A change in ad spending threatens to cool the pace of search-engine growth.
and its many search rivals have benefited from the shift of traditional advertising to the Web. But now, some money may be moving away from search, which has been the hottest category, and toward other Web vehicles, amid questions about paid search ads' effectiveness.
Last year, search accounted for about 31% of the gross billings of
Avenue A/Razorfish business. But that share will likely drop 2 or 3 percentage points this year as advertisers boost the money they spend on advertising through portals including
and niche Web sites.
"As brand marketers scale their digital spending, portals and high quality vertical sites will be natural beneficiaries of that spending," Jeff Lanctot, a vice president at Avenue A/Razorfish, said in an email. "Google's ability to capture these brand dollars is less obvious. They will need to find success with their AdSense program."
The aQuantive report will provide ammunition for people who have argued that Google's share price isn't justified by its underlying business. Shares of Google have more than quadrupled since their 2004 initial public offering, as investors bet that the Mountain View, Calif.-based company would benefit from the surge in demand for Internet search. But Google has dropped 9% this year following the company's disappointing fourth-quarter earnings report in January.
Chief Executive Mark Vadon said the online jewelry retailer was going to reduce its dependence on search after reporting disappointing fourth-quarter earnings last month, according to
Though prices for keywords have stabilized, the high price of paid search ads remains a bigger concern for advertisers than click fraud, according to recent surveys.
Keyword prices for in the consumer and retail categories rose more than 10% each between October and December, according to Fathom Online. Gains were also seen in keywords for consumer services and travel companies.
Google investors will be anxious to hear how the company plans to respond to this and other challenges at its March 2 investors' meeting in California. In the last few months, Google has unleashed a slew of products to make itself less dependent on search, a longstanding concern of Wall Street. Some of the new offerings, including the company's new Google Pages Web page creator, have been criticized for being poorly thought out.
Search itself is showing more signs of maturing as companies such as
offer people premiums for using their search engines. Google doesn't need to resort to those types of gimmicks, which are being considered by
, because it receives more queries than all of its competitors combined.
For now, the allure of search will be difficult to ignore.
"Search is typically the most efficient form of advertising,'' Lanctot says. "You are typically advertising to an audience that is ready to buy, or is at least nearing a buying decision.''