NOVEMBER The Future is Now. How display will drive innovation in search and search retargeting

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1 NOVEMBER 2011 The Future is Now How display will drive innovation in search and search retargeting

2 letter FROM THE president What you re about to read is a convincing case for the future of digital marketing. a future, which we believe, lies within the combination of search data and display advertisements or search retargeting. in the pages that follow, we assess various data points about the search market and display TaBlE OF contents: Search Retargeting 3 SEM by the Numbers 3 Key differentiator 4 Search Retargeting: The Business case 5 both are consistent with the promise of search retargeting as the vehicle that places the advertiser as close as possible to the customer purchase decision. i hope this report gives some perspective on the future of search and how search data can be used within a larger approach to display. I believe we re headed toward a profitable and innovative intersection of Execution: Best practices for Search Retargeting 6 conclusion industry, and share insights provided by qualified experts. You will see that 7 data and technology and companies that operate within that intersection are poised for dramatic growth. There is no more compelling time to put a display or text ad in front of someone than after they ve search for a specific product. Think of the search retargeting model as intent-based display targeting. Think of it as the future of search. I m excited to join a company that is helping to lead the way through this intersection of search data and display. Enjoy the report. cheers, James green ceo, Magnetic 2011 MagneTic 2

3 Search Retargeting 2012 Innovation in search and better marketing results depend on proximity to the customer decision. It has been a year of promise for several areas in digital marketing. But, for all the innovations in mobile, video, targeting and social media, there is still one dominant category search engine marketing (SEM). After the 2011 dust settles, SEM s share of advertising budget dollars will be $14 billion compared to $12 billion for display ads. The reasons for SEM spending have not changed; it still gets a brand or service closer to the purchase decision than other online or offline mediums. Yet, while other channels seem to be experiencing hyper-innovation, SEM, taken on its own, lacks that futuristic vision. The basic business model is still the same: define the keywords, optimize the keywords and optimize the price. Now, when that business model is being applied to display, things start to get interesting. The search channel quickly becomes a brand opportunity for advertisers better pricing, increased scale and, best of all, the ability to follow up with a user after the customer has raised their hand and signaled intent within the search engine. The ability to bring SEM beyond the search engine represents the future for search. Put simply, search needs to integrate the new behaviors of the searchers across display channels and find ways for advertisers to allocate more dollars. It needs to show improved ROI for advertisers and provide a better experience for consumers. Search retargeting, which applies consumer behavior and purchase intent to display, will be the best engine to drive the future of search for advertisers and for the most important part of this equation, the searchers. There are three areas that search innovation could come from, says Eli Goodman, media evangelist at comscore. It could come from the search engines themselves, the marketers or the searchers. The searchers are the consumers. And the innovation needs to happen with the searchers. Algorithms can get better, search phrases can be longer, but unless companies innovate the experience they will not change search behavior. This white paper will make the case that SEM is in need of innovation. The current and future predictions for the digital marketing landscape show that SEM, in its current form, will grow but at a slower pace than over the past five years. In its place, search retargeting for advertisers and agencies will gain momentum as a consistent strategy as a day-in, day-out tactic for identifying and then converting customers that have already shown interest in their brand. It will integrate the huge spike anticipated in display ads as it delivers valuable creative and branding opportunities to advertisers. Search retargeting represents the best of SEM s original promise, which is to get as close as possible to the purchase decision. SEM by The Numbers Take a look at the picture painted by several analysts and research firms and it s apparent that search engine marketing in its current form will back off its exponential growth pattern. That s not to say it will be displaced as a huge business. As brands continue to migrate toward digital marketing, the amount of total ad dollars will grow, but the percentage claimed by search will stagnate. This creates opportunities for more dollars to flow beyond the search engines and into more innovative areas of search, such as search retargeting. One of the best examples of this trend comes from emarketer whose aggregate report on digital marketing in June shows that online advertising spending in the U.S. will grow 20.2% to $31.3 billion in 2011, up from $26 billion in 2010, when the market grew 14.9%. The Internet has become as fundamental as television to advertisers, said emarketer principal analyst David Hallerman. As consumers continue to increase their time spent online and as the resurgent economy continues to bolster ad budgets, we re going to continue to see an influx of dollars toward the Internet. More ad formats, such as video, and more channels, especially social media and mobile, are also key contributors to the spending gains. The internet has become as fundamental as television to advertisers. david Hallerman, emarketer, Principal Analyst In terms of search, emarketer predicts strong growth despite the lower overall market share as marketers move dollars toward video and banner ads. emarketer estimates U.S. search advertising spending will make up 45.9% of overall 2011 Magnetic 3

