EcommerceBytes-NewsFlash, Number 3019 - March 12, 2013     2 of 4

eBay Says Much Paid Search on Google and Bing Is Ineffective

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In what is sure to have online merchants buzzing (and paid search consultants protesting), eBay published data questioning the effectiveness of the ad programs of its rival Google and other ad platforms. eBay, which has also been one of Google's biggest advertisers over the years, conducted research using its own Google AdWords, Microsoft and Yahoo ad campaigns.

According to a Harvard Business Review blog post about the study on Monday, three eBay Research Labs economists analyzed eBay sales after suspending its ad campaigns, while maintaining a control set of regions where search ads continued unchanged. "Their findings suggest that many paid ads generate virtually no increase in sales, and even for ones that do, the sales benefits are far eclipsed by the cost of the ads themselves," according to the post.

The HBR blog post points to eBay's preliminary report published on the National Bureau of Economic Research website on March 6, 2013. In it, the eBay researchers summarized their main findings:

  • First, "brand" keyword advertising (where firms purchase advertisements on searches for their own brand name), a practice used by many companies, is ineffective because, absent paid search links, consumers simply substitute to (unpaid) organic search links. This implies that brand keyword advertising expenses have neither persuasive nor informative value to well known corporations, and arguably, for other companies as well.
  • Second, the effectiveness of SEM for non-branded keywords is small for a large and well-known brand like eBay and the channel has been ineffective on average.
  • Finally, we show that there is a small yet detectable positive impact of SEM on new user acquisition and on informing infrequent users about the value of using eBay. This last finding supports the informative view of advertising and implies that targeting uninformed users is a critical factor for successful advertising.

eBay advertises using brand keywords and non-branded keyword, and tested for both types of advertising. The marketplace said it has historically managed over 170 million keywords and keyword combinations using algorithms that are updated daily and automatically feed into Google, Microsoft and Yahoo search platforms. "Examples of such keyword strings are "memory," "cell phone" and "used gibson les paul."

eBay's researchers wrote, "The results of our study show that for a well-known brand like eBay, the efficacy of SEM is limited at best. For the most part, paid-search expenditures are concentrated on consumers who would shop on eBay regardless of whether they were shown paid search ads."

It's difficult to believe that eBay - and others - paid Google so much money over the years for something that doesn't provide a positive return - many companies test their marketing and advertising to determine what's most effective.

But, eBay researchers said, "in many cases, the consumers who choose to click on these SEM ads are loyal brand customers or otherwise already informed about a firm's product. Advertising may appear like it is successfully attracting these consumers, when in reality they would have found other channels to the firm's website."

Note that what is true for eBay may not be true for other paid search advertisers. And nowhere in the study's findings did the researchers indicate if they had conducted tests on Google Shopping Product Listing Ads. (We've got a question in to eBay about this. UPDATE: See eBay's statement at the bottom of the article.)

It would also be interesting to know if the three research economists consulted with eBay's search marketing team when conducting this study. What does the search marketing team think of these results? And what do the researchers think of the way the search marketing team measured success prior to this study?

A lot of money is at stake when it comes to paid search. eBay said Google, "the leading SEM provider," registered $37.9 billion in global revenues in 2011, of which $36.5 billion, or 96 percent, were attributed to advertising.

eBay's study has the unsexy title, "Consumer Heterogeneity and Paid Search Effectiveness: A Large Scale Field Experiment," while HBR uses the provocative title, "Did eBay Just Prove That Paid Search Ads Don't Work?", and HBR readers are already arguing about what the study really proves.

With eBay increasing the amount of real estate on its own site devoted to advertising, these three eBay researchers may be making it more difficult for their employer to sell ads on its web properties.

We've got questions in to Google and Microsoft and will update as warranted. Also read Monday's EcommerceBytes Blog post, "eBay Skeptical Over Google Intentions in Merchant Crack Down."

eBay provided the following statement: "As one of the world's largest Internet advertisers, we continually look for ways to engage our customers, drive traffic to our site and maximize our marketing investment. eBay's research paper on paid search effectiveness – unveiled at the Economics of Digitization conference - addresses a fundamental question: "Why do large, branded companies like eBay spend such large amounts of money on paid search?" The test methodology used in the study analyzed the true returns from this significant investment. The conclusion: Incremental revenue from paid search was far smaller than expected because existing customers would have come to eBay regardless, whether directly or through other marketing channels."

Update 3/13/13: When reached by phone, a Google spokesperson provided the following statement (with hyperlinks added) though he did not answer questions about the eBay research study. "Google's own studies, based on results from hundreds of advertisers, have found that more than 89% of search ad clicks were incremental (link to study) and that 50% of the search ad clicks were incremental even when there was an organic search result for the advertiser in the top position (link to study). Since outcomes differ so much among advertisers and are influenced by many different factors, we encourage advertisers to experiment with their own campaigns. We provide tools such as AdWords Campaign Experiments and Content Experiments and recommend a statistical method for advertisers to conduct their own geo-targeted experiments."

See the follow-up report to this story in the March 15th issue.


About the author:

Ina Steiner is co-founder and Editor of EcommerceBytes and has been reporting on ecommerce since 1999. She's a widely cited authority on marketplace selling and is author of "Turn eBay Data Into Dollars" (McGraw-Hill 2006). Her blog was featured in the book, "Blogging Heroes" (Wiley 2008). Follow her on Twitter at @ecommercebytes and send news tips to ina@ecommercebytes.com.


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