eBay says AdWords is a waste of money

What is Google AdWords?

AdWords is the advertising system of Google, which offers various kinds of ads including text, image and video advertisements on websites across the internet. By far the most popular type of AdWords ads is the text ads which appear on Google search itself, at the top and on the right of the search results page.

For a quick demonstration, go to google.com, type in a common search query, for example “used digital camera”, pause ad-blocking extensions if you use any, and hit Enter – to the right from your regular search results you will see a column of related ads directed at you by Google’s advertising machine.

eBay’s adverting practices

eBay is a major advertiser and, like many big companies, it usually does everything to appear at the top of search results, both organic and paid (AKA ads). While the first requires a great deal of work in search engine optimization, the latter can be achieved by investing in search ads; the amount needed for the ad to appear depends on the popularity of the search query which triggers it.

The experiment

In order to test the effectiveness of Google search ads, eBay Research Labs decided to halt eBay’s constantly running text ad campaign in some regions, while keeping it going in others from April to July 2012. The results showed that in areas where the campaign was paused there was no considerable drop in sales, although where the ads continued they attracted more users which haven’t bought much on eBay before.

“Incremental revenue from paid search was far smaller than expected because existing customers would have come to eBay regardless, whether directly or through other marketing channels,” eBay spokeswoman Johnna Hoff commented on the subject.

AdWords strategies

The results of eBay’s study are not that surprising. The sales of big well-known brands like eBay can hardly be directly dependent on the amount of ads they place on Google, since the majority of their potential customers are well aware of their existence before they start searching for a product. Nevertheless, saying that AdWords is not cost effective because it doesn’t cause a big increase in purchases is not exactly right. Here are a few reasons for big companies to keep advertising on search engines even if the ads don’t cause proportional growth in sales: 

1. By showing up at the top of paid as well as organic search results the company proves its leading position in the market and adds to the brand visibility
2. In most cases stopping an ad campaign for a popular query is equal to creating space for a very similar ad by a competitor which will undoubtedly show instead
3. A big brand may find search ads useful if it is extending its product range in an unusual direction, or when advertising a product that customers would not normally expect to find on their site 

But of course, while for big companies search advertising is one of the range of tools they use to keep up their leading position, for small companies it is often a possibility to direct traffic to their website which they wouldn’t be able to achieve through organic search results, leading a substantial increase in their profits.