Virulent Word of Mouse

September 30, 2011

Organic Listing + Paid Ad = Effective Ad?

Filed under: Academic Research — Shane Greenstein @ 6:57 pm

Is an organic listing a substitute or complement for an ad? More precisely, if a firm had a high listing on an organic listings in Google’s search engine, would there be much gain to having an ad as well? Or would that merely provide traffic that would have come anyway?

That is the question addressed in recent research by Sha Yang and Anindya Ghose, published in Marketing Science in 2010. Kudos to these researchers for figuring out how to approach this question. It is not easy to assemble the appropriate data for an experiment to answer this question.

The answer? In a nutshell, using 3-months of archival data and controlled field experiments they show that organic and sponsored listings act as complements for each other. Said another way, in the absence of sponsored listings, clicks, conversions and revenues for firms are lower on organic listings than when both paid and organic are present. They argue that this happens because of a reinforcement effect of seeing the same firm listed twice in the same screen. More people will visit a website if it is listed in both paid and organic listings because there is a “second opinion effect.”

This has relevance to the recent Senate hearings about Google. If Google favors its own listings then they are pushing out listings from other firms, firms who pay for ads. There must be a marginal firm who gets a little less value from their ad because their organic listing does not make it on the front page.

It also has relevance for competitive advantage on the web. If ads and listings are complements, then large and organized firms have advantages. They can arrange to buy ads, and they can invest more in generating useful listings.

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