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Are You Like eBay? How to Tell If You're Wasting Money on AdWords

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Recently, the Harvard Business Review ran an article posing a question that many marketers have asked themselves: Do paid search ads even work?

The article, titled "Did eBay Just Prove That Paid Search Ads Don't Work?", outlined how eBay determined through internal research that paid search is ineffective for the auction giant. In summary, eBay did the math and determined that the cost of its paid search advertising outweighed the benefits to the company. So today, unlike other major retailers -- like Amazon or Walgreens -- whose listings appears in both the paid and organic results, a Google search for eBay now generates only organic search results. But, as the article suggests, that may soon change as other retailers take a page from eBay’s book.

So, is eliminating paid search spend going to yield similar results for the rest of us? Below, we’ve outlined what other businesses can learn from eBay’s experience (hint: it’s not to abandon paid search altogether) and some examples of when paid search can still be relevant, helpful, and results-oriented for your business.

Key Lessons From eBay’s Experiment

1) Only you can really understand your business or your brand. Google AdWords is, at the end of the day, just software.

As with organic search, Google AdWords uses an algorithm designed to deliver on Google’s stated mission of "organizing the world’s information and making it universally accessible and useful," while also helping Google monetize your marketing dollars. (Remember that, Google Glasses aside, advertising continues to comprise 96% of the company's annual revenue.) Google also caters to businesses of all sizes, shapes, and geographies, so relying on the company’s software to understand the economics of your business is a big mistake.

In other words, the onus is on the advertiser to determine how to make AdWords work for their business model -- if they can, in fact, make it work -- and to stop when it doesn't. So while this eBay anecdote may inspire data to look at with your own AdWords campaigns, it isn't right to apply it to any other business without performing your own tests, and analyzing what that data is telling you.

When evaluating the impact of paid search on your advertising, your company should consider the following metrics:

Your Business Economics

In addition to conversion rates, you also need to know the economics of your business and your brand: what’s the average lifetime value of acquiring a customer? Do you sell a product with recurring revenue, or is it a one-time sale? What percentage of your sales are returned or exchanged? How does the cost of customer acquisition vary for your paid and organic search? Are you selling a commodity, and competing on tightly controlled costs? Or, are your margins so wide that money spent getting out your brand message is always money well spent? All of these questions are critical to understanding whether your paid strategy makes sense for your business model.

Keep in mind that eBay has set parameters on how much they make off each sale, so unlike a B2B company with significant recurring business, the cost of customer acquisition would need to be reasonable to justify a $7 payout for the purchase of a small collector’s item. To that end, knowing your numbers is critical to making an informed choice on whether paid search is a worthwhile investment for your company.


One other common challenge associated with Google AdWords is that the Google Analytics out-of-the-box conversion attribution model may lead marketers with longer sales cycles to essentially optimize for the bottom-of-the-funnel. Google Analytics typically associates conversions on a per session basis, which may ignore the activity that brought them to the site in the first place if it occurred in a previous session. So, using Google Analytics alone, that wasted spend on the keyword "eBay' may not, in fact, have been wasted at all. While someone clicking on the ad may not have purchased anything in that initial session, he may have bookmarked the site and came back directly and made dozens of transactions. (This is why we prefer an IP-based tracking model, ourselves.)

Without a doubt, the eBay took this into consideration when they came to their conclusion, but this is not a resource that most mere mortal marketers have at our disposal. The impact is even greater when you consider those effective long-tail or unbranded keywords you might be missing out on. Utilizing the "used les paul guitar" example outlined in the HBR piece, this could prove to be an extremely valuable keyword for the rare guitar enthusiast who never considered checking eBay in the first place.

2) Not all keywords are created equal.

If a salesperson’s motto is always be closing, the equivalent for Google AdWords is "always be optimizing." Google AdWords is essentially a dynamic, real-time auction, so taking the set-it-and-forget-it approach will leave you destined for failure, or at least a wasted budget. Like eBay, you assess the effectiveness of your AdWords spend by looking at which campaigns are working most effectively for you and converting at the highest rate, and dropping campaigns that are prohibitively expensive or not converting at rates that make sense for your business.

If you’ve mastered effective PPC campaign management, you’ve organized your campaigns around different keyword sets and you will quickly see that each keyword set behaves very differently on Google. Drawing broad conclusions from one set or type of keywords and applying them to others can lead to dangerous misconceptions about the impact of your advertising. This is why eBay started by looking at its branded keyword performance as an isolated variable before moving on to then assessing the value of bidding on non-branded and long-tail keywords like Beanie Babies (remember them!?) or baseball trading cards.

3) eBay wasn’t built in a day.

eBay was founded prior to the existence of Google AdWords, and remains a true pioneer in the ecommerce space. As a result, drawing conclusions based on eBay’s ability to step away entirely from paid search is dangerous for other businesses without the same brand recognition and awareness. The reason eBay was able to walk away from pay per click with little if any impact on their business is because the power of their brand awareness keeps them in the consideration set for potential buyers even without the benefit of paid search.

