Each year billions of dollars is spent on pay per click (PPC) advertising or ‘search’ advertising. And as Google controls the vast majority of the search engine market, that means billions gets spent on AdWords. And the amount continues to grow at a staggering speed each year.
In 2011, Google’s revenues topped 37 billion dollars, the vast majority of which came from search advertising.
However, a new report by eBay has claimed that businesses may be wasting billions of dollars a year on this type of advertising.
The 25-page report, given the not overly search-friendly title of Consumer Heterogeneity and Paid Search Effectiveness: A large scale field experiment was published on the National Bureau of Economic Research website on 6 March 2013. The report found that brand keyword ads (where companies purchase ads on searches for their own names) have no real benefits. This is because most consumers would have clicked through to a company’s website without being prompted to do so by a paid search ad for the company. Quite simply, in the absence of paid ads, consumers just substitute to organic search links.
According to the report, this implies that search advertising has ‘neither persuasive nor informative value to well-known corporations.’
When conducting the study, eBay removed PPC advertising for its brand from the Yahoo! and Microsoft search engines but kept it on Google and then monitored the results closely. The results showed: ‘that almost all of the forgone click traffic and attributed sales was immediately captured by natural search.’
The effectiveness of PPC for non-branded keywords was also questioned. The report found that the return is small for a large and well-known brand like eBay and that PPC advertising has been ineffective on average for the company.
The report did accept that new and infrequent users to a website are influenced by PPC ads. However, it is actually existing loyal users (who already know about a company, its products and its website) who actually account for most of the clicks on paid search ads. As a result, businesses may think they’re attracting new customers to their website through PPC advertising but in reality they’re not and in many cases the vast majority of customers would have found other ways of getting to the business’s website, according to the report.
The report has already generated fierce debate within the marketing world with some arguing that the report is flawed, biased, or simply wrong. However, the report does raise important questions around the effectiveness of PPC advertising, considering the billions that are spent (wasted?) on search advertising each year and it challenges the industry thinking that Google is a good way to advertise to customers.
So…is AdWords an effective use of advertising budget or is it simply a way for Google to grab vast sums of money from naive businesses – on which it then pays little to no tax?