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Old 11-19-2004   #1
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Is Search Sustainable? Recent total size of market projections

Safa Rashtchy seems to think so. The Piper Jaffray analyst presented some interesting trends at ad:tech. Wouldn't be fair to share the entire presentation, but here are a couple of excerpts:

"Our projections have nearly doubled in less than two years, fueled by international growth."

Size of global search revenues by 2007: now $13.5 billion. $23.2 billion by 2010.

(This is a brand new industry, evidently. The number for 2001 was $369 million.)

Drivers of growth:

TCPC:

T= Traffic -- more searchers, more searches, more business searches

C= Coverage -- more keyword coverage by advertisers

P= Price -- now rising more slowly, but up to about 0.45 average CPC for Ov. and slightly less for Google. (My take: growth may slow but watch this continue to ramp up to over $1.00 in the next 3-4 years.)

C = Conversion -- if we assume conversion rates are increasing, advertisers can afford to bid more.
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Old 11-19-2004   #2
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I'll play devils advocate then;

>T= Traffic -- more searchers, more searches, more business searches

First world, its peaked and in certain sectors is in decline [see USA]. I don't see a business model in providing services to the third world unless you are based there.

>C= Coverage -- more keyword coverage by advertisers

Maybe, but I guess no. The value keywords have already been discovered, combine that with the pleas of AdwordsAdvisor "please no more keywords" and we have hit the peak.

>P= Price -- now rising more slowly, but up to about 0.45 average CPC for Ov. and slightly less for Google. (My take: growth may slow but watch this continue to ramp up to over $1.00 in the next 3-4 years.)

Or drop, the market sets the rate. Lets see how this "industry" copes with another general economic recession, my call is a bloodbath, CPC will drop like a stone.

>C = Conversion -- if we assume conversion rates are increasing, advertisers can afford to bid more.

If only life were like that. In effect you are saying that the PPC providors have a lincense to print money, the vendors will be more than happy to pass an increasing proportion of their profits over to them. That won't happen, the world will end before that day comes.

Just saying.
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Old 11-21-2004   #3
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Quote:
Originally Posted by NFFC
I'll play devils advocate then;

>T= Traffic -- more searchers, more searches, more business searches

First world, its peaked and in certain sectors is in decline [see USA]. I don't see a business model in providing services to the third world unless you are based there.
The analyst's data showed slight increases in all of the above. The average search engine user is still quite low volume, so as light users become moderate users, some growth is ongoing.

Quote:
Originally Posted by nffc
>C= Coverage -- more keyword coverage by advertisers

Maybe, but I guess no. The value keywords have already been discovered, combine that with the pleas of AdwordsAdvisor "please no more keywords" and we have hit the peak.
Experimentation with the tail is ongoing, and big-budget advertisers and local advertisers haven't even discovered paid search yet. It ain't game over by any means. Reps from Google and MSN recently told me that coverage was still fairly low (40-50% of all queries are seeing any significant advertiser presence) and have room to run.

Quote:
Originally Posted by nffc

>P= Price -- now rising more slowly, but up to about 0.45 average CPC for Ov. and slightly less for Google. (My take: growth may slow but watch this continue to ramp up to over $1.00 in the next 3-4 years.)

Or drop, the market sets the rate. Lets see how this "industry" copes with another general economic recession, my call is a bloodbath, CPC will drop like a stone.
While marketing budgets are often first to be cut, this sector is still undergoing rapid growth from a low base. Unmeasurable, irrational marketing may be cut, but for many companies, this type of advertising turns over a measurable daily profit. You don't cut that.

You certainly seem to have an ax to grind against search marketing, NFFC! Compared with offline "spray and pray" advertising, most search marketing is still a screaming bargain.

I suppose it requires some vision and some critical distance not to be Chicken Little on average CPC's.

If you assume that you're omnipotent and can spam the organic results indefinitely, of course, you won't bother with paid search, and that of course will keep prices lower for those who do.

Quote:
Originally Posted by nffc

>C = Conversion -- if we assume conversion rates are increasing, advertisers can afford to bid more.

