Survey of Advertisers and Agencies Search Engine Marketing Professional Organization (SEMPO) March 2008

1. The State of Search Engine Marketing 2007 Canada Survey of Advertisers and Agencies Search Engine Marketing Professional Organization (SEMPO)March 2008

2. Research Project Objectives PROJECT OVERVIEW • Understand the size of the industry in order to help promote its growth • Understand where marketer spending is going, among different recipients (search engine media companies, SEM agencies, in-house) and towards what types of SEM programs (paid placement, paid inclusion, organic SEO, SEM technology) • Identify key industry trends • Identify key industry issues SEMPO should address Radar Research, Inc oversaw the following research initiatives as part of this project: Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Global Results. Copyright © 2008

3. DEFINITIONS: Respondents Were Given the Following Definitions at the Start of the Survey PROJECT OVERVIEW • Search Engine Marketing (SEM): the entire set of techniques and strategies used to direct more visitors from search engines to marketing web sites, including all of the tactics and strategies defined below. • Paid Placement: Text ads targeted to keyword search results on search engines, through programs such as Google AdWords and Yahoo Search "Precision Match," also sometimes referred to as "Paid Placement," "Pay-per-Click" (PPC) advertising and Cost-per-Click (CPC) advertising. • Contextually Targeted Text Ads: Text ads targeted to the subject of writings on web pages, such as news articles and weblogs, using programs such as Google's "AdSense" and Yahoo Search’s "Content Match" programs. • Paid Inclusion: The practice of paying a fee (fee structures may vary) to search engines and similar types of sites (e.g., directories, shopping comparison sites) so that a given web site or web pages may be included in the service's directory, although not necessarily in exchange for a particular position in search listings, such as Yahoo Search’s "Site Match" program, formerly known as Inktomi) • Organic Search Engine Optimization: The practice of using a range of techniques, including augmenting HTML code, web page copy editing, site navigation, linking campaigns and more, in order to improve how well a site or page gets listed in search engines for particular search topics. • Search Engine Marketing (SEM) Service Provider: Agencies or individuals who assist companies with the various search engine marketing practices described above. • Search Engine Marketing Technology Provider: Makers of a software application specialized to assist in the execution of search engine marketing programs, with features such as "bid management," "campaign management," "portfolio management" and "dynamic optimization." • Web Analytics: Using a reporting platform for measuring and analyzing the results of any/all of your online marketing campaigns, including search engine marketing. Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Global Results. Copyright © 2008

4. Research Methodology PROJECT OVERVIEW Radar Research oversaw the following research initiatives as part of this project: • Development of SEM forecast model • Detailed online survey completed by 882 search engine advertisers and SEM agencies globally, administered via IntelliSurvey, Inc. with 96 Canadian respondents • Extensive analysis of secondary research, reporting and commentary Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Global Results. Copyright © 2008

5. 2007 North American SEM Industry Size Estimate, by Tactic RESEARCH HIGHLIGHTS Source: Radar Research Forecast, North America, 1/08 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Global Results. Copyright © 2008

6. North American SEM Expenditures to Reach $25.2B in 2011 RESEARCH HIGHLIGHTS • Growth will be driven by: • Advertiser demand • Rising keyword pricing and cost per click • Increase in small-to-midsize businesses using SEM • Greater consumer usage of search utilities • Better targeting and niche offerings Search Engine Marketing Projections, North America2007-2011 (billions) Source: Radar Research Forecast, North America, 1/08 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Global Results. Copyright © 2008

7. Majority of Canadian Respondents from Ontario and British Columbia RESEARCH HIGHLIGHTS • More than 2 out of 5 respondents are from Ontario • Almost a third are from British Columbia • 13% are from Alberta, 11% from Quebec Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008 Total n=96

8. Brand, Sales, Leads and Traffic Are Top Objectives of Paid Placement Programs Among Advertisers RESEARCH HIGHLIGHTS • Among advertisers, selling products is the top objective of Paid Placement campaigns • Increasing or enhancing brand awareness follows closely as an objective for Paid Placement Purpose of Search Engine Marketing "What is your company using search engine marketing to accomplish?" [Multiple responses applicable] Advertisers n=39 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08.Canadian Results. Copyright © 2008

9. Google, Yahoo Most Popular Search Media Companies ADVERTISERS > PAID PLACEMENT Most Popular Paid Placement Search Engine Networks Among Advertisers "Which of the following Paid Placement search engine networks do you run campaigns on?" [Multiple responses applicable] • Google AdWords is the most popular search advertising program, used by 93% of respondents • 67% reported using Yahoo’s general “Sponsored Search" paid placement program • MSN is also used by two-thirds of advertisers, making the site more popular in Canada than it is with global respondents • Of the rest, Ask.com was the next most-popular search ad program, consistent with global results Advertisers n=27 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008

