Australian search advertising reached a total value of AUD$869.7 million during the 2008 calendar year making it the fastest growing segment in the local digital media advertising industry. Keyword sponsorships continue to lead demand accounting for 51% or $442.6 million of the total revenue. This is followed by online directories (valued at $263.9 million) and contextual searches ($163.2 million). The findings were released in the latest digital media advertising research from Frost & Sullivan, Australia Search Advertising Market 2008-2012.

The study identifies that 75% of advertisers are now spending more than 10% of their total media budget on search related activities. This compares with 65% of advertisers twelve months ago. Frost & Sullivan’s Andrew Milroy, Industry Director, ICT Practice Australia, said:

“Advertisers are clearly increasing the amount of money being allocated to search and this is occurring at the expense of other media budgets. We expect this will have a direct impact on traditional media spend over the next one or two years.”

This reallocation of budgets towards search is likely to be exacerbated by the current financial turmoil. With marketing activity as a whole predicted to slow, Frost & Sullivan suggests that advertisers will turn to search advertising because of its greater cost-effectiveness. However, the study cautions that some industries are clearly experiencing weaker levels of success with search advertising and there are signs that return on investment levels are beginning to decrease.

Competition for search advertising budgets also decreased significantly during 2008 due to market consolidation in both the search engine and directories markets. Although further consolidation is expected in 2009 the study concludes that it is not yet clear what effect this will have on advertiser activity, if any.

Australias leading paid search advertisers include the travel and accommodation, media and entertainment, and banking, finance and insurance industries. Together, these segments contributed 56% of search revenues throughout the year.

The study also confirmed that the clear market leader for search advertising remains Google which captured 62% revenue share of the total 2008 online search advertising market.