This is, of course, a standard Free Rider question: can we just dispense with paying Search Engines money and live off the Organics?
The question has surfaced again at Slate, in this article profiling E-Bay’s claim that pausing their paid search campaign has resulted in no revenue loss:
Companies spend enormous sums on marketing their products. Yet it’s notoriously difficult to measure the impact of ad expenditures. Companies advertise heavily at times when they hope to sell a lot—like Christmas Eve and Boxing Day—and in areas where they expect to see their sales grow. So a naïve examination of the relationship between ad expenditures and revenues will of course find they move in sync, even if customers don’t pay the ads any mind.
Advertising has also traditionally produced a lot of waste—I see ads for Brioni suits when I open up the morning paper, even though the last time I wore a suit was on my wedding day. The study’s authors quote 19th-century retailer John Wannamaker: “I know half the money I spend on advertising is wasted, but I can never find out which half”
But what do companies actually get for the billions they now spend on search marketing? The eBay team began by examining whether there’s any benefit to buying search ads that contain the word “ebay.” In these cases, it’s possible that in the absence of paid listings, customers would simply click on the unpaid—or “natural”—listing, which would appear at the top of the search anyway.So in March 2012, eBay conducted a controlled trial to see what would happen if they shut off this “branded keyword advertising” by halting their purchases of search ads containing the word “ebay” on Microsoft and Yahoo search engines, while continuing to purchase search ads on Google as a control. There was no change in eBay sales via Yahoo and Bing, relative to those that came through Google—consumers simply substituted clicks on the unpaid search listing for the now-absent paid ones.
Search Engine Land has picked up the story
AdWords “Ineffective” Says eBay, Google “Meta-Pause Analysis” Contradicts Those Findings
Google: Ads Offer Incremental Traffic not Replaced by Organic
Not surprisingly Google has research (.pdf) that says the exact opposite of what eBay found.
In early 2012 Google published the results of a “meta-analysis” of “six months of Search Ads Pause studies” where advertisers had reduced AdWords spending “at least 95 percent.” According to Google, “these amounted to 390 studies between April, 2011 and October, 2011.”
These studies were conducted in the US, UK, France and Germany. They looked broadly at search marketing and not just AdWords.
The conclusion of that analysis was that SEM offered a major lift to advertisers and that organic rankings and traffic did not compensate when search campaigns were paused:
[O]n average, 81% of ad impressions and 66% of ad clicks occur without an associated organic result . . . On average, 50% of the ad clicks that occurred with a top rank organic result are incremental, i.e., they would not be recovered organically if the ad campaign is paused. For ad clicks with an associated organic result in rank 2 – 5, on average, 82% of the ad clicks are incremental. Finally, for ad clicks with an associated organic result in rank 5 – n, on average, 96% of the ad clicks are incremental.How can this meta-analysis of “pause studies” be reconciled with eBay’s research? Wordstream’s Larry Kim has a theory: eBay ad creative, bidding and keyword practices are poor. He actually used a much stronger word.
Yes, the paper cited is the one we extensively analyzed when it came out (see below).
From the conclusion of the first blog in the series:
That paper gives great insight into how Google is calculating what Hal Varian terms VPC (value per click). The very last equation of the paper informs us that advertisers halt their ad campaigns unless:
(v – c) / v > r*(1-IAC)
where IAC is estimated in the paper, by Bayesian methods (Gibbs Sampling and Slice Sampling), to be about 0.89 (mean expectation). The LHS isn’t exactly innocent: rewriting it as 1 – c/v, it is a function of the fraction of marginal revenue Google gets to keep. That is, if a click has marginal value to an advertiser of v and Google gets to keep marginal CPC c, then c/v is Google’s (percentage) take.
A few worked examples will make the point: we can re-arrange c/v < 1 – r*(1-IAC) ['Google's take will be no more than the RHS, and with proper tuning can be that amount without causing an advertiser to pause a campaign, behaviourally]. ‘r‘ is the relative (conversion) value of an organic click to a paid search click. Since IAC is *estimated* in the article, we can eliminate it from the equation by substitution, and for any value of r, learn Google’s percent take. For example, if r = 1, then Google keeps about 90%. If r is only 0.1 however, Google could keep 99%. When r is as much as 10, they keep nothing at all.