May 19, 2004

Sensis division has set aside a multi-million-dollar marketing budget to create a new youth-focused search engine brand that will compete against Google, Yahoo and Microsoft/Ninemsn for a share of the burgeoning Australian search market.

At stake is the pressing need to protect Telstra's share of the directory advertising market, worth $1.265 billion according to Commercial Economic Advisory Service of Australia data for 2003.

The telco is also staking its claim to the fast-growing online search advertising market, after false starts such as the multi-million-dollar launch of its Telstra.com portal several years ago.

Sensis general manager of search Greg Ellis says the new search brand, which will launch within two months, will target a primary audience of "net-savvy" 15 to 28-year-olds.

It will co-exist with existing Sensis brands such as Yellow Pages and aims to take on Google and Yahoo by filling a gap in the market for search information that is locally relevant.

"What we're trying to do is to build a brand that we currently don't have (to) appeal to a younger audience (of) 15 to 24-year-olds," Ellis says.

The launch campaign, which is being handled by ad agency Young & Rubicam, and the new brand name are being kept under wraps.

But Ellis says the new service will eventually consolidate Sensis's diverse portfolio of search, directory and classified advertising properties available in online, voice, print and mobile media.

These include the Yellow Pages paid advertising directory, the Big Colour Pages localised ad directory and the classified ads business The Trading Post, as well as map service Whereis.com.au, events and restaurant directory Citysearch and paid advertising directory LookSmart's Australian operations.

"Delivering local Australian results is not a feature of most Australian (search) services," Ellis says. "Our search engine will blend proprietary local information with Australian web content and the global internet."

Several players are already battling for a share of the total Australian search advertising market – including online search, directory and classifieds. They include online search players Google, Yahoo, which owns online search marketing service Overture, and Microsoft/Ninemsn, as well as Sensis and traditional media publishers such as News Interactive (owned by publisher of The Australian, News Limited) and Fairfax's F2.

Jupiter Research has projected that paid online search advertising revenues alone will grow this year to more than $40 million by December, an increase of 68 per cent from 2003. Last year, $69 million was spent online on paid search and directory advertising combined, according to the internet industry's Online Advertising Expenditure Report, and Macquarie Equities estimates this has already grown to $100 million.

Telstra's online, mobile and wireless directories business is already generating $50 million in revenue.

Web and print publishers are keen to protect their classified advertising base from competition from Telstra's Trading Post acquisition. Newspaper classifieds are worth an estimated $1.7 billion alone, representing more than half of all classified advertising.

While Telstra has stated its aim of moving into new classified areas including recruitment and real estate advertising, its main media competitors suggest Sensis first needs to protect its 400,000 mainly small-to-medium enterprise advertisers, the main source of its massive Yellow Pages revenue stream.

This revenue is under concerted attack from paid search advertising products from Google and Overture, which allow companies to sponsor key words on their search engines in order to generate online search results prioritised according to advertisers in each category.

Overture's service mixes relevant advertising and editorially generated links while Google's paid links appear on one side of the screen. The benefits for advertisers are the low cost of entry and a known up-front cost per click, generating a measureable number of qualified leads.

"(Sensis's) business is going out the door very fast," one competitor says. "People are going more naturally to the internet for things they need to know."

Overture makes no bones about targeting Sensis's advertisers. "I would want every one of those 400,000 advertisers and more," Overture managing director Mel Bohse says.

Macquarie Equities analysis suggests combined online search and directory advertising is growing by 53 per cent per year, albeit off a low base, compared with traditional directory advertising, which grew by less than 9 per cent last year.

Telstra's key White Pages and Yellow Pages products have a relatively low share of audience amongst younger demographics, who are more likely to use search engines than directories.

Data from online audience measurement company Hitwise shows traffic to search engines grew 15 per cent from January 2003 to March 2004 and now comprises about 14 per cent of internet traffic generated by Australians.

Search engines comprise half of the top 20 websites accessed by Australians. No Telstra sites figure in the top 10 search and directory websites accessed by Australian internet users; these are dominated by Google, Yahoo and Microsoft/Ninemsn. Sensis's White Pages and Yellow Pages sites are ranked 12th and 15th respectively (April 2004).

White Pages and Yellow Pages also lag behind Google, Yahoo and Ninemsn in terms of their use amongst people aged 18 to 24. Yahoo, Google and Ninemsn average about 20 per cent of these users; White Pages and Yellow Pages languish at 12 to 13 per cent.

Effectively, Sensis's directories will provide the local information for its new search service, the LookSmart acquisition will provide Australian web information, which Sensis will augment, and an alliance with Yahoo's Inktomi will provide the global internet feed.

Hitwise vice-president of search Gavin Appel says the Sensis launch could boost the demand for localised search information.

"There is a gap in the (Australian) market," Appel says. "Sensis has got all the features that are required for an effective local search product."

He says despite the heritage of the White Pages and Yellow Pages brands, the new site will effectively be starting from scratch and will need to be heavily promoted in order to attract traffic.

Overture's Mel Bohse says traffic is the main problem facing Sensis. "The search model works on volume of search or distribution," Bohse says. "The absolute key (for advertisers) is how much traffic I can provide them."

Overture has recently announced alliances with partners such as F2 and Ninemsn, as well as Yahoo, Alta Vista and OzEmail, that extend the distribution of its paid search ad listings to more than 80 per cent of Australian internet users, according to Nielsen NetRatings data.

Bohse says local search information, which will enable users to locate businesses within their geographic area more easily, is Overture's next priority and it will launch a local product in Australia by the end of this year.

Google, which has been criticised by local web publishers for under-resourcing the Australian market, is now under pressure to lift its game. It has an estimated 65 per cent share of the Australian online search audience.

Its main product is text-based advertising and it has launched local targeting for Australian advertisers. It is also testing image-based ads and a controversial G-mail service, which matches words in emails sent from Google with relevant advertising.

The company is set to float globally in the US, and may raise as much as $30 billion, according to some estimates, giving it a war chest from which to expand its global paid search services.

Microsoft is also understood to be building its own global search engine, which means Ninemsn in this market may eventually adopt the model of its MSN parent in the future.

Paid online search advertising in the US is doubling annually and could be worth $US5 billion by next year.

"We've got back to the bubble days (of internet growth)," Bohse says of the search advertising phenomenon.

John Bolakis, chief executive of Search Engine Optimisation, says the size of the paid search market is still drastically underestimated.

Bolakis says the number one listing on Google for the term "home loan" already costs around $5 per click.

Meanwhile, Macquarie Equities telecommunications analyst Ian Martin says the convergence of the online search and printed directories businesses will continue to stimulate advertising growth in the order of 50 per cent.

Martin says in future consumers may want the option of searching on personal digital assistants and even on their televisions, and online could move beyond a 10 per cent share of combined directories and classified advertising by 2006.

Martin also says the development of search facilities may make it easier for the directories segment to challenge newspapers' share of classified advertising.

This is disputed by the traditional classified players. "Classifieds will provide a more detailed layer of search (than national and global search engines)," F2 chief operating officer Nick Leeder says. "The search will be more refined, more targeted and more complex."

Source: The Australian News

        

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