Auction Giant eBay Skeptical Of Google Ads Value

Peter Suciu for — Your Universe Online

Search engine giant Google has branched out into a variety of other businesses since it was founded in 1998. The publicly traded company has acquired businesses such as YouTube, Picnik, Zagat and Motorola Mobility. It has created a mobile operating system with Android and has launched the Chrome web browser that now rivals Microsoft´s Internet Explorer for the world´s most popular way of accessing the web.

But all this was made possible because of Google´s flagship search engine, which was being  used for more than a billion searches every day barely a decade after it first appeared. Google has long been the dominant force in the world of web searches and has accrued a vast fortune on search results. And it has further leveraged the potential of search through its ad networks, which include AdMob and DoubleClick.

However, the value of Google´s main advertising service was called into question this week by a study conducted by e-commerce giant eBay, a company that also happens to be one the biggest Internet advertisers. The online auction site questioned whether the paid search ads on Google that show up to the right of the organic search results were actually worth buying.

“The conclusion: 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 told sources in an email.

eBay´s study suggests that the people most likely to click through those links were loyal customers who would have likely visited the auction site anyway. This new study was presented this week at an economics conference held at Stanford University.

In the study, eBay removed its paid-search keywords from MSN and Yahoo platforms in the US while retaining them on Google. It found that even without the advertising, users still clicked through as the results appeared on the search engine anyway.

“Advertising expenses account for a sizeable portion of costs for many firms and corporations across the globe. In recent years the internet advertising industry has grown disproportionately, with revenues in the United States alone totaling $31.7 billion for 2011, up 21.9 percent from 2010,” read the report by Thomas Blake, Chris Nosko and Steve Tadelis from eBay.

“Removal of these advertisements simply raised the prominence of the eBay natural search result,” the report added.

This is likely not good news to Google, which generated a reported $46 billion in ad revenue last year, up from about $38 billion the year prior. The search giant has responded that its own research suggests that there are significant increases in clicks as the result of paid search advertising.

“Since outcomes differ so much among advertisers and are influenced by many different factors, we encourage advertisers to experiment with their own campaigns,” a Google spokesperson told the BBC.

While the study suggests that large brands like eBay and online retail giant — those that have traditionally been the biggest buyers of Google paid search ads — may not benefit from the services, it could still be beneficial to smaller companies looking to get some attention.

“With Google ad words, particularly for smaller organisations, it can make a lot of sense because for some of them, their websites aren’t at a stage yet where they have been sufficiently indexed by Google, so they struggle to come up in natural searches for terms,” Dr. Philip Alford, director of the Digital Hub in the School of Tourism at Bournemouth University, told the BBC.

Thus paid search could be a good way for new brands to get some name recognition. However, the high-profile eBay report is likely to have a number of web companies, big and small, reevaluating the size and significance of their online advertising budget.