Consumer Heterogeneity and Paid Search E↵ectiveness: A Large Scale Field Experiment

Internet advertising has been the fastest growing advertising channel in recent years with paid advertisements on search platforms (e.g., Google and Bing) comprising the bulk of this revenue. We present results from a series of large-scale field experiments done at eBay that are designed to detect the causal e↵ectiveness of paid search advertisements. Results show that brand-keyword ads have no short-term benefits, and that returns from all other keywords are a fraction of conventional estimates. We find that new and infrequent users are positively influenced by ads but that existing loyal users whose purchasing behavior is not influenced by paid search account for most of the advertising expenses, resulting in average returns that are negative. We discuss substitution to other channels and implications for advertising decisions in large firms. ⇤eBay Research Labs. Email: [email protected] †University of Chicago and eBay Research Labs. Email: [email protected] ‡UC Berkeley and eBay Research Labs. Email: [email protected] §Work in progress preliminary and incomplete. USC FBE APPLIED ECONOMICS WORKSHOP presented by: Steve Tadelis Friday, Sept. 27, 2013 1:30 pm 3:00 pm; Room: HOH-706