4 U.S. online ad dollars this year, down from a 46.1% share in However, although more new dollars will go into search this year and next (over $5 billion) than into banners and video combined (less than $4.4 billion), display will continue to grow at a faster rate. The single highest ROI for marketers is search, and the second highest is retargeting, based on behaviors, says Terence Kawaja, founder and CEO of LUMA Partners. There s a strong correlation or lift on campaigns with search retargeting. The way we see it, the search marketplace is already efficient. Search retargeting is the logical next step to take data from search and remarket it for a display campaign. The most recent numbers from comscore also show a healthy search market citing that Americans conducted 19.5 billion total The single highest ROI for marketers is search, and the second highest is search retargeting, based on behaviors. Terence Kawaja, Founder and CEO, LUMA Partners core search queries in September 2011 (up 1% from the previous month). Their report on search traffic also shows Google leading U.S. core search with 64.8% market share, followed by Yahoo! with 16.3% (up 0.2 percentage points) and Microsoft Sites with 14.7% (up 0.3 percentage points). As all these numbers show percentage differences, dramatic shifts are minimal. Key Differentiators The differentiators in this clearly maturing SEM marketplace will be technology and customer strategy focus. For example, econsultancy s 2011 report, co-sponsored by SEMPO, shows that reliance on search technology has reached an important milestone as, for the first time, over 50% of marketers are outsourcing to assist in their paid search efforts. While it is growing quickly, the number is lower in search engine optimization (SEO) largely because so many firms outsource their optimization efforts. This lack of control is leading to frustration. The report states: On both sides, the inevitable drive to innovate and automate is being felt, with a range of technology products targeted across the spectrum of marketing organizations. Most companies are locked into the antiquated strategy of using search to drive website traffic. It was the most commonly cited primary objective for SEO per econsultancy, with 42% of company respondents citing it as their top priority. However, generating leads is now the main goal for just under a third of company respondents (29%), while selling products, services or content directly online is the most important objective for less than a fifth of companies (18%). According to Stefan Tornquist, U.S. research director at econsultancy, Search engine marketers have learned how to roll with algorithm shifts and price increases and are constantly improving their efficiency. At the same time, they re taking the time to focus on the emerging opportunities where search, social and mobile meet. Marketers have traditionally thought of search as a solution to their pain points, says Rob Griffin, EVP, global director of product development at Havas Digital. For the first time, you re seeing customer-facing innovation on the back end. More specifically, search s evolution is playing out very similarly to what we experienced with TV and online video as it s driven by need and a desire from the consumer. This means as a marketer, or an advertiser, I can t presume to dictate how a consumer should think of me or try to find me, but aim for omnipresence and consistency. I need visibility at all stages of the purchase funnel. This also means search is evolving from a Direct Response channel so that a single search campaign needs to be segmented so it can be clustered in a way that some have brand KPIs while others US Digital Ad Spending by Format The trend indicates that search will almost double in spending, while digital display advertising is on pace to nearly triple in 2016 (in dollars). Search Marketing Display Advertising Mobile Social Media TOTAL SOURCE: Forrester Research, Interactive Marketing Forecasts, 2011 to 2016 (US) as cited in Advertising Age, Aug 24, Magnetic 4

