• by Aaron Goldman , Op-Ed Contributor, January 11, 2012

As I write this column, the ink is not yet dry on the full edition of the Kenshoo 2011 Online Retail Shopping Report,  but I’ve just finished up the last section with my colleague, Ari Rosenstein, outlining five predictions for 2012. The research is based on a dataset of 28 billion total SEM impressions, 350 million clicks, and 8 million online sales transactions across our index of retail paid search advertisers. Here’s a preview for all the Search Insider pun-dits out there.

1. Shoppers will spend more online in 2012, spurred on by the “Deal Economy.”

I know, I know… we’re really going out on a limb with this one. But I think the “why” is more compelling than the “what” here.

Re: “what,” 2011 broke all records in terms of online shopping during the holiday season with paid search ad revenue up 22% year-over-year (YoY). Additional research from comScore, IBM, and other reputable sources also showed significant increases in e-commerce activity.

Re: “why,” the daily-deal phenomenon has made every day Black Friday, but yet U.S. consumers are still trained to seek out the best of the best deals starting the day after Thanksgiving. This year, the bargain hunting began even sooner with many retailers bowing Black Friday sales on Thanksgiving Day itself. This led to a 40% YoY increase in Thanskgiving revenue, generated by paid search advertising with conversion rates up 28% YoY on Turkey Day.

Another trend contributing to increased online shopping is the impulse purchases brought on by shipping clubs such as Amazon Prime and/or free-shipping offers from various merchants. Shipping costs (and lag times) were once a barrier to online sales, but no longer. In 2012, look for retailers to leverage advanced technology solutions to manage deals and promotional offers in “real-time” based on inventory availability and up-to-the-minute pricing and packaging. Now that’s the real deal! 

2. 2012 will be the year of the tablet. Looking at a sample of retail paid search advertising campaigns, we found 7% of all online sales revenue came from tablets during the holiday season. Clearly, we can expect this device to play a more prominent role in consumer shopping and marketer targeting habits in the upcoming year.

Of the sales transactions completed via mobile, over 83% of the revenue was driven through tablets, and overall tablet conversion rate was 2.72%, more than 3x higher the conversion rate for mobile phones. Additionally, the average order value from tablets ($149.84) actually exceeded that of desktop computers ($146.07).

According to the Pew Research Center, 11% of Americans own a tablet and spend an average of 95 minutes a day on the device.  53% of tablet owners have a household income of more than $75,000 -- which may help explain why conversion rates and average order values were so strong.

When the iPad first came out, Rishad Tobaccowala dubbed it the perfect device for slouching, filling the void in our lives for a device to use between sitting and walking. As per usual, Rishad was spot-on with his insight -- but not even he could have imagined the phenomenon that has become “shopping while slouching.”

For search marketers to capitalize on this trend, it’s essential to break out separate campaigns for mobile-versus-desktop as well as target specific devices. Tailoring keyword selection, ad copy, landing pages, and bids to each particular device will improve quality score metrics as well as conversions, and prove you’re no slouch at SEM.

3. Paid search will increasingly be viewed as cost of goods sold in light of massive volume but heavy competition.

Paid search continues to be a prime acquisition channel -- but while there’s still plenty of volume available, competitive pressures are making it more difficult to pump out profit. Our data showed $5.57 return on ad spend for retailers during the holidays, which is quite strong, but down slightly from 2010.

In its IPO filing, Groupon asked investors to consider online marketing spend as a capital expense. While this ran contrary to standard accounting principles and caused much debate, the message was clear -- online marketing, and particularly paid search, is a long-term investment and, in many cases, a prerequisite for sales and, therefore, could be considered as cost of goods sold.

Even if SEM can’t be taken as a capital expenditure (hey, a guy can dream can’t he?!), such an approach to P&L management and budgeting becomes especially important in light of cutthroat competition and a marketplace in which many advertisers irrationally increase bids beyond the point of profitability in an effort to maintain volume.

Indeed, in an effort to meet sales projections in a marketplace marked by inflated CPC (our data showed an increase of 8% YoY) and declining impressions (3% decrease), expectations need to be set very carefully and budgets doled out responsibly.

To effectively compete in such a landscape, look for marketers in 2012 to maximize paid search budgets first before allocating money to any other marketing line items. Furthermore, search marketers will continue to adopt model-based bid policies to dynamically categorize keywords into portfolios and automatically calculate marginal ROI before making optimizations to squeeze out additional profit. Get it? Got it? Goods.

4. As competition increases and multiple device usage proliferates, SEO and PPC will be managed more holistically.

With the PPC landscape continuing to get more competitive (paid search budgets were up 31% YoY) optimizing websites to achieve stronger organic rankings will be atop every marketer's 2012 to-do list.

The key to success for marketers will be to view PPC and SEO data side-by-side to best understand the interplay between paid and organic listings as it relates to the path-to-conversion. In some cases, 1+1 will equal 3, as a listing in paid and organic will generate more volume and/or conversions. But for some keywords, a cannibalization effect will occur, and 1+1 will equal 1.5.

In 2012, marketers will take advantage of platforms that integrate SEO and PPC data into a single dashboard for ease of tracking, analysis, and optimization. Additionally, organic keyword traffic can be a great source of inspiration for paid search keyword expansion.

A final element of SEO that will not go unattended this year is mobile search optimization, which will make my pal Bryson Meunier super-happy -- happier even than he looks in his headshot on MobileSearchOptimization.com! Between more data points like those revealed in prediction #2 above and initiatives like Google’s HowToGoMo, the proverbial cat is out of the bag and marketers are hard at work purr-fecting their mobile play.

5. Marketers will integrate their social media and SEM campaign management practices.

For the second straight year in our research, SEM ad impressions were flat or down during the holiday season, reflecting a tendency for consumers to query their friends and families via social networks before, after, or even instead of querying their favorite search engine

Social networks such as Facebook, Twitter, and LinkedIn have become trusted sources for product recommendations. Since the advertising opportunities on social networks -- like dynamic ads and real-time bidding -- resemble that of paid search, many view search and social marketing as birds of a feather.

However, the mindset of consumers on social networks is quite different than when they’re using search engines – they often have communication and entertainment at top of mind, rather than commerce. Furthermore, the ad targeting options for retailers on social networks are much different, with intent inferred by user profiles, interests, location and connections rather than overt keyword queries. As such, it stands to reason that blended skill sets are best for campaign managers.

To best address the similarities and nuances between social network advertising and search engine marketing in 2012, marketers will seek out technology solutions that provide unified tracking, reporting, and attribution while delivering unique user-interfaces, targeting options, and bid algorithms to extract the maximum value from each channel. You might call it a SEM-patico approach.

Best wishes for a pun-derful 2012!