This morning, we released our quarterly State of Digital Marketing Report for Q3 2011 with our subsidiary Context Optional. These reports have become a definitive source of information for media and marketers. This quarter we saw some interesting trends. As we predicted, Facebook ad spend and CPCs are continuing to rise at a rapid pace, illustrating that social media is becoming an increasingly important part of brands’ overall digital marketing strategies. Meanwhile, search spend increased by double digits YoY, and Google regained market share for the first time since the Yahoo!/Bing alliance in the U.S. We’re also seeing tablets become an important part of the mobile landscape, capturing a huge portion of the mobile ad spend last month.

Among the Q3 2011 key highlights:

SEARCH SPEND INCREASED 20% YoY IN THE US AND 16% IN THE UK– Significant increases in ad budgets in the retail and financial verticals drove up overall search spend. ROI, however, trend did in opposite directions. US advertisers looking to scale and increase volume saw a decrease in ROI. UK advertisers upped budgets and increased ROI indicating that the UK market has room to spend more in search.

GOOGLE REGAINS MARKET SHARE FOR THE FIRST TIME SINCE THE YAHOO/BING ALLIANCE IN THE US.  As search spends increase and advertisers look to scale in volume, Google wins back market share because of its ability to offer more inventory, despite Yahoo/Bing’s power to produce higher ROI.

FACEBOOK AD CPCs INCREASED 54% IN Q3 FROM Q2. This indicates that advertiser competition in Facebook marketplaces is rising. Facebook has become an essential marketing channel for many brands. Increased cost per clicks (CPCs) reflect both a higher volume of advertisers and more price competition on the platform.

FACEBOOK AD SPEND INCREASED 25% IN Q3 FROM Q2. Advertisers see the value in significantly increasing investments in social.  Strategies to maximize fan reach with Sponsored Stories and acquire new fans with Facebook ads are contributing to spend growth. 84% of Facebook engagement can be attributed to Likes, which are credited to Facebook advertising. Today, brands are increasing fan counts 9% per month on average, increasing fan base by 2x YoY.

TABLETS CAPTURE 77% OF ALL RETAIL MOBILE AD SPEND IN SEPTEMBER 2011. In a span of less than a year, mobile search spend went from 0.5% to 4.2%. For retail advertisers today, mobile spend is 7% of search spend with tablets representing 60% of all mobile impressions and clicks.

EXCHANGE DISPLAY SPEND INCREASED 7% QoQ. Advertisers’ demand for display is rising as performance continues to garner additional investment. More modest gains on a same-advertiser basis are expected while new advertiser demands for exchange buying options remain high.

OUR OUTLOOK FOR Q4 2011 & 2012:

FACEBOOK ADS WILL CONTINUE TO RISE 30-40% QoQ. Advertisers will continue to increase investments to acquire, engage and monetize Facebook users driving more competition on the Facebook ad platform. A steady rise in engagement rates YoY and the development of new Facebook analytics will allow advertisers to monetize and gauge ROI of Facebook users more effectively.

FACEBOOK EMERGES AS A MORE SIGNIFICANT PART OF MARKETERS’ MEDIA MIX. An evolving platform and new success metrics that mirror traditional marketing channel metrics will allow advertisers to invest more comfortably in Facebook ads. New tools such as Context Optional Analytics integrated with Facebook’s Insights API provide advertisers with clearer benchmark metrics and solid social KPIs making Facebook advertising more attractive to cautious advertisers.

YAHOO/BING WILL FOCUS ON INCREASING INVENTORY TO REGAIN SPEND SHARE FROM GOOGLE. We believe US search spend will increase 15% YoY in Q4 2011. Advertisers love the stronger performance and high ROIs they are getting from Yahoo/Bing, but as they look to scale with larger ad budgets they will not be able to increase volume due to a lack of inventory. Yahoo/Bing will need to focus on expanding inventory, while maintaining high quality traffic.

MOBILE IS PROJECTED TO BE 7–10% OF ALL PAID SEARCH SPEND BY THE END OF Q4 2011. Recently, Google announced that keyword quality scores for mobile campaigns will be influenced by websites’ mobile optimization. The ability to attribute conversions across devices (mobile, tablet, desktop) is now possible with the development of the Google+ network that keeps users logged in to the Google ecosystem. Advertisers should prepare for this trend by investing time into looking at tablet traffic and conversions, while optimizing websites for mobile.

To get the full story, download our State of Digital Marketing Report for Q3 2011 here:

Dr. Siddharth Shah

Senior Director, Business Analytics