5 Search Retargeting: The Business Case Tornquist s point regarding emerging opportunities is well taken. So, is the econsultancy finding indicative that more innovation is needed? Both provide the foundation for search retargeting s future. Search retargeting provides technology innovation and aggressive customer strategy for a business that sorely needs it to address advertiser growth and searcher experience. Search retargeting allows you to find where the consumer sweet spot is, says Tina Ienna, SVP group director at Universal McCann. And, in terms of innovation, my sense is that we re getting closer to the point where we re able to anticipate what consumers will look for. It s almost like the technology has advanced to the point where we know what they re thinking. We can innovate more there and then optimize our spend even further. Goodman believes that the searcher experience has become more important as consumers migrate from vertical search engines (such as travel or medical) and back to general search engines. Now they want a better experience from Google, Bing, Yahoo or others. I believe the answer lies in searcher intent, and people s desire to be understood by their search engine, he says. Nothing is more maddening in a search context than having to continually refine your searches to find what you want. Vertical search inherently signified searcher intent, while search engine results were often too According to a report from the Internet Activity Index, shared by the OPA and Nielsen Online Data, search only represents 4% of users share of time online. broad. Even if the top results were what you wanted, they became diluted pretty quickly and you suddenly had too many interpretations of your intended destination. IBM research analyst Andrei Broder published an academic study of search intent categories in He found three main behaviors: 1) navigational, which the immediate intent is to reach a particular site; 2) informational, the intent is to acquire some information assumed to be present on one or more web pages; and 3) transactional, the intent to perform some webmediated activity. All three of these behaviors are still directly addressed by search retargeting. Search is arguably the best performing form of advertising on the Internet. Yet, according to a report from the Internet Activity Index, shared by the OPA and Nielsen Online Data, search only represents 4% of users share of time online. Thus, there is a need for technology innovation to take the power seen with the solid results and high ROI from search and apply it to display where 96% of time is spent on the Internet. According to a July 2011 report from McKinsey & Company, SEM advertisers earn an average ROI of 7:1 on a global scale with several retailers reporting spikes in ROI higher than initial estimates for search retargeting campaigns. For the most part, this is because the search retargeting customer has already At the end of the day, search retargeting is logical because of one simple thought: If the consumer searched for my brand once and did not convert the way I wanted them to, why not retarget them with some sequential messaging? Rob Griffin, EVP Global Director of Product Development, Havas Digital declared their intent to purchase. And as the targeted audience shrinks, the value of each searcher grows. Griffin adds, At the end of the day, search retargeting is logical because of one simple thought: If the consumer searched for my brand once and did not convert the way I wanted them to, why not retarget them with some sequential messaging? A comscore and ValueClick study from 2010 shows that retargeted ads increase trademark search behavior by 1,046%. Moreover, according to emarketer between May and December 2010, the number of U.S. marketers using site retargeting rose from 17% to 22%. The research firm also notes that during that time, the proportion of marketers that launched search retargeting programs jumped from 13% up to 28%. This is the kind of exponential growth that digital marketers need to justify increased spend and fuel innovation in this category. Search retargeting also addresses and embraces the momentum behind display ads. The emarketer spending report referenced earlier shows that search spending is on pace to almost double in the U.S. by 2016, whereas display almost triples, bouncing from $12 billion in 2012 to $27 billion four years from now. According to Josh Dreller, vice president of media technology for Fuor Digital search retargeted display will offer many more times the impression opportunities per keyword search than traditional paid search advertising. He believes search retargeting could very likely become the dominant targeting tactic in the display ad space. Others agree. Search retargeting gives advertisers a second chance to 2011 Magnetic 5

