According to a recent post from Heather Hopkins at Hitwise, the share of search traffic coming from paid listings is decreasing at the expense of organic traffic.

The stats highlight a 26% decline in the share of paid clicks, but is paid search really falling? Let’s take a closer look…

Hitwise’s claim was based upon tracking of branded terms such as ‘Travelocity’, ‘orbitz’ and ‘walmart”’and finding that spending has
fallen year-over-year for these.

But this approach perhaps
oversimplifies things a little
and ignores the way in which many search
marketing campaigns are evolving.

Sure, brand bidding is important and some studies have shown there’s a 10-20% lift in response through buying your branded terms. But many marketers now choose to avoid buying their brand name, as their company is most likely already listed in the first, and more importantly, free spots in the organic listings.

Instead, it’s becoming increasingly common to squeeze out branded terms in favour of more effective long-tail search terms that will acquire search traffic that wouldn’t have been captured ‘naturally’. It’s part of being more efficient with your spend.

Perhaps the reason Hitwise found a lower share of paid clicks for the branded terms they tracked was because, when search budgets are cut, branded terms are deemed unnecessary and are often the first to go. They might look good on a spreadsheet of performance, but often they don’t always drive new business, since searchers were looking for the company anyway, and clearly already familiar with the brand.

Paid search spend may be going down as a share of overall search, but this is a result of two factors:

  1. Less competition in the paid search space, resulting in fewer overall sponsored clicks.
  2. A growing universe of searches. In actual fact, paid search is on the increase if one looks at it in absolute terms.

That said, taking a closer look at the first factor, certainly search faces some major challenges in the current economic climate. As Techcrunch showed, searches may be up, but there are fewer advertisers around to spend money on search, as retailers in particular feel the full force of the recession.

But this can provide an opportunity for the advertisers that remain. Basic economics tells us that more supply (searches conducted) over less demand (slower growth in advertisers) will drive down the actual cost per acquisition in search, leading to companies reaching their customers more efficiently. If advertisers and agencies are finding this isn’t the case, it’s clear they do not have the correct search marketing strategies in place.

So, while paid search may appear to be down in comparison to the overwhelming growth of the industry as a whole, spending is definitely still going up. If you’re still not convinced, then look to Google – the main measure of search spending.

Although performance has slowed slightly in Q2 2009, paid clicks were still 15% higher year-on-year.

What’s clear from all of this is that as search matures, it is becoming an increasingly complex category to manage, and the best way to manage this complexity is to arm yourself with the right tools and technology infrastructure, and take comfort in knowing that the next time this ever-changing marketplace throws you for a loop, you’ll be positioned to take the change in stride.