Last month, as part of their 12th annual report on growth rates of the world’s largest market research firms, Inside Research recognized comScore as the fastest growing global market research firm over the last five years. We at comScore are proud of this recognition and have our clients and my fellow employees to thank for helping us achieve this record growth. Over 1,100 companies are drawing value from the market intelligence that we provide. Their need to stay on top of the ever-changing digital landscape is the fuel for our exceptional growth.

I would also like to thank each member of the comScore team for their hard work. Your brainpower, effort and dedication have made comScore the acknowledged industry leader that it is today. I am proud of the company that we have become and look forward to furthering our track record of cutting-edge innovation.

Finally, I’d like to thank both Jack Honomichl and Larry Gold at Inside Research. Their coverage of the market research industry is highly respected and we sincerely appreciate the recognition.

While in New York for the NASDAQ Opening Bell Ceremony last week, I had the opportunity to sit down for an interview with CNNMoney.com reporter Poppy Harlow. We talked about everything from Google’s paid click data to the many ways in which the world’s leading companies use comScore data. Click below to watch the interview.

I'm very proud to tell you that comScore rang the opening bell at the NASDAQ this morning. It is a special day for comScore, and I'd like to sincerely thank all of the comScore employees and clients that helped us get to this point.

In addition to going public in June 2007, comScore recently reached other remarkable milestones: we have now produced 100 consecutive months of data, have almost 500 employees, nearly 1000 clients and offices in 8 cities around the globe. We truly measure the digital world, powered by a panel of 2 million people from 170 countries.

Kudos to the hard work and creativity of everyone that has contributed to comScore's success. .

The following is a letter that I published today which may be of interest to readers of our blog:

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When Google announced strong Q1 earnings last week, some financial and media analysts wrote that comScore’s reports of slowing growth in Google’s paid clicks missed the mark. That conclusion is patently false.

Unfortunately, many pundits attempted to draw conclusions about Google’s worldwide revenue performance based on comScore’s domestic paid click data, resulting in an apples-to-oranges comparison. Had they used comScore's domestic paid click data to better understand Google's domestic revenue trends, they wouldn't have missed an important U.S. story and they also likely would have avoided making the wrong call on Google’s worldwide business.

Following several historical quarters of strong sequential domestic revenue growth (including the seasonally equivalent Q1 2007), Google’s Q1 2008 revenue growth was essentially flat, which represented a significant change for Google’s domestic business. Such an important trend was also evident in comScore’s paid click data.

The chart below shows the directional association between comScore’s domestic paid click trends as compared to Google’s domestic revenue trends, representing a 94% correlation.

Of course, this is not a perfect correlation because the comScore data do not include the impact of changes in Google’s price per click and do not include paid clicks from partner sites like AOL, Ask, Washington Post, etc. nor paid clicks from the AdSense network. But the strong relationship of the two trends is undeniable.

There is of course a lesson to be learned here. To extrapolate a single data point across all aspects of a company's business can lead to wildly inaccurate conclusions.
Finally, to confirm the accuracy of the comScore paid click data, we previously published an apples-to-apples reconciliation on this blog. This analysis reconciles the comScore data with metrics shown in Google’s Q1, 2008 financial report. In short, comScore got it right – both quantitatively and qualitatively. What was wrong were the conclusions that some people drew based on inherently flawed comparisons.

I published an article in the Harvard Business Review this month, summarizing some of the work comScore has been doing with clients to evaluate the effectiveness of online advertising. As with most things in business, the return on investment is what drives future plans, especially advertising plans. One of the benefits of our two million person online panel is the ability to match our panelists with clients’ sales databases to measure the purchases that people exposed to online advertising make in bricks and mortar stores. The results of these studies help quantify the ROI from the online advertising. The studies demonstrate consistently positive results showing that online display ads work to build traffic to an advertiser’s website, to increase sales on their website, and to increase sales through their in-store channels.

Use this link to read full article. A summary chart of the findings runs below.

Results from 18 studies in the finance, travel, telecommunications, and retail sectors collectively show that online ads have a powerful effect on off-line sales. Running search ads tends to be more effective than using display ads, and combining both types is more effective still. From the Harvard Business Review, April 2008.