6 reach consumers who might have not been ready to transact during their search experience, says Harrison Magun, the former SVP of paid media and analytics at Covario. Search retargeting is the gateway to display opportunities for search advertisers. Then there s the value to the consumer, or the searcher. The July 2011 McKinsey report draws some interesting and underexposed conclusions about the benefits of search for consumers. It identified the areas in which consumers find unique value from using search engines, including price transparency, entertainment, time saved, people matching, problem solving and raised awareness. These areas reveal that the average search engine user derives between 30 and Search retargeting allows you to find where the consumer sweet spot is. Tina Ienna, SVP Group Director, Universal McCann 65% more value from using search than any other media. While the report did not quantify search retargeting, it is clear that it has the potential to exponentially increase customer value through its efficiency and technological innovation. Again, this will be key to the growth and innovation of search retargeting over the coming year. Execution: Best Practices for Search Retargeting Identify Marketing Challenges. Although search engine marketing is one of the most effective media channels, high PPC prices and scalability issues continue to be a challenge for marketers. For example, Magnetic worked with a higher education institution that had not been able to grow its lead volume. Increased competition, high PPC prices, and scalability issues were the key reasons why. With search retargeting brands can combat this challenge two-fold: balance performance by using the power of search data for display campaigns, and increase scale by reaching users on content related sites (where they spend 96% of their time) versus just within the search engine itself. Define Optimization Strategies. Keywords have helped many companies capitalize on search retargeting, but hyper-targeted creative a.k.a. dynamic creative can also be essential in any given campaign. Additionally, brands can optimize at the keyword level; and serve a different creative asset based on specific search terms. Another advantage of search retargeting is that there are various ways to test campaign strategies. By using A/B testing, brands can evaluate various factors within a campaign from frequency, creative, time of day and day of week, and then optimize accordingly. Our Approach Search retargeting is the ability to target display ads based on user search history. Magnetic s search retargeting platform takes search data, as an indicator for user intent, and applies it to the remaining 96% of ad inventory where users spend their time. 1) Uses searches for a product or service: cell phone or mobile plans 2) User considers options 3) User sees your targeted ad while in purchase mode 4) User buys your product, visits your web site, signs up for a service, etc Magnetic 6

7 It s Still About Keywords. Search retargeting, as this paper has pointed out, is the logical future of search innovation. But it s still based on SEM basics, and that includes keywords. Each brand and campaign has a unique set of objectives and target audience and therefore, requires custom keyword segments. Using keyword generation tools enables marketers to expand beyond SEM lists and build out specific custom segments to target against. Targeting off of relevant keywords is the proverbial holy grail of search retargeting. Brand. That s right, brand. Make search bring your brand to life by following up with the user beyond the search engine. Gone are the days of only serving a simple text ad to those consumers that have searched for a product or service. The ability to apply intent data as seen in the search engine to digital display advertising creates a powerful way for brands to get in front of the right consumer. Layering creative elements like video and sound over the highest performing form of intent data helps push consumers through the funnel. Use Varied Metrics. There are a lot of ways to measure the success of search retargeting, this includes metrics that go beyond the click. For search retargeting, its best to evaluate a myriad of metrics including CPA, CTR and CPC, return on ad spend, cost of marketing and more. Conclusion As the panel of experts has pointed out, technology can change customer behavior as it exists in an ongoing pushpull relationship customer demand drives innovation, which drives further customer demand. As we mentioned before, 4% of online activity is spent in search, while 96% of consumers time is spent on other types of online content, including news sites, blogs, social networks, etc. Search retargeting makes for a cohesive online experience that ties searchers immediate interests with their online behaviors and will define the innovation needed by advertisers to grow and by consumers to improve that experience. With less than 95% of the clicks you buy in search not converting, search retargeting lets you reach those users again, at the right time, and move in for the sale. About MAGNETIC Magnetic was founded in 2008 and represents the first company to focus 100% on search retargeting. At Magnetic, our mission is to help our customers find their customers with superior efficiency. Through our search retargeting technology, advertisers target users with display ads based on their search history. With 8 billion monthly searches, Magnetic s scalable search data marketplace crunches hundreds of millions of keyword combinations giving marketers and agencies the ability to leverage search data, a key indicator of intent, beyond the search engine. Its suite of retargeting technology includes both full and self-service search retargeting as well as site retargeting capabilities. Magnetic s customer base includes Fortune 500 brands, the largest U.S. advertising agencies, ad networks, exchanges and demand side platforms. Magnetic is headquartered in New York City and funded by investors including Charles River Ventures, NYC Seed, Roger Ehrenberg s IA Capital Partners, Founder Collective, New York City Investment Fund, Ron Conway and multiple angels. For more information, please visit Magnetic 7

8 Contact Us Magnetic New York Headquarters: 311 West 43rd St, Suite 1406 New York, NY For more information visit us at