If only life were like that. In effect you are saying that the PPC providors have a lincense to print money, the vendors will be more than happy to pass an increasing proportion of their profits over to them. That won't happen, the world will end before that day comes.

Just saying.
The analyst believes that conversion rates on commercial campaigns are improving as advertisers test and refine their offers. It stands to reason that campaigns are more efficient when you start showing them to people who are interested, and then make it easier for those people to buy.

I'm only repeating what I heard. These are as close to facts as you can find in this business. Granted, Wall Street analysts are usually not impartial. Neither are short-sellers and SEO's, so I guess we'll just have to sit back and let history decide.
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Old 11-23-2004   #4
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>T= Traffic -- more searchers, more searches, more business searches

And the there are untapped markets that have yet a lot to grow. For example: Multilingual Search Markets within the U.S., such as ethnic markets like the Hispanic market.

>C= Coverage -- more keyword coverage by advertisers

Current tools focus on same keyword suggestion using the keyword used in form as a base. However, there is nothing done to provide on-topic correlated keywords for more suggestions. When this hits the market, watch everyone's lists grow by multiples of 10 (at least).

>P= Price -- now rising more slowly, but up to about 0.45 average CPC for Ov. and slightly less for Google.

Price will have to adjust to each market - period. If you can not afford ROI at more than $0.10, then you just can't. If you can, then just bid up or spend more.

>C = Conversion -- if we assume conversion rates are increasing, advertisers can afford to bid more.

Advertisers are getting more savvy on metrics and markets are finding their comfortable spots where maximization of profits are at its best. Can there be more optimization after that? Maybe with new search markets and untapped users.

Why do any of these numbers never take into account SEO services? There is so much money here too that wall street should have their eyes popping out of their face However, reality is different. I just spend time in a Morgan Stanley venture capital markets conference last week and at the end I asked, "After becoming best friends with Google through the IPO process and going together on the road show, do investors really understand what the 'search engine marketing' industry is all about outside of these search engines making a lot of money on some new way to display ads?" The clear answer was = NO!

Just wait when board rooms start talking about shifting from 10% of the marketing budget on Internet to 50% making that 30 or 40% out of the 50% on SEM.

We're in it for an amazing ride my friends!
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Old 11-23-2004   #5
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What Nacho said

I wholeheartedly agree.

Shorebreak, a.k.a. 'The Optimist'
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Old 11-23-2004   #6
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> I suppose it requires some vision and some critical distance not to be Chicken Little on average CPC's.

Ouch!

> If you assume that you're omnipotent and can spam the organic results indefinitely

Ouch! Ouch!

> You certainly seem to have an ax to grind against search marketing, NFFC!

Now that's getting a little personal. For the record I will put *my* own hand in *my* own pocket for a 6 figure PPC spend in the next 12 months, you?

Back to the topic.

> Is Search Sustainable?

Sure, its a very profitable service to offer, its also a very effective method of driving sales/actions for a webmaster. It is not however the second coming, nor the complete answer to a webmasters needs. Most importantly, and this may come as somewhat of a shock, continued growth is not assured.

I see a lot of barriers in the way of stellar growth.

Click fraud is one and at fear of tarring and feathering this is why; people try and brush it off as just adding to average CPC across the board, I think they fail to appriciate that click bots are usually very targetted, it hurts the corpus of advertisers very little but can destroy the ROI of a few. I think click fraud will grow at a faster rate than its host.

Local search as the white knight riding to the rescue? Local search isn't new, certainly in the UK its almost established, there is a little site called yell.com that does it rather well. The bad news, no traffic, no ROI. I don't think the search engines have the infrastructure to deal with local search, I don't think that they can do it profitably.

>like the Hispanic market

No money.

>shifting from 10% of the marketing budget on Internet to 50%

Budgets are budgets, the greater % that moves online the better the "deal" on offline.

