Marketers to Reconsider How Much They Spend on Paid Search

Paid Search. It’s a field that captures nearly half of all online ad spending. Google became a household name as a result of its sophisticated search3algorithms and ad words. Marketers were willing to spend $14.8 billion last year on paid search to improve their positions on search engine results pages. But is paid search delivering the kind of ROI that marketers believe they are getting?

Researchers at eBay ran a large-​scale study to answer this question.  The analysts wanted to know if top paid search spenders, which shell about $2.36 billion in paid search every year, are getting a good ROI. These analysts suspected that top marketers are overspending on paid search because most consumers are very well informed about major brands. When presented with a search engine results page, consumers are as likely to click on a free link as they are on a link that costs the advertiser money – because these large marketers often run both search engine optimization and paid search campaigns simultaneously.

The eBay test was structured to “distinguish between the behavior of consumers who see  [paid search] ads and those who don’t.” In many cases, consumers are making purchases never having seen a paid search ad. When that data was taken into account in this study, the ROI for paid search dropped, sometimes to a negative number. The analysts posit that marketers continue to spend on these campaigns because marketing consultants are presenting ROI data based on observational data instead of weighting their regression analyses with seasonal and geographic factors which would be a more balanced view of how well these campaigns are performing.  Going forward, eBay analysts warn marketers to check out how ROI is being calculated, especially if these numbers are being crunched by an outside party using formats suggested by Google, the main beneficiary of paid search spending.

It’s not that paid search doesn’t work. For smaller marketers who don’t have name recognition, a paid search campaign – at least for a while – might prove valuable. The larger lesson from this study is that we’re in the era of Big Data and marketers need to understand how the data is being manipulated to calculate key performance indicators like ROI.

[Source: Blake, Thomas et al. Consumer Heterogeneity and Paid Search Effectiveness. Conference. NBER​.org.  2013. Web. 14 Mar. 2013] 
Kathy Crosett
Kathy is the Vice President of Research for SalesFuel. She holds a Masters in Business Administration from the University of Vermont and oversees a staff of researchers, writers and content providers for SalesFuel. Previously, she was co-​owner of several small businesses in the health care services sector.