Effectiveness of Online Ads

Jordan Weissmann an article that is very much in alignment with my views and experiences with online advertising.

“We Have No Idea If Online Ads Work: The Internet has given us an ocean of data. Turns out, most of it is pretty useless.”

Some excerpts;

Last year, a group of economists working with eBay’s internal research lab issued a massive experimental study with a simple, startling conclusion: For a large, well-known brand, search ads are probably worthless.

For instance, companies like to run large ad campaigns during major shopping seasons, like Christmas. But if sales double come December, it’s hard to say whether the ad or the holiday was responsible. Companies also understandably like to target audiences they think will like what they’re selling. But that always leads to the nagging question of whether the customer would have gone and purchased the product regardless. Economists call this issue “endogeneity.” Derek Thompson at the Atlantic dubs it the “I-was-gonna-buy-it-anyway problem.”

In the end, it all comes down to the evergreen challenge of distinguishing correlation (e.g., a Facebook user saw an ad and then bought some shoes) from causation (e.g., a Facebook user bought some shoes because he saw an ad).

This is exactly the reason why we stopped using AdWords for our antibody search service. Visitor numbers dropped, but our profits didn’t.

Maybe brands that are just starting out need to use AdWords. Maybe if they never gain brand recognition or loyalty, these brands might have to use AdWords forever. However, if your brand has managed to get some recognition, or if your product offerings are unique and listed high in organic search, it is very likely that AdWords is reducing your profit rather than increasing it.

Google and other internet advertising companies are telling advertisers how much data they have and how effectively they can target customers. However, as a recipient of these advertisements, I’m seldom amused when they blatantly show ads from websites that just I visited the day before. If this is all that big data can do, then Internet advertising companies have a big problem.