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Ideas for Leaders #695

Is Paid Search Advertising Worth the Money?

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Key Concept

Is branded paid advertising worth the money? A 2015 study based on eBay traffic said no: prospects using brand name searches will find their way to the website, with or without paid ads to lead them. A new study, however, using a brand that is not one of the largest in the world, shows a different result: about half of the customers are lost. 

Idea Summary

Companies have two options for the acquisition of customers through customer online searches. The first is to pay for search ads — those links that appear at the top of the search and are clearly marked ‘ad.’ Thus, the owner of a business selling vintage Indian motorcycles might pay to have his business appear at the top of searches for ‘vintage Indian motorcycles.’ (Payment is based on click-throughs: a company pays the search whenever a customer clicks on the ad.)

The second option is to hope that customers arrive to the company’s link through ‘organic’ links. In other words, if a potential customer types ‘vintage Indian motorcycles’ in a search engine, the owner cited above would hope that his business appears at least on the first page of the unpaid search results. 

The obvious question for marketers is whether paid search ads are worth the money (companies spent 170 billion dollars on paid search advertising in 2015) or whether, on the contrary, customers would find the business anyway through organic searches. (After all, isn’t that what SEO is all about?) A pioneering 2015 study, focused on the firm eBay, explored this question by conducting a randomized test in which availability of paid advertising for branded searches was manipulated. (A branded search is one in which the brand name — in the case, eBay — is used. Thus, a search for ‘eBay motorcycles’ is a branded search, as opposed to a search for ‘motorcycles.’) 

In this 2015 eBay study, paid advertising for branded searches was stopped in certain population areas (the treatment group) and continued in others (the control group). The study analysed whether potential eBay customers in the treatment group still found their way to the site, or whether there was instead a significant drop off in traffic and revenues. 

The eBay study showed that the disappearance of the paid advertising led to no significant drop-off in traffic. Customer search traffic that might have accessed the firm through its paid advertising simply accessed the firm through organic links.

Are companies therefore throwing away money on paid advertising? A team of researchers from the University of California at San Diego and the University of Bonn was not so sure. eBay is one of the largest companies in the world, whose brand might not need paid advertising. What about brands that were not quite as large and dominating as eBay?

The researchers decided to follow a similar methodology to the 2015 study, but using Edmunds.com — a highly successful online resource of automotive information for customers looking to buy or sell new and used cars. Although not as much of a household name as eBay, Edmunds.com is in the top 1% of most visited web sites, with 700 employees and more than $200 million in annual revenues. Perhaps the greatest difference with a dominating site such as eBay is that Edmunds.com has competitors of similar size and reach. 

Edmunds.com uses branded search-engine advertising in all 210 of its geographic markets. For the study, the researchers emulated the eBay experiment: they eliminated all branded search engine advertising in half of the markets, then compared the web traffic before and after the disappearance of the paid advertising. (They also monitored the other half of the markets, the ‘control’ group, in order to adjust the results for any seasonal and other influences on the traffic that had nothing to do with the experiment.) 

The results of the Edmunds study stood in sharp contrast to the results of the eBay study. The researchers found that only 50% of the traffic that normally accessed the website through branded search ads found their way to the website through organic links. What happened to the other 50%? Because there is nothing to prevent a competitor from bidding on the ‘Edmunds’ name, organic brand searches will still yield competitor links. Without the Edmunds paid advertising at the top of the search drawing their attention, many brand searchers apparently went to competitor websites.

Business Application

As readers of business books and articles will know, major well-known companies are often used as examples of what works and what doesn’t on subjects ranging from competitive strategy to human resources to marketing, and everything in between. This study is not only illuminating in demonstrating the effectiveness of paid search advertising — it also demonstrates the danger of using non-representative companies as models. In this case, the message is clear: for the vast majority of companies, branded paid advertising is worth the money. 

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Authors

Institutions

Source

Idea conceived

  • October 2017

Idea posted

  • April 2018

DOI number

10.13007/695

Subject

Real Time Analytics