Empirical Analysis of Search Advertising StrategiesBHANU C. VATTIKONDA, VACHA DAVE,

SAIKAT GUHA, ALEX C. SNOEREN

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Organic results

Sponsoredresults

Query

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Huge and growing industry

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20140

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10

15

20

25

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Search Revenues ($ billions)

20%

Source: IAB/PwC Internet Ad Revenue reports

Organic

Sponsored

Brand Ad

Competitor Ad

Are common advertising strategies profitable?

Metrics for campaign analysis Click-through-rate (CTR)

Measures ability to attract users but not quality of users

Cost per acquisition (CPA) or cost per conversion:

Does not capture profitability (e.g., in case of organic results)

Profit-per-impression

Requires access to sensitive financial information from advertisers

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User Flow

Search impression

Conversion

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Search engine data User click information

Cost of a particular advertising strategy

Number of conversions that an advertiser receives

How much is a conversion worth to the advertiser?

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Value of a conversion Advertisers specify bid value for an ad

Indicates how much they are willing to spend

We assume that advertisers are rational and want overall advertising to be profitable

Value of a converison,

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Net acquisition benefit (NAB) We introduce a new metric--NAB--captures profitability of a particular strategy

Advertiser spends on a particular strategy

Leads to conversions

is value of a conversion

Profitability

, normalized for impressions

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Computing NAB

Computing NAB for a strategy requires:

1. Conversions

2. Cost of the ad strategy

3. Value of a conversion ()

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Comparing ad strategies Compute NAB for each advertising strategy

Compare NAB to see which ad strategy is more profitable

If then strategy is better than

Common ad strategies we analyze Cannibalization

Advertising for own brand name

Poaching

Advertising for a competitors brand name

Mobile ad extensions

Using ad extensions (e.g., call extension) on mobile devices

Organic

Sponsored

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Search engine dataset Month long click log data from a search engine

Billions of clicks

Millions of ads

Conversions for both ad and organic clicks

Several million dollars of ad spend

Bid that the advertiser placed for each ad click

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Advertising for own brand name Advertise for brand name

NAB is computed over search impressions where user searches for brand

name and ad is shown

Do not advertise for brand name

NAB is computed over search impressions where user searches for brand

name and ad is NOT shown

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Advertising for own brand name

Conversions •Total number of

conversions through ads and organic results

•Number of conversions through organic results

Yes, advertise No, do not advertise

•Users search for brand and advertiser ad is shown

•Users search for brand and advertiser ad is not shown

Impressions

Cost•Cost of campaign •0

Target cost𝜆 • --- but irrelevant

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Advertising on own brand name

NAB(noad)

NAB

(ad)

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Incremental benefit is limited

NAB (ad )−NAB(noad)NAB(noad)

32% advertisers net loss

Why do advertisers advertise for their brand name?

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Click-through-rate is misleading Click-through-rate not correlated to campaign performance

NAB (ad )−NAB(noad)NAB(noad)

CTR

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Summary We introduce NAB which can be used measure profitability of an ad

campaign without access to profit information from advertisers

Advertisers often target the wrong users

Common strategy of targeting own brand name can be a net loss

Commonly used metrics can be misleading

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Thank you