Hitwise Analyst Heather Hopkins says that Hitwise data shows that traffic to paid listings is declining “at the expense of organic traffic”. She provides three sets of evidence to back up her claims:

• In the four weeks leading to May 9, 2009, paid traffic represented 7.25% of traffic to ‘All Categories’ of web sites. In the prior year, the percentage was 9.84%, a decline of 26%.
• Major categories follow this trend. ‘Travel Agencies’ was down 25%, ‘Insurance’ 22%, and ‘Retail 500′ 20%.
• Finally, brand name searches within these categories, like “orbitz”, “home depot”, and “usaa”, showed major declines.

She concludes that the decline is most likely due to cutbacks in spending due to the recession.

Ed Stevenson, writing at Econsultancy.com, takes issue with the report. He points out, for example, that while the percentage share of paid searches is shrinking, the universe of all searches is growing. It is therefore possible that a relative decline actually represents an absolute gain (i.e. 7% of 500 is more than 9% of 100).

He also argues that any real reductions are most likely the result of advertisers leaving the market (like Circuit City, and many other retailers who have closed), and continuing advertisers spending less on brand terms. We would argue that the differences in brand clicks have more to do with Google’s slow shift toward a more trademark friendly policy. Searches for many of the brands mentioned by Hitwise display no ads except the official brand. That is most likely because Google has blocked advertisers at the brand’s request rather than an economic issue.

Finaly, Mr. Stevenson notes that Google reported a slowdown in Q2 2009, but paid clicks were still up 15%. Perhaps marketers have cut back on their programs with Yahoo and Microsoft, but it seems that, for Google at least, reports of a decline in paid search are somewhat exagerated.