Disclaimer:
The above is part my opinion, part devils advocate and part a counterpoint to andrewgoodman's "rapture".
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Old 11-23-2004   #7
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Quote:
Originally Posted by NFFC
>like the Hispanic market

No money.
YES money, and a lot of it from what I can see. It all depends on the industry though. The thing is, when there is no competition it feels so good to be paying $0.10 CPC again. Its almost like going back in time with Goto.com. There are many windows of opportunities in this and many other ethic markets here in the US. I am so glad there are many to think there is "no money" . . . I wish it stays like that for another 10 years.
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Old 11-23-2004   #8
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>it feels so good to be paying $0.10 CPC again

Putting PC aside that kind of makes the point. The Hispanic market will not be a driver for the PPC market, in the forseeable.
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Old 11-23-2004   #9
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I think you are missing the point NFFC.
The reason the costs are so low is because of the preconceived idea that Hispanics do not have any money - true they may not hold the percentages of other ethnic groups but that is rapidly changing.
The most sucessful marketers will go where they can get low clicks at comparable conversion - so if the US English search costs $2 and the Spanish US cost .20 and the creatives are written tightly for both then there is a hell of a lot of leeway in converting for the cheaper traffic.
We are having great success right now with Spanish traffic (with a much reduced ROI/CPA number) and have already had our site translated into Italian, French, German and Arabic to test those global languages as well.
We already have two Chinese languages and Japanese working nicely.

If you want to fight over what everyone is calling dwindling search available numbers in English well that is your call. Though I agree the research does not factor so many variables that it is next to useless.

Search is now the second most popular use of the internet behind Email.

What people have to look out for is the mass arrival of the mass emaillers as that market is closed.

Black hat methods have only scratched the surface once those cash rich marketers come to play.
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Old 11-23-2004   #10
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>I think you are missing the point NFFC

I'm not sure.

I agree totally that there are markets out there that are undeveloped and that the savvy webmaster can exploit that. Having said that, from a PPC market size perspective [which I think is the topic of the thread] its just picking at the edges.
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Old 11-23-2004   #11
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Why, NFFC, why, would you come out with a statement like "no money" in response to the Hispanic market and expect us to take you seriously? You want to say it's "PC" to respect the spending power of this massive market? "PC"? Are we still stuck on that old thing? Do we need to dig up the research on this to prove that Spanish speakers exist and have money? http://scholar.google.com/scholar?q=...en&btnG=Search
I'm assuming I stumbled in on an inside joke of some sort, and am missing something.

I also hear we're marketing products and services to women nowadays too. No money there too I suppose. Also, don't bother with poor people, rich people, short people, tall people, gay people, or old people. You know what? Let's just not bother.

I enjoyed the devil's advocate stuff, but honestly, I wasn't getting all giddy about market size, just trying to present an analyst's very credible projections. Rashtchy is an analyst. That's what he does. I understand that analysts have a bad rep ever since Blodget and Meeker overhyped Amazon, but isn't it worth taking a chance and actually trusting real growth that is ongoing? Maybe users are really making more use of search, even now. I would think that would be a good thing. We no longer live in a world of uncurious bumblers but increasingly in a world of searchers and sceptics.

I start threads here that speak to hard numbers instead of hearsay, because the area is called "Search Engine Growth and Trends." By definition I suppose this is why I started this thread. I'm not sure what would fit your criterial for a credible projection.

SEM is still tiny in the context of marketing and advertising generally. Yes of course it is going to grow. If it doesn't, I'll eat my hat.

P.S. If you want a debate on local search, you'll need to cite numbers, not just "a little old site like yell.com that is doing pretty good." Sure, there is also YellowPages.com in the U.S., YellowPages.ca in Canada. This proves nothing, clearly. Do you really believe that old YP companies will retain their current market share in the listings business? I contend that companies like Google and Yahoo will enjoy significant growth here because of all the other reasons users love them (a lot more than they love those krusty ol' yellow pages companies). No one is going to dominate local, and the old listings companies will be players, but the search engines and portals are built with today's needs in mind, and will grab local search market share because they're great at aggregating information. Yes, I am a true believer, because new ideas are replacing old, so why not embrace them; why not embrace the way that people will actually search for info and products in the future. People adopted Google because it was a better user experience. As a side effect, they became a $45 billion company. Fundamentals drove that and they will drive future user adoption as well - of various online services including search. That is all.

