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No savvy direct marketer can afford to ignore search engine marketing (SEM). In fact, if you type 'search engine marketing' into Google, no fewer than 91 sponsored search results appear. And increased measurement capability appears to be encouraging even greater expansion of the medium.

Both organic or natural search and paid-for search are experiencing growth, and it is no surprise that SEM will be one of the topics under the spotlight at this year's Internet World show (see box below).

In the first quarter of 2006, utilities comparison website Uswitch attracted more customers from its paid and organic search programme than it had using the medium in the whole of 2005. Part of this can be attributed to price rises from gas and electricity suppliers but it is still a very impressive figure.

In 2005, total online adspend grew by 65.6 per cent, with paid-for search increasing by 79 per cent to almost £770m, according to a recent survey by the Internet Advertising Bureau (IAB). Search marketing now accounts for more than 56 per cent of total online adspend, leaving classified and display trailing. The good news for direct marketers is that SEM is currently the most measurable online tool there is - and more devices and technology are being launched that enable greater analysis and control over SEM campaigns.

According to Daniel Mohocek, product strategy director at search technology provider The Technology Works, tracking of search marketing has become more commonplace. A large part of the ability to track comes from automated bid packages, such as The Technology Works' BidBuddy and Performics, provided by digital marketing specialist DoubleClick. Each paid-for search keyword is sold as an individual auction, so it is easier to automate this process rather than rely on people bidding for each keyword. ROI targets can be entered and spend adjusted instantly according to performance.

Analytics packages have become more sophisticated in recent months. Any visitor that clicks through to a website from a search engine can be tracked and natural and paid-for search results can be examined in the same statistics package. "The theoretical ability to measure SEM has been around for a while, but in the past 12 months it's become much more real because you're able to be more canny about your spend," says Neil McCarthy, commercial director at e-commerce agency Tamar.

Information about customers who arrive via search engines is measured in several ways. One of the simplest methods for brands that use both paid-for and natural search is 'tagged' URLs, which track where users arrived from and which keyword they used to get there. Marketers can deduce that the rest of the traffic to a site has arrived organically. Cookies can also be used and, depending on the analytics package in place, all visitors are trackable. However, users can block cookies, rendering them no longer viable as a sole tracking tool.

Once on a site, both organic and paid-for search visitors can be tracked using web analytics packages, which measure, among other things, the amount of time and money spent on a transaction.

Customers can be tracked over multiple visits as well as on individual search journeys. If a cookie is placed on a person's computer, they can be tracked from initial search to sale. And if a marketer is aware that it has taken three searches to make a sale, the cost of customer acquisition is calculated more accurately.

Direct marketers' skills are invaluable when it comes to interpreting SEM results, particularly as results packages become increasingly broad in the range of data and channels they display. "The big area of growth is converging all our results into one system," says Mohocek. "Any company that endeavoured to put everything through one interface would face a big challenge because the results are so different. But if you set it up well, you could see the performance of all your banners, paid-for and organic search and other channels."

So is SEM something that direct marketers should be taking responsibility for? Certainly, the increased capacity for measurement has brought SEM further within the DM remit. "The reason it's so powerful is that, as a direct marketer, you can forecast how many sales you will get for any given spend, so you only need to increase your budget to boost sales," says Jonty Kelt, international product director, DART Search, at DoubleClick.

However, he admits the technology may be a problem. "Direct marketers have the principles of this ingrained in them because measuring is what they do, but applying it here requires the technology. So that's a barrier, but it's all possible to learn."

Search has many advantages over traditional direct channels. The 'pull over push' effect of advertising that customers have requested, coupled with low acquisition costs, are attractive factors and spend is increasing.

Even though keyword costs are rising, the cost of acquiring a customer is relatively low. The IAB recently suggested SEM could be worth £2bn in the next 12 months, making the sector more lucrative than national press advertising.

Developments encourage growth

The sector has no shortage of innovation to fuel growth. One such development is pay-per-call, which enables small and medium-sized businesses, which often do not have websites, to advertise using special phone numbers linked to a search engine. The advertiser only pays for the calls it receives on that number, and Kelt suggests the model could revolutionise classified advertising.

The latest Bellwether Report revealed online and direct were the only advertising channels currently enjoying growth. With many direct search channels, such as location-based marketing (see box above) gaining popularity, the sector is set to expand. Indeed, some suggest the lines between SEM and DM may soon blur.

FACT BOX - INTERNET WORLD

DETAILS

Where: Earl's Court, London

When: 9-11 May

Website: www.internetworld.co.uk

SEMINARS AT A GLANCE

TUESDAY 9 MAY 10.30-11.00 - Boost your business, not just your web traffic - the power of white label search solutions - Nick Morley, head of sales, Seekport

TUESDAY 9 MAY 11.30-12.00 - Looking for increased revenue? Mapping tools for advertisers on local searches - Chris Bowden, commercial director, Europe, Telcontar

TUESDAY 9 MAY 11.45-12.15 - The evolution of sponsored search - marketing to motivated buyers - Richard Firminger, regional sales director, Yahoo! Search Marketing

WEDNESDAY 10 MAY 12.30-13.00 - SEO: the business perspective - making it work - John Heffernan, business development manager, Mediaco

NEED TO KNOW - LOCATION-BASED SEARCH

Location-based search uses information from a computer or mobile device to pinpoint a user's location and then delivers an area-specific search result. Location information can be entered by the user or identified from other information, for example, an IP address. Mobile technology can target users to within 200m in a city and 2km in the countryside.

Certain products are more likely to lend themselves to location-based search marketing than others. "If you want a plumber, for example, you want one who is near your home," says Neil McCarthy, commercial director at Tamar. "It is only relevant to particular types of decision."

Most UK search engines offer a local search service whereby users input their location. However, MSN is testing a beta version of a system in which the website identifies the user's location.

Mobile location-based technology has so far been limited to databases such as Transport for London's Taxi Home service, which looks up a local car service on a special database. "The Holy Grail is a service that lets you type a request into a mobile search engine that communicates with the network and sends back results that are close by," says Jonathan Bass, managing director of mobile marketing agency Incentivated.

But some are sceptical about the level of targeting that can be achieved.

Daniel Mohocek, product strategy director at The Technology Works, says that while location-based technology is a core differentiator in MSN's new search service, "it remains to be seen whether it can really target a 31 year-old woman living in London SW1".

POWER POINTS

- The tracking of search marketing has become more commonplace

- The main growth area is converging all SEM results into one system

- Keyword costs are rising but the cost of acquiring a customer using SEM is relatively low.