To continue with the example of consumers searching for “used les paul guitar,” we went to Mike Mader, who resells vintage guitars in his spare time, to ask where eBay fell on the list of options for both buyers and sellers in this marketplace. He mentioned that eBay is always in his consideration set, but interestingly enough, noted: “As one who scours land and web for vintage guitar deals and other information, I've found paid search results on Google to be almost static. They've become invisible to me. My hunt has become very focused with little time spent on web search engines. I have the most reputable guitar stores bookmarked. I utilize saved searches on eBay.”

So, eBay has little to gain from using paid search to generate additional business from an enthusiast like Mike, and their conclusions about PPC make sense. It’s safe to say that for eBay, many avid collectors and sellers bookmark their site and leverage it on a regular basis to make transactions, thus reducing or eliminating the need to pay for search traffic to attract this business. However, unless you have thousands of customers in the same position who you know include your business in their consideration set when making a purchase, be wary about drawing the same conclusions for your own business.

Where Paid Search Still Makes Sense For Your Business

1)  Help Ranking on Difficult Keywords

If you’re just starting out in, say, the contracting business in Boston, building up brand recognition and improving your SEO will take some time, energy, and effort, because the contracting marketplace is Boston is pretty crowded with other vendors. As a result, purchasing long-tail keyword ads relevant to your space and geography can make considerable sense in addition to (not in place of) an inbound marketing strategy to help you attract, convert, close, and delight potential customers.

2) Getting Lift From an SEO + PPC Combination

Google has long claimed that combining paid search with a strong organic presence creates a halo effect whereby you get more organic links as a result of your paid efforts. Sounds like a sales pitch, right? Well, similar to eBay, my old agency put this hypothesis to the test by conducting an experiment with several of their clients. The results? By combining paid branded keyword advertising with organic search, visitors from organic search increased 7% while overall visitors from branded terms increased by 39%.

Does this mean you should pour your entire advertising budget into branded keywords? Absolutely not. The point here is that brands sometimes see an increase in organic search traffic when they do paid branded keyword advertising alongside it. The best part about this lift is that there is no cost per impression because the individuals click on your organic links, so you benefit significantly from the halo effect created -- it’s a lift to keep in mind when you’re assessing your keyword strategy.

3) Defining the Prospect’s Journey Through Your Site

When potential customers find you via organic search, their journey through your website and buying process is largely dictated by the link they find and how they navigate through the site. There are, of course, ways you can optimize for this, but fundamentally, paid ads offer the most powerful vehicle to control the prospect’s journey through your site.

For example, let’s say you’re a B2B company and you know that 72% of visitors purchase from your site if they visit the products and pricing pages in succession -- paid search allows you to create landing pages that optimize for that sequence of events, and you can test different iterations to understand which order and creative layout work the hardest for you.

4) Riding or Fighting a PR News Wave

If your company is making national or regional news, chances are other businesses have taken notice and will attempt to benefit from the rise in attention and search traffic. For example, when the Deepwater Horizon incident transpired in 2010, BP Oil went from competing for keywords with other oil companies to battling for mindshare with law firms around the world trying to sign on plaintiffs for future suits against BP.

BP Oil Spill Paid Ads resized 600

In this or similar examples, it’s worth considering paid search campaigns as a defensive strategy. On the flip side, if your company is making global news because of a new infusion of capital or a high-profile award, buying branded keyword ads can help you ride the PR wave and ensure you’re capitalizing on increased search during an awareness peak for your brand.

5) Defending Your Brand

If someone searches directly for your brand online, the last thing you want them to do is end up on the website of one of your competitors. As a result, branded keyword advertising for both your exact brand and common misspellings or iterations of your company name are often well worth the expense to ensure that prospects who are searching directly for your product or service find your website and don’t end up giving their business to competitors as a result of them running a compelling paid search ad based on your brand name.

The Harvard Business Review article on eBay raises all the right questions for businesses: fundamentally, you can’t rely upon Google’s advertising algorithm to understand what’s right for your business, and as with any marketing effort, companies should test, learn, and apply based on what works for them. On the flip side, however, it’s dangerous to draw conclusions for your own marketing based on what an internet juggernaut like eBay did. Simply put, because of their size, business model, and sheer market dominance, their position in the world of online marketing is fairly unique -- they can afford to withdraw from paid search because they remain in the consideration set for both online resellers and buyers due to their brand power.

As a result, the key takeaway from the HBR article shouldn’t be that paid search is dead or that your company can’t benefit from it. Instead, it should be that conducting experiments like eBay did to understand the economics of paid search for your business is a great way to assess if you're getting the ROI you need to continue your paid efforts, and to inform your future marketing expenditures.

What do you think of the HBR article? How do you measure the effectiveness of your paid search expenditures? Have any of your analyses led you to cut back or increase budget for paid search?