P.P.P.S. I am definitely not going to engage you in a contest to see who can spend the most "of one's own money" in clicks a year on a break-even affiliate campaign. That sounds like some other forum to me. By the way, I'm 6'8", 280 lbs. @ 4% body fat.
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Old 11-24-2004   #12
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Quote:
Originally Posted by andrewgoodman
Why, NFFC, why, would you come out with a statement like "no money" in response to the Hispanic market and expect us to take you seriously? You want to say it's "PC" to respect the spending power of this massive market? "PC"? Are we still stuck on that old thing? Do we need to dig up the research on this to prove that Spanish speakers exist and have money? http://scholar.google.com/scholar?q=...en&btnG=Search
I'm assuming I stumbled in on an inside joke of some sort, and am missing something.

I also hear we're marketing products and services to women nowadays too. No money there too I suppose. Also, don't bother with poor people, rich people, short people, tall people, gay people, or old people. You know what? Let's just not bother.

I enjoyed the devil's advocate stuff, but honestly, I wasn't getting all giddy about market size, just trying to present an analyst's very credible projections. Rashtchy is an analyst. That's what he does. I understand that analysts have a bad rep ever since Blodget and Meeker overhyped Amazon, but isn't it worth taking a chance and actually trusting real growth that is ongoing? Maybe users are really making more use of search, even now. I would think that would be a good thing. We no longer live in a world of uncurious bumblers but increasingly in a world of searchers and sceptics.

I start threads here that speak to hard numbers instead of hearsay, because the area is called "Search Engine Growth and Trends." By definition I suppose this is why I started this thread. I'm not sure what would fit your criterial for a credible projection.

SEM is still tiny in the context of marketing and advertising generally. Yes of course it is going to grow. If it doesn't, I'll eat my hat.

P.S. If you want a debate on local search, you'll need to cite numbers, not just "a little old site like yell.com that is doing pretty good." Sure, there is also YellowPages.com in the U.S., YellowPages.ca in Canada. This proves nothing, clearly. Do you really believe that old YP companies will retain their current market share in the listings business? I contend that companies like Google and Yahoo will enjoy significant growth here because of all the other reasons users love them (a lot more than they love those krusty ol' yellow pages companies). No one is going to dominate local, and the old listings companies will be players, but the search engines and portals are built with today's needs in mind, and will grab local search market share because they're great at aggregating information. Yes, I am a true believer, because new ideas are replacing old, so why not embrace them; why not embrace the way that people will actually search for info and products in the future. People adopted Google because it was a better user experience. As a side effect, they became a $45 billion company. Fundamentals drove that and they will drive future user adoption as well - of various online services including search. That is all.

P.P.P.S. I am definitely not going to engage you in a contest to see who can spend the most "of one's own money" in clicks a year on a break-even affiliate campaign. That sounds like some other forum to me. By the way, I'm 6'8", 280 lbs. @ 4% body fat.

I belive everything in your post except for the 4% body fat... lol
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Old 11-24-2004   #13
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Originally Posted by andrewgoodman
Do we need to dig up the research on this to prove that Spanish speakers exist and have money?
Anyone is welcome to read my white paper “Search Engine Marketing to the U.S. Hispanic Market” to learn more statistics on the Hispanic market, buying power, segmentation, internet statistics, facts and some recommended search engine marketing strategies anyone can use to effectively get thier hands on this online community, but I'll try to summarize it to this one statement I make:

"COMscore MediaMetrix reported that Internet purchasing behavior among the U.S. Hispanics is reflected in the increase in online spending which grew from $4.3 billion in 2002 to $5.6 billion in 2003. Therefore it is clear that purchasing online is a reality here in the U.S. by these Spanish speakers."

The choice is yours. If you don't want a piece of this, your competitors will. It's so simple, these numbers prove "YES money".
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Old 11-24-2004   #14
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I'm surprised there have been no more posters in this thread, maybe its the off topic drift, I'll try again to drag it back on track.

>just trying to present an analyst's very credible projections

Credible?

