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eBay and Paid Search Effectiveness

August 14, 2013
by Gradiva Couzin

Last month, an article in the Economist caught our attention. This article covered recent research surrounding eBay’s paid search campaigns, and suggests that the impacts of paid search can be “overstated.” On the other end of the spectrum, you have Google stating the opposite is is true: That paid ads provide clicks you would not get from organic search. Who is right? Let’s look into it further.

eBay Study

When looking at the full eBay research (found here), you learn that eBay came to three conclusions about their paid search campaigns:

1. Sponsoring branded keywords is ineffective and cannibalizes users who would eventually visit eBay via other channels.

2. Non-branded keyword sponsorship is ineffective on average.

3.The small positive effect is for new and infrequent users.

We believe these are great takeaways for eBay, but we would be cautious of taking eBay’s conclusions and automatically applying them to other businesses.

Study Limitations

eBay rightly notes in its research that the research is directed towards well-known brands (e.g., Amazon, BestBuy, etc.). For a small or new brand, these conclusions are unlikely to be applicable. However, eBay does believe that its research applies to these other well-known brands and questions why they spend so much money on “a rather ineffective marketing channel.” We find this statement to be problematic for a few reasons:

1. Unusual Business Model: eBay is in a distinct consumer experience, primarily selling unique or used items via a peer-to-peer auction model. This is very different from other well-known retail brands that compete directly against one another selling identical products (Walmart, Target).

2. Competition: eBay notes the data in its research did not include competition for branded keywords. In our experience, it is common for competitors to run ads for branded keywords, and this can be one of the more effective uses of AdWords sponsorship.

3. Keyword Strategy: eBay does not go into detail in its study, but it could be argued that its keyword strategy for paid search is flawed. We see their methods for non-branded search as a “carpet bombing” approach, targeting an extremely broad array of keywords, many of which have no connection to eBay whatsoever. More discussion on this topic can be found here.

Conclusions

The conclusion we draw from the eBay study is not that AdWords is ineffective for all businesses, but that it was ineffective for eBay, and it could be ineffective for other businesses as well. We have long felt that there are examples of AdWords cannibalizing organic search traffic, particularly for branded keyword searches in which the business has a #1 organic placement. On the other hand, perhaps a better keyword strategy could have improved eBay’s AdWords performance.

We hope that businesses will take this research not as a final word but as a trigger for their own experimentation. Our suggestion: Try the same tests eBay did. Find out if your own AdWords campaigns are providing value. If they aren’t, then you can cut them just as you would any other ineffective marketing channel. Good luck!

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Ask the Experts: Will my AdWords Campaign be Profitable?

May 8, 2013
by Gradiva Couzin

Q: I just began reading your book SEO: An Hour a Day and am very pleased with the advice found in it. Thank you. My main concern lies with PPC (AdWords), as I’m just starting out my campaign and currently have very little budget. I’m concerned that not every click on my ad will be a sale and, thus, cause me to lose money rather than make a profit. Is there another method I could perhaps attempt before diving right into PPC from the get-go, maybe a “Pay per Sale” option? Or is there another form of PPC I could try that may not put such a strain on my wallet, so to speak?

A: You’re right to assume that not every click will translate into a sale for your paid search campaign. Typical conversion rates (the percent of clicks that “convert” into sales) vary widely from industry to industry, but it would be reasonable to expect a conversion rate for a brand new campaign to be under 5%. (Brad Geddes suggests that 3% is Google’s stated benchmark)

Instead of relying on every click to convert for you, you need to identify a cost per conversion that you can live with, and set your bids accordingly. For example, perhaps you sell hat boxes at $15 apiece, and you are willing to spend $5 on advertising for each sale you get. That translates to much less than $5 per click, because you know that only a fraction of your clicks will convert to a sale. Perhaps $.25 per click would be a reasonable starting point.

I would suggest trying Google’s Conversion Optimizer, which will allow you to set a target cost per acquisition (CPA). But before you can enable Conversion Optimizer, your campaign will need to have conversion tracking in place, and the campaign will need to have at least 15 conversions in the last 30 days. Here’s information about Conversion Optimizer: http://support.google.com/adwords/bin/answer.py?hl=en&answer=2471188

When you are starting out with a new paid search campaign, you should expect that there will be a learning curve, which means that your advertising dollars may be less efficient than you’d like them to be, at first. You’ll want to take time to manage your campaign regularly, monitoring bids, tweaking your ad text, your keyword list, and possibly your landing page, until you have reached an acceptable conversion cost.

When you’re getting started, there are no guarantees that you’ll make a profit, so determine what exploratory budget you’re willing to spend, and choose your campaign levels accordingly. Or, in other words, only gamble what you’re willing to lose.

eBay and Paid Search Effectiveness

eBay Study

Study Limitations

Conclusions

Ask the Experts: Will my AdWords Campaign be Profitable?

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