Forrester Group research predicts a 17% increase in online sales in 2007/08 (source: Forrester Group).?This comes at a time when the business climate is very challenging.?For Australians, inflation is rising due to the increasing cost of fuel, higher food prices and the flow-on effects of the sub-prime lending crisis in the United States (primarily the higher cost of wholesale funding).?It is unlikely that businesses will find equivalent sales in other channels or cost savings that will have the same impact.?So what can we expect in the online channel?

There is no doubt, at least in my mind, that competition will increase significantly online.?Consumers are turning to the convenience of the internet to dream about their next holiday, car or home and marketing leaders know that this is an important time to capture their attention.?Consequently, we can expect to see exponential increases in budgets for online marketing.?

So what effect will this have??That of course remains to be seen but I predict that we will eventually see companies with the biggest marketing budgets begin to dominate the search engines.?Around 80% of internet users in Australia find what they are looking for via the search engines.?A similar proportion of these people use Google as their preferred search tool.?So that's where the race will begin.

Search engine marketers know that search engines also offer some of the best returns on advertising spend of any media.?Unlike press and television, advertisers are not charged for displaying advertisements on search engines.?Advertisers only pay when an interested person clicks on a link that takes them to your website.?So you are only paying for leads that you know have already expressed interest in your product or service.?This is very effective use of marketing dollars.

Additionally, advertisers have access to information on search engine advertising campaigns that enables them to accurately measure whether they are making a profit on advertising and how much.?This is critical intelligence that can then be used to refine campaigns on-going.?

There are two ways to receive leads from search engines, organic links and sponsored links.?Organic links are free (when someone clicks on an organic link, they are referred to your website and you do not have to pay for the lead) and sponsored links are paid for.?Demand for more prominent positions on these advertising mediums will drive up the cost to advertise, thereby making it very difficult for smaller and less knowledgeable players to compete.

So how do you make the most of the situation that exists today??Well, in my view, it will be important to stake out your real estate on the prime billboards on the internet as soon as possible.?A smaller player can compete with larger ones (with bigger advertising budgets) by having deep knowledge about what advertising pays and what the marginal profitability of each of your keywords is.?This knowledge will accrue over time and will become highly valuable.?In some search engines, like Google, it is not necessarily the highest bidder that places highest in sponsored search!

In summary the economic environment is hardening and as more consumers turn to the internet to?find products and services, the marketing budgets will inevitably follow.?A high ranking in search engines is prime real estate on the internet and the competition for these positions will increase and drive up advertising cost.?To win in the long run, advertisers should not wait because they will miss the opportunity to accrue valuable insight.