"Local Advertising: A $12-$18 billion offline business in the U.S alone,
could migrate mostly to online"

"Could migrate mostly to online" is one of the most fact free, pulled out someones a** statements I have heard in a long time. I am left with the feeling that the people making the predictions no nothing of how the local advertsing market works or the decision making process that small business owners make. I've been at both ends of the market, a local advertising seller and buyer [quite some years ago, offline and the selling part bombed].

http://www.sempo.org/research/Rashtchy-Presentation.pdf

>If you want a debate on local search, you'll need to cite numbers, not just "a little old site like yell.com that is doing pretty good."

Fair point on the numbers, maybe Safa Rashtchy could do the same.

I think the yellow pages is a different animal over here [UK], to say they are the dominant force in the market is an understatement, they make Google look like Lycos. With a great brand, super coverage across the entire country, a non brainer set up, huge advertsing campains and some of the best commission hungery salespeople in the market [they get higher commisons on the online stuff btw] the best they can do is http://uk.finance.yahoo.com/q/pr?s=YELL.L

>but the search engines and portals are built with today's needs in mind, and will grab local search market share because they're great at aggregating information

I'm not so sure. The biggest impediment to building a profitable business is not on the demand side [although I think in the local space that is a huge issue] its in the supply side. I don't see a huge wave of local businesses looking to learn a new method of getting their marketing message across, those that want to are already there.

>I am definitely not going to engage you in a contest to see who can spend the most "of one's own money" in clicks a year on a break-even affiliate campaign.

Ouch!

I suppose in a way I was asking too big a question, I can understand why you don't want to answer in public, feel free to send me a PM though.
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Old 11-24-2004   #15
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hispanic's no money?

i must comment on the Hispanics no money reference.

this is pure experience, but i have learned in my business that Hispanics have mad money.

many Hispanics, especially the individuals NOT born in this country, have a different set of ethics and beliefs. the culture SAVES money much more than we do. They also enjoy making money here and sending it home to families as its not uncommon for three or four or more generations to all be tightly knitted together. some have a problem with this, but that's another discussion...

perhaps what the poster meant by "no money" was really a reference to the fact that Hispanics tend to have "limited commerce" - they like cash. the culture is known for not trusting banks and other institutions due to third world, or similar, experience; therefore, they are much less apt to carry credit and debit cards.

without credit or debit cards or a bank account, it's tough to do business on a web site. ...but smart marketers to Hispanics provide much info on retail location and alternative payment methods.

in my business, i sell tickets to Hispanics every day and 9 out of 10 use cash. ...and not just some wadded up bills and counting change ...dudes tend to have wads o' 20's - 50's 100's.

Hispanics have money - but it's a different culture and you must earn the trust of that culture to be strong at servicing them...

off my soapbox - thanks

Last edited by sebastian : 11-24-2004 at 06:47 PM.
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Old 11-24-2004   #16
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Regarding recent immigrants sending cash home, being tight-knit, and not interested in as much consumption, sure. You could say the same about every wave of new immigrants over the past 100 years. Second and third generation immigrants however do not want to be stereotyped as such, and largely assimilate to the "usual" ways of spending. All that means is that there is plenty of growth in e-commerce ahead of us. (Not behind us.) That NEXT generation is the driver of growth.

To change the subject slightly, not many in China have credit cards. That makes it tough to buy online. What about in five, or ten, years?

As for local search, this is a whole separate topic. NFFC I'm happy to accept that you have special knowledge of the UK market and leave it at that. I'm well aware that listings companies have deep experience in selling these listings, and that the average small business will not actively seek out new ways of getting listings online. But as the changeover comes, as local search becomes as common to use as, well, search, inside the space of 12-18 months, everyone will get on board seemingly all at once. It's a chicken-and-egg question... for now.

It is worth pointing out at least that Google obviously has a pretty good handle on what makes people tick online. In markets like the UK, France, and Germany, at last count, their "share of monthly searches" is over 60% and as high as 72%. It seems like they have a very good shot of creating a compelling local search functionality that will be embraced by tens of millions of users. (When that many users use Google Search every day, you don't need to advertise new features: you can introduce them onto the home page in "invisible tab" form on a limited basis, and the feature will spread by word-of-mouth.)

