Are Search Ads a Waste of Money?

NEW YORK New research by Microsoft suggests a big chunk of search ad spending is wasted because advertisers pay top dollar for high ad placements clicked by consumers who are en route to their sites anyway. Listings tied to such “branded” keywords, typically a company’s name or products, eat up about half of search budgets, Atlas estimates.

“The reality is those people are already intending to go to your Web site,” said Young-Bean Song, vp of analytics for Atlas, formerly part of aQuantive and now a unit of Microsoft. “What you’re really paying for is a glorified Yellow Pages listing.”

Atlas studied 30 search ad campaigns reaching 120,000 users on Google, Yahoo! and Microsoft. It found that nearly half of clicks on ads came from people who had already visited the advertiser’s Web site. Moreover, about 60 percent of visits came from “branded” words, like the company’s name, while just 29 percent were from people who searched for generic terms and had never been to the advertiser’s Web site—the type of new customers search is meant to attract.

“Should you be spending half your search budgets on those [branded] terms?” Song said. “Probably not.”

“Most advertisers and agencies fully understand the phenomenon that branded searches don’t hold the same value that non-branded do,” said Alan Boughen, director of NeoSearch@Ogilvy. “There’s a certain cost of doing business in terms of locking out the competition.”

In an earlier research report, Atlas found two-thirds of customers who took actions on advertiser Web sites were reached multiple times by ad impressions on several sites. The data led Atlas to conclude advertisers gave too much credit to search clicks over other forms of advertising that built awareness and consideration before the final click.

Search advertising has become a dominant force in the online ad industry, thanks in large part to Google’s popularity and ability to deliver to advertisers quantifiable results in the form of sales or leads. According to the Interactive Advertising Bureau, search accounted for 40 percent of Web ad spending in 2006.

According to the Atlas report, navigational search ate up nearly 54 percent of search ad budgets. Since advertisers tend to credit the final click, which is often a navigational search, Song said they end up overrating the impact of these placements and undervaluing other search clicks and media placements.

Song said Atlas would not advise advertisers to cease bidding altogether on their corporate and product names, but to lower their bids and rely more on their ranking high in natural search results for those terms.

The report cites the experience of eBay, which stopped advertising with Google for 10 days in June. While eBay saw less traffic from Google, its overall traffic was not noticeably impacted.

While the research casts doubt on how much of Internet ad budgets advertisers should earmark to search, Song said Microsoft’s third-place status in the market had no influence on the research, which was under way prior to Microsoft’s $6 billion acquisition of Atlas parent aQuantive.

“We’re not being critical of just Google and not the other search engines,” he said. “What we’re highlighting is an issue for the entire industry.”