March 13, 2013
E-commerce giant eBay says its own research has revealed paid search advertising on Google and other platforms is not an effective way for established brands to market themselves.
The study could be bad news for Google. While it is safe to guess eBay will pull at least some of its paid search advertising, other large spenders, such as Amazon, could follow suit.
Analysts at eBay’s research laboratories analyzed the company’s sales after temporarily halting a large proportion of its paid search advertising, but retaining ads in some regions. They then compared both approaches from April until July of 2012.
What they discovered was a barely detectable drop in sales from eBay listings in the regions where the Google ads had been halted. While the ads did attract some purchases from consumers who had never or rarely used eBay, for consumers who had bought from eBay at least three times in 2011, the search ads had practically no benefit.
“The results of our study show that for a well-known brand like eBay, the efficacy of SEM is limited at best,” the study reads. “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.”
According to the study, of the $31.7 billion spent in the U.S. in 2011 on Internet advertising, the top 10 advertisers account for about $2.36 billion of the total spent.
“These companies generally use the same methods and the same consulting firms to design their ad campaigns and there are many reasons to think that the results we presented above would generalize to these large and well known corporations,” the study reads.
“This begs the question: why do well-known branded companies spend such large amounts of money on what seems to be a rather ineffective marketing channel? We believe that the reason is the challenges that these companies face in generating causal measures of the returns to advertising.”
The study also pointed out that analytical advice from Google — which is used by most consulting firms — is “not consistent with true causal estimates of ad effectiveness.”
For instance, Google offers its customers the following advice to calculate ROI:
Determining your AdWords ROI can be a very straightforward process if your business goal is web-based sales. You’ll already have the advertising costs for a specific time period for your AdWords account in the statistics from your Campaigns tab. The net profit for your business can then be calculated based on your company’s revenue from sales made via your AdWords advertising, minus the cost of your advertising. Divide your net profit by the advertising costs to get your AdWords ROI for that time period.
The advice, the study points out, does not account for the group of consumers who used paid search advertising on their way to a purchase but likely would have made that purchase even if they had not seen the paid search ads.
“The only way to circumvent this measurement concern is to adopt a controlled test that is able to distinguish between the behavior of consumers who see ads and those who don’t. As we have shown, once this is done correctly, estimates of ROI shrink dramatically, and for our case become very negative.”
The study also pointed out its findings would not be relevant for small or new businesses with little or no brand recognition.