not every online advertiser wants to spend cash on clicks, nor does a click-driven monetization model make a lot of sense when it comes to ad distribution outside of traditional web search (have you tried clicking to a pizza joint’s web page via your mobile phone recently?). The good news is that advertisers are looking beyond the confines of pay-per-click to see what else is out there. Are they planning on abandoning their click campaigns? Absolutely not. But as the future unfolds, alternative models like Pay Per Call will take on new meaning for some who never considered it an option before.