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eBay Questions the Effectiveness of Digital Advertising

25 March, 2013 - 08:46 -- tbrunner

Printed advertising has been the traditional bedrock of the publishing industry. Without it newspapers and magazines cannot exist, hence the carnage inflicted on those sectors since the advent of internet advertising. However a recent study by eBay* questions the value of Search Engine Marketing (SEM), suggesting that print is more sustainable, not just for the planet but for marketers as well.

The eBay study was conducted in the US where Internet advertising revenues reached $31.7 billion in 2011, up 21.9% from 2010. SEMs accounted for $14.8 billion (46.5%) of this spend and the top ten spenders paid out $2.36 billion. It is easy to understand the temptation of internet advertising: a huge global user base which SEM ads can target, based on self-selected user preferences. Responses can be tracked, giving advertisers clicks data which they can match up with sales data to determine the return. This seems attractive but how can media buyers be sure that a match between ad and sale is real?

Print has the same problem, but print has some important advantages over SEM ads in addition to being technology independent and having a limited carbon footprint. Print advertising also has a one-off cost and is independent of response whereas SEM ads cost more with every click but these extra clicks do not necessarily translate into sales. There are many wasted clicks from people who already know the brand or who are using the ad as a shortcut or navigational tool. The cost of such digital views is a waste of money.

The study also considered the value of position auctions that align advertiser incentives with potential customer preferences. Advertisers bid against competitors to be at the top of the list of ads appearing alongside searches, increasing revenues for search engine owners. Advertisers hope a high position will yield more clicks, but when people use ads just to aid navigation the value of the higher position is nil. The researchers found that natural searches are a perfect substitution for SEM ads and that branded SEM campaigns have no value for short-term sales.

So it seems that SEMs, which account for huge amounts of marketing spends and online traffic, are not as effective as the alternatives, such as display ads or print in all its manifestations. Print advertising’s effectiveness has been judged on observational data, rather than evaluating the causal estimates of ad’s effectiveness. Based on the eBay study when the same parameters are used for SEM campaigns they come a poor second to alternatives, including the much more sustainable options print can offer.

* Consumer Heterogeneity and Paid Search Effectiveness: A Large Scale Field Experiment http://conference.nber.org/confer/2013/EoDs13/Tadelis.pdf

– Laurel Brunner

Digital Dots Client

Digital Dots Client

Digital Dots Client