10. Site Traffic, Conversion Rate, Click-Thru and ROI are Top Performance Metrics for SEM Programs RESEARCH HIGHLIGHTS • More than 50% of respondents tracked the following success metrics for the SEM campaigns: site traffic, post-click conversion, click-thru rate, ROI, cost-per-click, cost-per-action (e.g., sale), and sales volume • Agencies were more likely to track all metrics by about a margin of 10-20% in the case of all metrics • These figures are very consistent with the 2006 survey Metrics Tracked To Gauge the Success of SEM Programs "What metrics do you track / measure / generally pay attention to gauge the success of Search Engine Marketing programs?" Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canada Results. Copyright © 2008 Total n=96

11. SEM Is Poaching Budget From Both Online and Off-line Marketing Programs RESEARCH HIGHLIGHTS • The biggest shares of budgets for SEM programs are being shifted away from offline marketing such as print, as well as online marketing such as Web site development and affiliate marketing Shift of Marketing / IT Funds to Search Marketing Programs "From which marketing/IT programs are you shifting budget away and moving it to your search marketing programs?" Advertisers n=23 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008

12. Paid Placement Prices Have Risen Moderately RESEARCH HIGHLIGHTS • Agencies feel greater price increases than advertisers • Almost two-thirds of advertisers and agencies reported a price increase • Eleven percent of both advertisers and agencies do not know whether they are paying more for paid placement in 2007 versus the previous year, consistent with the global survey results Changes in Paid Placement Prices "Have you observed prices for Paid Placement ads change in the last year for the keywords you routinely bid on?" Advertisers n=27; Agencies n=36 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008

13. Most Advertiser Respondents Could Still Tolerate Further Price Increases, at Moderate Levels RESEARCH HIGHLIGHTS • Over three-quarters of respondents said they could tolerate further rises in paid placement prices • 22% report they cannot afford to pay more for leads/conversions because they are currently at maximum efficiency, consistent with the global survey results • Even among advertisers who report the capacity to increase ad expenditure, almost half can afford 30% or less • Despite increasing ad spend and year-to-year growth in the value of search engine marketing, we are likely nearing a pricing plateau as advertisers near their maximum efficacy. Ability to Afford Further Price Escalation in Paid Placement Ads "Given the current efficiency you experience with Paid Placement programs, and the quality of the leads that this tactic generates, how much more could you afford to pay for the leads / conversions this channel provides before you could not justify the expense?" Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008 Advertisers n=27

14. Advertisers Would Improve Their Marketing Efficiency Rather Than Cut Back On Budget RESEARCH HIGHLIGHTS • Improving site conversion efficiency and improving the overall efficiency of bidding programs would be advertisers’ first steps in maintaining paid placement programs • Almost a quarter of respondents said they would rely more on outside SEM providers and 15% said they would rely less on outside providers. Advertisers’ Reaction to Increasing Cost "How would you likely react to hypothetical scenario where the cost of Paid Placement steadily increased for the next two years?” [Multiple Responses Allowed] Advertisers n=27 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008

15. Advertisers Are Overwhelmingly Interested in Behavioral Targeting Opportunities RESEARCH HIGHLIGHTS • Over nine out of ten advertisers indicated they were wiling to pay more for behavioral targeting opportunities, particularly for in-market consumers • There is also strong interest in demographic targeting that allows marketers to reach certain demographics such as age and gender, however advertisers are not particularly enthralled by the prospect of daypart targeting Willingness to Pay More for Certain Types of Targeting "Are you willing to bid more for clicks based on the following types of targeting criteria" Advertisers n=27 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008

16. Search Retargeting Based on Behavior Is Still In Its Infancy But Interest Is Strong RESEARCH HIGHLIGHTS • While advertiser interest in behavioral targeting is very strong, actual investment is still low • Almost three in five (59%) advertisers said they are not currently targeting or retargeting searchers but plan to in the next 12 months • Less than two in five (19%) said they are not currently targeting or retargeting searchers and do not plan to in the next 12 months • 41% said they were targeting searchers either through an ad network, a portal or who had previously visited their site Advertisers Interest in Behavioral Targeting for Search Retargeting "Are you using behavioral targeting solutions for search retargeting? [Multiple Responses Allowed] Advertisers n=27 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008

17. Advertiser Respondents Spanned Several Service Sectors ABOUT RESPONDENTS • Retail, business, health and travel services, and manufacturing are the top sectors represented by advertiser respondents. Survey Participants’ Industry Sectors “What best defines your industry sector?” Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008 Total n=39

18. Canadian Advertisers Expect to Book Lower 2007 Revenues than Global Respondent Base ABOUT RESPONDENTS • One-third of Canadian advertisers expected less than $1 million in 2007 revenues, compared to only one-fifth of total survey respondents • More than half of Canadian advertisers (56%) expect to book between $1-100 million in 2007 • Only a single Canadian advertiser respondent (representing 3% of total respondents) reported 2007 revenues above $1 billion Revenue Expected for 2006 “How much revenue do you expect your business to book in 2007?” Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008 Advertisers Global n=341; Canadian n=39