When users do begin using these features, businesses will ask themselves: "how do I get on there?" That won't eradicate traditional listings businesses overnight, but it will threaten their dominance.
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Old 11-24-2004   #17
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perhaps what the poster meant by "no money" was really a reference to the fact that Hispanics tend to have "limited commerce" - they like cash. the culture is known for not trusting banks and other institutions due to third world, or similar, experience; therefore, they are much less apt to carry credit and debit cards.
U.S. Hispanics have increased in credit card penetration rate from 48% in 2000 to 57% in 2004. You can compare that with the general market penetration of 89% and with African-Americans of 61% for 2004 (1).

Hmmm.... 57% vs. 61%. Wow, should we NOT consider African-Americans within our SEM industry growth as well NFFC or is it any different because their first language may be English?

Quote:
Originally Posted by sebastian
Hispanics have money - but it's a different culture and you must earn the trust of that culture to be strong at servicing them...
Well said! From my white paper:

"In today’s market, it is not good enough just to say: “we are going to target the Hispanic market.” A more analytical approach is usually needed. The Hispanic market is composed of immigrants and 3rd generation Americans; Spanish dominant Hispanics and those who only speak English; not to mention 67% are Mexicans, 9% Puerto Ricans, 4% Cubans – 22 different countries of origin with different values, customs, behaviors, attitudes, and maybe have pre-conceived notions of your brand."

Did you guys know that there are 1 million NEW U.S. born Hispanics every year? That's right. For the first time in history there are more natural-born Hispanics than immigrants in this country. Guess what language they will most likely speak with their friends? And at what age they will grab a mouse and click away?
My son is living proof of that, and started to learn how to move a mouse at age 2. Guess what language we speak at home? Purely Spanish. And what language he speaks at school? Wrong, its bilingual. Some California schools are now requiring learning the two languages starting from pre-school. Why would this be enforced?? Could it be because cities like Los Angeles is projected to have two-thirds to be Hispanic in the near future when today it's already at 44.5% of the general market population? Did you know that Los Angeles is the second largest city in the world with Mexican population (6.25 million)? Anyway . . .
Guess what they will be doing when going online? That same stuff we enjoy to work for and talk about every day, as well as many other functions of course.

I spend my time promoting this market because I'm a proud 2nd generation foreign born U.S. Hispanic that wants to see our market (both SEM and Hispanic) grow in new directions and opportunities. I can only put in my little grain of sand with the SEM industry, which I believe that will be part of Safa Rashtchy's analysis of future growth trend. So, I don't believe this thread has gone off topic. It's just an important piece that some marketers always want to avoid.

There will be a time where companies don't know where to turn to, but these powerful markets that have $575 billion in buying power (today). However, with the entire barriers search engine optimization and paid search know-how is encounter today and in the future, early adopters will benefit and lagging businesses will pay the price. This goes for all market segments in our SEM industry, and not just for Hispanics.

References:
(1) Synovate 2004 U.S. Hispanic Market Report
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Old 11-25-2004   #18
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> It's a chicken-and-egg question... for now.

I can agree with that, I just see a different outcome. I think the "local searcher" will have problems with the supply side and this will make the experience less than compelling.
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Old 11-25-2004   #19
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>perhaps what the poster meant by "no money"

Let me make it crystal clear what I meant.

I feel it is a mistake to group people together in such a raw way but seeing everybody else is happy to....

People have identified groups that punch less than their weight online, lets make some figures up and say 30% of the polulation but only 5% of online buyers. They seem to believe that the "gap" of 25% will all of a sudden vanish, I don't think that is the case. Normally there are fundemental reasons for the "gap" and fundementals are slow to change.

>no money

Average household income for the Hispanic populace is lower than for the population as a whole, crucially this has most impact in disposable income. We are not going to wake up one morning and find that this has changed, the "gap" can take generations to narrow.
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Old 11-25-2004   #20
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The average annual buying power of a Hispanic household is $46,200 and that has shown results of $5.6 billion in online spending for 2003. It is believed that this "average" buying power is even higher (up to 20% higher) for U.S. Hispanics households that are connected online. How much more proof do you need to show that this group people use SEARCH as one of their ways to find products, services and information online? Do we have to wait for a perfect world all the time to prove necessary action? Or do we have to wait for a graph to prove signs of growth for necessary action?
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