Last month, we posted on how paid clicks (or “sponsored referrals,” to be a bit more precise) dropped precipitously on economic concerns and improved targeting. I received a couple of inquiries about what exactly this meant, so I’d like to take a quick minute and explain.

First, Compete uses the term “referrals” instead of clicks because we track both queries and referrals. You click your mouse twice when you search: once on the search bar and once on the result. (Yes, you can also press enter, but that still makes a clicking noise, at least on my keyboard.) We think of the first click as a query and the second as a referral.

Then, as most people know, there are two types of referrals: sponsored vs. natural. (Also known as paid vs. algorithmic.) Sponsored referrals are how search engines make most of their money.

So, the rate of sponsored referrals (=sponsored/total) is probably the second or third most important search metric, after volume and share of queries. (That’s from the competitive perspective we take here in the Search Market Share series. If you’re talking user experience, search fulfillment would be a better metric.)

To reflect that importance, we’ve added some data to our monthly Market Share data. Now the Sponsored Referrals section includes the rate from a Year Prior.

As you can see, Sponsored Referrals look very different than a year ago. Last month, Google’s rate of Sponsored Referrals maintained 6.2%, which was down from 6.8% vs. a year ago.

Theories abound for why this took place. Some argue that Google has become better at targeting which Sponsored Results appear after a query, and is thus able to charge more per referral while serving less ads. Others claim that marketers have scaled back due to the economy and the ad inventory simply isn’t there.

The argument for the latter certainly looks to be true when we take a look at a trended rate of Sponsored Referrals over the past 12 months. Note the big spike and drop-off for Google, Yahoo! and MSN before and after the holiday shopping season, when search marketers spend most heavily.

MSN/Live’s Sponsored Referrals also slipped a bit last month, falling to 3.1%. Since MSN/Live transformed into Bing on June 1st (we’ll post more on Bing’s launch tomorrow) early tests show that Bing is better at attracting eyeballs to search ads than Google. In the coming months, we’ll see how Bing performs on Sponsored Referrals in Compete’s behavioral data.

Finally, not much changed in May in terms of query volume and share, so I hope no one missed our usual Market Share coverage. Not to worry, we’ll be back next month to cover Share changes, with special attention for Bing.

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