The Value of Advertising Search

June 3, 2009

Over the years, I have been asked, “Will advertising boost sales of our search engine?” I am no ad guy, and I replied, “I don’t know.” Now we have a lab experiment that may answer the question. Ina Fried’s “Microsoft Kicks Off Huge Bing Ad Push” here mentioned $80 to $100 million in ad spending. Let’s convert that to revenue in search. For 2009, Autonomy is going to generate around $900 million from its various search related businesses. So at $100 million MSFT is spending the equivalent of nine percennt of Autonomy’s revenue (rough estimate only, Autonomy watchers)  to make Bing a household name. Endeca (privately held so I’m using my model here) I estimate to be in the $125 to $150 million range for 2009, so Microsoft is spending the equivalent of Endeca’s revenue for 2009 with some spare change left over. If I look at my estimates for smaller vendors, the $80 million is the equivalent revenue for the next largest 12 search firms I track. Now2 look at the Google. Assume the Google hits $20 billion in revenue in 2009. Also 90 percent of the Google’s revenue comes from ads. The $100 million now looks small. Ms. Fried wrote:

The TV spots are being done by JWT, while Microsoft’s Razorfish unit created the online ads.

In a few months we will know if advertising an information utility like “works”. Looking at my rough estimates, I don’t think MSFT is spending enough. The story made one telling point:

“Google is so much a part of everyday culture,” aid Danielle Tiedt, general manager for marketing in Microsoft’s online unit. “It is the verb. If you talk about search you talk about Google.”

Google’s own data mavens will be interested in the ad value for search as well.

Stephen Arnold, June 3, 2009


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