Effectiveness of Paid Search Advertising: Experimental Evidence

Daisy Dai,Michael Luca

doi:10.2139/ssrn.2847084

Abstract

Paid search has become an increasingly common form of advertising, comprising about half of all online advertising expenditures. To shed light on the effectiveness of paid search, we design and analyze a large-scale field experiment on the review platform Yelp.com. The experiment consists of roughly 18,000 restaurants and 24 million advertising exposures – randomly assigning paid search advertising packages to more than 7,000 restaurants for a three-month period, with randomization done at the restaurant level to assess the overall impact of advertisements. We find that advertising increases a restaurant’s Yelp page views by 25% on average. Advertising also increases the number of purchase intentions – including getting directions, browsing the restaurant’s website, and calling the restaurant – by 18%, 9%, and 13% respectively, and raises the number of reviews by 5%, suggesting that advertising also affects the number of restaurant-goers. All advertising effects drop to zero immediately after the advertising period. A back of the envelope calculation suggests that advertising would produce a positive return on average for restaurants in our sample.

Highlights

Internet advertising has been the fastest-growing marketing channel in recent years, accounting for roughly $60 billion of spending in the United States alone in 2015
We find that advertising increases a restaurant’s Yelp page views by 24.6%, and the increase is greater for mobile views (30.2%) than for web browser views (21.5%)
We find that the increase in conversion metrics is smaller than the increase in page views, suggesting that the marginal visitor driven from advertising is less likely than an average visitor to convert to a purchase

Summary

Introduction

Internet advertising has been the fastest-growing marketing channel in recent years, accounting for roughly $60 billion of spending in the United States alone in 2015. On Yelp, a business can purchase standard advertising packages for a fixed rate, which guarantees a minimum number of advertising impressions to be shown each month. Taking these packages as given, we experimentally assign standard advertising packages to more than 7,000 restaurants during a threemonth period, sending out roughly 24 million total advertising exposures. We show large average effects across a broad swath of potential advertisers on Yelp. These restaurants are much smaller and less well known than eBay or the College Board and may benefit more from advertisements. Whereas Blake et al (2015) conclude that many well-branded advertisers might be better off by not advertising, our results raise the possibility that many less-branded non-advertisers might be better off by advertising

Experiment and Data

Conceptual Framework

Results

Discussion

The Returns to Advertising

Paid Search Ad in Mobile App