19. Organic SEO Most Popular of SEM Programs With Advertiser Respondents - and Growing RESEARCH HIGHLIGHTS • More than four out of five Canadian advertiser respondents (85%) engage in organic search engine optimization - slightly lower than global respondents • More than two-thirds (69%) engage in paid placement - on par with global respondents • Only a tenth of Canadian advertisers engage in paid inclusion, far lower than the 26% worldwide Engagement in SEM Programs "Do you currently engage in …?" Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008 Advertisers n=39

20. Paid placement and Organic SEO were offered by the vast majority of agency respondents Paid inclusion is still offered by a majority of agencies, even if demand by advertisers is low Organic SEO Is Top SEM Service Offered by Canadian Agencies RESEARCH HIGHLIGHTS SEM Program Offerings "Do you currently offer the following SEM services …?" Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008 Agencies n=57

21. Majority of Respondents Who Engage in Paid SEM Shift Budget Away From Other Marketing Programs RESEARCH HIGHLIGHTS • About a third of respondents said their funding for paid placement and paid inclusion came from newly created budgets, on par with global figures • Nearly half of respondents said they were shifting in whole or in part budgets from other marketing programs to fund these new initiatives Source of Budget for Paid Placement and Paid Inclusion Programs "Where is the budget coming from for your Paid Placement and Paid Inclusion programs?" Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008 Advertisers n=39

22. Majority of Respondents Shift Budget Away From Other Marketing Programs for Organic SEO RESEARCH HIGHLIGHTS • Over a third of respondents (36%) said their funding for organic search engine optimization programs came from newly created budgets, similar to global respondents • About half of respondents (51%) said they were shifting in whole or in part budgets from other marketing programs and/or web development budgets to fund these new initiatives Source of Budget for Organic Search Optimization Programs "Where is the budget coming from for your Organic Search Optimization programs?" Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Global Results. Copyright © 2008 Advertisers n=39

23. Canadian Agencies Anticipate Greater Spending Increases than Advertisers Across the Board RESEARCH HIGHLIGHTS • Agency respondents anticipate 2008 spending to increase faster than advertisers plan to increase spending. This suggests they must look to new contracts, rather than simply raising prices • Agencies may be over-optimistic in some cases, such as paid inclusion, which is unlikely to draw many new customers -- and will be likely to continue to lose them Expected Increase in 2008 over 2007 for Specific SEM Programs "How much more or less do you expect to spend/book in 2008 compared to 2007 for [each of the following SEM programs]?" Advertisers n=39 Agencies n=57 Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008

24. Nearly Half of 2008 Paid Placement Spending by Canadian Advertisers Will Be Managed In-House, Not Outsourced to Agencies RESEARCH HIGHLIGHTS • Nearly half of Canadian advertiser respondents (44%) said they plan manage all of their 2008 paid placement spending in-house; slightly fewer than among total global advertiser respondents • A third of Canadian advertisers plan to outsource the majority of their paid placement expenditures in 2008, slightly higher than the number for global respondents Management of Planned 2008 Paid Placement Spending "How much of your planned spending next year (2008) for Paid Placement programs are you likely to manage with in-house resources versus through an external search engine marketing service provider?" Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008 Advertisers n=240; 27

25. Majority of Canadian 2008 Organic SEO Spending Will Be Managed In-House, Not Outsourced RESEARCH HIGHLIGHTS • Over half of advertiser respondents said they plan to manage all of their 2008 organic SEO spending in-house; this is similar to overall global survey figures • Fewer than a quarter (24%) of Canadian advertisers plan to outsource the majority of their organic SEO spending in 2008 Management of Planned 2008 Organic Search Engine Optimization Spending "How much of your planned spending next year (2008) for Organic Search Engine Optimization programs are you likely to manage with in-house resources versus through an external search engine marketing service provider?" Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008 Advertisers n=33

26. Most Canadian Advertisers Are Willing to Bid More in Order to Reach Particular Demographics ADVERTISERS > TARGETING Demographic Targeting • Are you willing to bid more for clicks that only reach certain demographics such as age and/or gender? • How much more would you pay for the optimal age/gender combination? Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008 Advertisers n=36 Global

27. Nearly All Canadian Advertisers Are Willing to Bid More in Order to Reach Consumers Based on Behavior ADVERTISERS > TARGETING Behavioral Targeting • Are you willing to bid more for clicks based on behavioral information such as in-market consumers (i.e. consumers currently shopping for a specific product)? • How much more would you pay for optimal behavioral projections on future purchases? Source: Search Engine Marketing Professional Organization survey of SEM agencies and advertisers, Dec 07-Jan 08. Canadian Results. Copyright © 2008 Advertisers n=36

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