I would like to take this opportunity to respond to a comment from Willy Quintinella posted in response to my recent blog entry “Why Google’s surprising paid click data are less surprising.” Willy raises an important question when he asks why comScore didn’t include any interpretive analysis when we initially issued our monthly paid click data and I believe his question deserves a response.

It is important to put in context how this Google episode came to be. It resulted from instantaneous market reaction to the comScore January paid click data – a regularly released comScore statistic – that we released to our clients, which include search engines, sell-side financial analysts, and advertising agencies (comScore does not release its paid click data to the media). comScore’s Wall Street clients use our data to draw their own conclusions, and, as in the case of financial analysts on the sell-side, incorporate it into research reports they publish to the investment community. Typically, comScore’s data represent one of many elements that analysts rely on to formulate their opinions. For example, comScore does not have access to important data elements such as price-per-click for forecasting revenues or to costs for forecasting earnings. This is why there is a great synergy between the services we provide and the final research product delivered by financial analysts.

We provide billions of numbers to our clients every month and we view our primary mission as ensuring that the information we release is as accurate and actionable as possible. While some clients buy additional advisory services that we provide on a case-by-case basis, we typically do not publicly comment on the financial or the competitive performance of our clients. In this particular case, however, we felt obligated to do so because there was such a dramatic public reaction to a few statistics, with a few financial analysts (in their published research reports) -- and subsequently the media -- citing these statistics as proof of weakness in online advertising as a result of a softening economy. The majority of media articles even attributed this conclusion to comScore (“comScore said”), whereas the reality was that we had never stated any conclusion. The data were certainly provided by comScore, but the conclusions were not. As we looked deeper into our data, we found much stronger support for what some industry observers have hypothesized regarding the impact of Google’s own quality efforts on the negative trends in their paid clicks. Because of this, we felt we needed to set the record straight on two counts: 1) Our data did not support the conclusions that were being incorrectly attributed to us, and 2) The number of paid search clicks is only one driver of revenue for a search engine. Pricing is also a critical component and, as later confirmed publicly by Google executives, one that turns out to be closely related to Google’s quality efforts, since these efforts affect minimum bid prices and overall supply / demand.

But this issue had, for the most part, been ignored or discounted by Wall Street and the media in their analysis and reporting. So, we stepped up to the plate and provided our interpretation of what we thought was happening. I am happy that recent comments from Google, appear to support our explanation of the reason for the decline in paid clicks and the impact on click conversion and value.

On the positive side, there is learning coming out of this experience. We are studying service enhancements in the form of additional metrics that make it easier for financial analysts to reach a thoughtful opinion under extreme time pressure. For example, I found that aggregating Google’s search engine competitors together provided insights that were otherwise harder to see because of the variability that exists across individual search engine. While all the components to do this are available as part of what we already deliver, we can, by directly providing the aggregation, make it easier to draw a comparison between Google and the rest of the market. In addition, in the future we plan on delaying the release of comScore’s data until after the close of the day’s trading. This will provide analysts more time to analyze the data and publish their reports before the financial markets open the following day.

James Lamberti, SVP of Search and Media at comScore, is a co-author of this post.

Earlier this week, comScore released its January 2008 qSearch paid click report, which showed a 7% sequential decline vs. December ‘07, and a flat annual growth in paid clicks for Google. Moreover, the number of paid clicks per Google search query declined by 8% from December to January, suggesting that consumers are clicking less on search ads, possibly reflecting a weaker buying appetite. The information triggered a flurry of reactions in the media and the financial community that centered on two concerns: 1) a potentially weak first quarter outlook for Google, and 2) an indication that a soft U.S. economy is beginning to drag down the online advertising market.

While we do not claim that these concerns are unwarranted, we believe a careful analysis of our search data does not lend them direct support. More specifically, the evidence suggests that the softness in Google’s paid click metrics is primarily a result of Google’s own quality initiatives that result in a reduction in the number of paid listings and, therefore, the opportunity for paid clicks to occur. In addition, the reduction in the incidence of paid listings existed progressively throughout 2007 and was successfully offset by improved revenue per click. It is entirely possible, if not likely, that the improved revenue yield will continue to deliver strong revenue growth in the first quarter. Separately, there is no evidence of a slowdown in consumers clicking on paid search ads for rest of the US search market, which comprises 40% of all searches.

