Why companies could be throwing away money on web ads
Well-known brands may get little benefit from advertising on search engines
- Paid search ads account for more than 40 percent of spending on online advertising in the US, but many of those ad dollars may be going to waste, according to economist Thomas Blake, Chicago Booth’s Chris Nosko, and University of California, Berkeley’s Steven Tadelis. Their research suggests that while paid search ads might help bring in new customers, they don’t have much impact on regular shoppers of well-known brands, such as eBay.
- The researchers set up experiments to study the effects of eBay’s paid search ads on revenue. One experiment reveals that when eBay halted ads triggered by queries that included the term “eBay,” 99.5 percent of the traffic that would have come to the website via paid ads ended up there anyway via natural search results (see chart).
- To find out if the company benefits from ads when people don’t specify “eBay” in their searches, eBay suspended paid search ads in 30 percent of US markets for 60 days. Paid ads increased sales by only 0.66 percent when the researchers compared sales in test areas with those in control areas before and after the test, suggesting that people may be clicking on natural search results or going directly to the website in the absence of ads.
- Paid search ads had little effect on the purchasing behavior of frequent eBay shoppers, who were likely to buy on eBay even without the ads, according to the researchers. But the ads did work on people who hadn’t made recent purchases, especially first-time buyers.