James Swift

1 February 2021

Strategist’s Digest: Are search ads worth the cost? 

Contagious digests the most interesting and relevant research from the world of advertising and beyond, because there’s just too much to read and too little time

The Effects of Search Advertising on Competitors: An Experiment Before a Merger 

By Joseph Golden and John Joseph Horton

Give it to me in one sentence.

The idea that companies lose customers to competitors when they don’t buy search ads against their own name is bunk.

Give me a little more detail.

The researchers investigated what happened when a US company (Firm A) suspended its Google search advertising. They then analysed the effect of Firm A’s search-ad blackout on its company’s closest competitor (Firm B), which was possible because the two companies later merged, meaning they could compare data.

When Firm A cancelled its brand ads (ie, against searches for its own name), Firm B moved into the top paid-for position on searches for ‘Firm A’, but Firm B did not get more clicks on its ads.

Similarly, when Firm A kiboshed non-brand search advertising (ie, against searches for keywords related to its business), the effects on Firm B were ‘minimal’. Again, Firm B’s search ads moved up in terms of where they appeared on the results page, but the company did not benefit to the tune of more clicks on its ads.

Firm A did feel the effects of its search-ad sabbatical, though. After the company cancelled all its search ads (both brand and non brand), new customer signups fell 23%. So, Firm A lost customers as a result of abandoning search ads, just not to Firm B.

Why is this interesting?

The researchers reckon the results ‘strongly suggest’ search queries for specific brand names tend to be ‘navigational’, rather than ‘prospective’. In plain language, this means that people often enter company names into Google because they’re already on their way to visit their website but can’t be bothered to type the full URL, not because they’re interested to learn more about the brand. So, buying ads against searches for your own brand name (or buying searches against a competitor’s name) isn’t a strong protective (or predatory) tactic.

Using the experiment data, the researchers also calculated the effectiveness of search ads, stripping out conversions that would have occurred even if no search ad was shown (also called the ‘selection effect’, which you can read more about here). The researchers estimate that only 63% of users who convert after clicking on a paid ad did so because of the ad. The rest had already made their minds up and would have found another way to convert, even if the ad had not been there.

Any weaknesses?

It looks like well thought-out research, but it’s still built around the data from only two brands. The researchers are confident that their findings extrapolate, though. They say both companies, online marketplaces for services that connected buyers and sellers, behaved ‘like typical advertisers on Google’. Both companies were also big search-ad spenders (around $10m per year each), but they were not well-known brands (less than 5% of Americans knew Firm A’s name).

Where can I find the whole report?

Here, but it’s not free.

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