The most puzzling data element is that Google’s U.S. paid clicks dropped sequentially by 7%, while, at the same time, its total number of search queries grew by 9%. At the same time, Google’s market share of all search queries grew slightly from December, and its annual query growth remains very strong. All indicators point to the company continuing to do very well as far as consumer usage and competitive position. The drop in paid clicks becomes even more puzzling when it is normalized on a per query basis: The number of paid clicks per search query drops by 16% in one month! The corresponding metric for the rest of the market drops by 4%. What accounts for this dramatic difference?

We must remember that a paid click does not happen on a search results page unless there is an ad on that page. Since not all pages have ads on them, it is important to look at an ad coverage index, defined as the percent of all queries that have at least one paid ad. This index dropped by 8% for Google, going from 52% to 48%. In addition, even when a query result page contained at least one paid ad link, the paid click rate, defined as the average number of clicks per such an ad supported query, declined by another 8%, going from .24 to .22. Figure 1 shows the trend in these two metrics over a one year period. The graph illustrates two time periods where both measures declined together: first from January ‘07 to May ‘07, and then from December ‘07 to January ‘08. The remainder of the year was essentially flat.

Evidently, January ‘08 is not the first time this decline has happened. The compounded impact on paid clicks per search query (whether or not ad supported) for the entire year, is a whopping 33% decline in 2007. The decline in the first half of 2007 clearly cannot be traced to a weak economy. And, despite this decline, Google managed to grow its worldwide search revenue by 68% in 2007. (The company does not separately report U.S. search revenues.) The revenue growth was achieved through a 21% increase in revenue per paid click.

Why and how is this happening? It is common knowledge in the industry that Google has been targeting what it deems to be low quality ads. It has introduced a ‘quality score’ that it uses to prioritize placement of ads or to decide to suppress an ad altogether. A suppressed, or ‘non active’ ad, can be reinstated by raising the bid above a quality-based minimum bid. In addition, the real estate available for ads is being reduced, squeezing the supply of available spots to bid on. The reduced supply, as well as the higher minimum bids, contributes to an increase in the price per paid click, which is what helps counteract the slowdown in the absolute number of paid clicks. Therefore, Google’s revenue will not necessarily suffer from this. In fact, Google wins by providing more relevant ads for consumers and a less cluttered ad environment for marketers.

This policy is explained by Google on their website at https://adwords.google.com/select/qbb.html.

But wait! If this improved quality is real, should we not expect an increase in the paid click rates? Not necessarily. If the ads are more relevant, consumers would need fewer clicks to get what they are looking for. Perversely, a high number of clicks means that the ads are not delivering what the user is looking for on the first try, which induces additional clicks on the second or third try. The benefits to marketers are real, but also counterintuitive. If the users get to what they want with fewer clicks, it means those clicks have a higher conversion rate, or deliver higher quality leads. Hence, a lower number of clicks will likely generate more revenues or better leads for the marketer, justifying the higher average cost per click. Naturally, the changes will not benefit everyone. Rightly or wrongly, some marketers win and some lose, venting their frustration in the blogosphere. The users, on the other hand, will mostly win with improved relevancy and user experience, which helps explain Google’s continued overall query growth and share dominance.

What about the impact of the economy? One might argue that the lower number of paid clicks per ad-supported query indicates that consumers are less interested in buying what is being advertised and lends credence to a worsened economic situation. The trouble is that the pattern does not hold for the rest of the search market. As Figure 2 shows, the paid click rate for the other search engines actually increases slightly. There is no obvious reason why the economy would negatively impact Google’s users and not those of Yahoo!, MSN, AOL, Ask and others. Furthermore, we don’t need a weak economy rationale to explain the recent decline -- since a similar decline occurred earlier in 2007 when a weak economy wasn’t an issue.

Figure 2
Sequential Change in Paid Click Rates
	Dec-07	Jan-08	% Chg
Google	0.24	0.22	-8.1%
Other Engines	0.21	0.21	0.5%

In summary, the evidence points to a counterintuitive trend caused by Google’s own program for improving the quality of paid listings.

While I attended the World Economic Forum in Davos, representing comScore as a 2007 Technology Pioneer, the following question was posed to the attendees: “What can countries do to improve the world?”

I believe that education must be a major part of the solution. We also need to foster the exchange of ideas with young students around the world. This will help us all reach common ground on what problems need to be solved and how best to solve them. Students could even be selected by a sort of a “Davos Idol,” to bring the voices of the best and brightest out and to generate interest and participation.

