Are you wasting your money on paid search? A brand new study from eBay suggests that you might be throwing your money away.
Paid search marketing is the paid use of search engines (such as Google or Bing) to promote your product or service. Paid search marketing is also sometimes called CPC (cost-per-click), or PPC (pay-per-click) marketing, because most search engine advertising is sold on a CPC or PPC basis. Some people also refer to paid search marketing as SEM (search engine marketing).
Paid search programs work by displaying short advertisements based on the search query from a user. Ads are typically text based and advertisers are charged when an ad is clicked (not merely when it is displayed). On Google, for example, you’ll see search ads above, below, and to the right of the search results.
Paid search marketing is a very profitable business for search engines. Google, for example, earns billions of dollars in profits from paid search.
If you want to read more about paid search marketing, a good place to start would be Search Engine Land’s posts about PPC. For practical tips, you can also read Ten Practical Search Engine Marketing (SEM) Tips and 10 Practical Small Business SEO and SEM Marketing Tips.
Historically, eBay has been one of the biggest Google paid search advertisers. eBay has historically managed over 170 million keywords and keyword combinations for paid search.
Recently, three eBay economists tested the efficacy of paid search by comparing eBay’s sales in markets where eBay suspended its paid search efforts, to sales in other markets where eBay’s search ads continued unchanged.
eBay’s study, published on March 6, 2013, questions the efficacy of paid search marketing.
The study reached three main conclusions:
First: brand keyword advertising (where a company like “crowdSPRING” purchases advertisements on searches for their own brand name) is largely ineffective. The study concluded that when a person is searching for a specific brand, they’ll simply click the non-paid links when search ads for that brand are not present. The study notes that “halting brand keyword advertising … resulted in no detectable drop in traffic and sales.”
eBay found that when it suspended paid search marketing, there was a noticeable increase in natural clicks from organic search results. You can see this trend in Figure 2 below (from the study). Notice, for example, in the Google test (on the right), when paid search clicks (solid blue line) goes to zero, organic search clicks (red dotted line) increases proportionally.
Second: for large, well-known brands, paid search efficacy for non-brand keywords (such as “guitar”, for example), is small. eBay’s study bluntly concluded that “search advertising only works if the consumer has no idea that the firm has the desired product.” These results are not directly applicable to small businesses and brands that are not as widely known as eBay. However, our own experience with paid search for terms like logo design suggests that even for lesser known brands, paid search is largely ineffective for non-brand keywords.
Third: paid search can help companies acquire new users and build awareness among infrequent users. This conclusion, is of course, very important to small businesses and new companies looking to build more brand awareness online. Google’s own research for example, shows that paid search can drive substantial incremental traffic. Other studies suggest that the real impact of paid search is, for most businesses, reflected in offline sales.
You can download a free PDF copy of eBay’s study, Consumer Heterogeneity and Paid Search Effectiveness: A Large Scale Field Experiment.
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