My full response to the question is below. What do you think countries can do to improve the world?

Last year, comScore was honored by being named a Technology Pioneer by the World Economic Forum (“WEF”) and I was invited to attend the annual WEF meeting in Davos, Switzerland. I just returned from my second trip to Davos and wanted to share some observations with you.

Every Davos annual meeting tends to be dominated by one or two major issues that get discussed at many sessions, including a plenary session where participants debate and choose the most important near-term issues facing the world. Last year, the focus was on global warming. This year, the state of the world economy and the potential recession in the United States, with its worldwide impact, took center stage. The main questions were:

1. How likely is a U.S. recession in 08?
2. Will we see a decoupling of the U.S. economy from the global economy, with the rest of the world continuing to grow even as the U.S. stalls?
3. What are the implications of investments in major U.S. banks and by Sovereign Wealth Funds (“SWF”) such as those owned by Singapore, China and Dubai?
4. Have the regulatory bodies, particularly the Fed and other central banks, lost their ability to influence the global economy?
5. Is there a need for more financial regulations to prevent the kind of financial crises we have recently seen?

As in every debate, opinions were quite varied. Most people believed that a mild U.S. recession would occur in 2008 and some thought that it might have already started, even though most business leaders thought their businesses had not yet been affected. A significant concern was expressed that the drumbeat of recession, amplified by the media, will undermine consumer confidence and result in a recession even if the economic fundamentals did not really justify one. The most extreme opinion was espoused by George Soros who predicted that this will be the worst economic crisis since the depression. Of course, it was hard to tell if he was serious, or whether he wants to contribute to an acutely negative psychological mood that would benefit a possible bet his hedge fund has made on a recession.

Many participants believed that the torrid growth in Asia’s developing economies will compensate for any slowdown in the U.S. economy. India was thought be the most immune country, followed by China -- despite the huge dependency of Chinese exports to the U.S. Europe and Japan were thought to be moderately affected.

There was a lot of anxiety about foreign governments owning a stake in major U.S. and western financial institutions such as Citibank and Merrill Lynch. The SWF were said to control over $3 trillion today and that this could reach $9-10 trillion in three years, as petrodollars and export surpluses continue to grow. The question was asked whether such ownership could lead to foreign control? Here again, the opinion varied. Some speakers reminded the audience of the exaggerated U.S. fears during the 1980’s about Japanese control of prime American real estate properties such as Rockefeller Center. Others argued the more common view that the SWF investments are small in ownership percentage terms, and would remain harmless as long as they did not exceed 15-20%.

There was a televised debate on CNBC that focused on the influence of central banks over markets and national economies. One view held that central banks are ineffective and have failed to prevent the current financial crisis, despite high profile liquidity injections, just as they failed to moderate the drop of the U.S. dollar. However, the majority view held that while central banks made errors in steering the regional and global economies, they still wield a lot of influence -- as the Fed has shown with its recent aggressive interest rate cuts. There was a sharp difference in opinion about whether monetary authorities should intervene to burst emerging bubbles such as the current sub-prime bubble, the recent housing bubble, or the stock market bubble in 2000-2001. Some argued that central banks might ‘prick the wrong balloon’ and that they should not second guess the price levels determined by the free market. Still, there was a consensus on the need for stricter regulations on lending standards and derivative instruments.

It’s worth noting that there was a pervasive view that U.S. power, as well as moral leadership, is rapidly declining both politically and economically. Anti-Americanism sentiment runs rampart, particularly among Europeans, Middle Easterners, and most Muslim nations. The majority believe that the U.S. has lost its influence in the world and is unable to get anything done. That it is drowning in a deficit that foreshadows its economic decline. That it preaches to the world principles it violates every day. That it is militarily over-extended in Iraq and Afghanistan. Some asserted that the decline is irreversible. It was highly ironic that a South Korean university professor was the only defender of the U.S. on a panel that included a Harvard professor who led the U.S. bashing. One of the most outrageous assertions was that the U.S. created the conflict between Sunnis and Shias, who lived in peace, unity and harmony until the U.S. created an artificial divide between them. In several sessions, I found myself rising to defend the U.S. and cautioning against writing America’s obituary too soon.

Believe me, I would much rather argue about the impact of cookie deletion!