Perhaps it is Google’s right to favor its own content. Antitrust lawyers are still debating the question in numerous jurisdictions. But these results call into question Google’s defense that it has only users’ interests at heart. Indeed, Edelman suggests that Google’s favored treatment of its own services is best understood as “tying”—not unlike turn-of-the-century litigation challenging Microsoft’s tactics with Windows and web browsers.
Meanwhile, advertisers pay most of Google’s $67+ billion of annual revenue, and a separate line of articles have begun to question whether advertisers are getting what they bargained for. In an empirical study of eBay’s advertising strategy, Blake, Nosko, and Tadelis found that standard measurement methods vastly overstate the effectiveness of Google’s widely-used AdWords service. Most advertisers assess the efficacy of their campaigns by comparing advertising expense to the sales that follow paid ad clicks. For example, an advertiser might compute “cost per acquisition” as a simple quotient: dollars spent on advertising divided by number of sales made to the users who saw or clicked on the ads. But this calculation embodies crucial assumptions, most notably that those users wouldn’t have made purchases without the advertising. That’s a poor assumption in many circumstances, especially for top brands. Consider a user who searches for “ebay” or, for that matter, “geico insurance” or any other phrase mentioning a company name. Such a user is distinctively likely to buy from eBay or Geico, with or without advertising. Subsequent purchases should be attributed at most in part to AdWords advertising – but at least as much to whatever brand-building or offline advertising prompted the search in the first place, or more generally to the user’s preexisting purchase intent.
Rare is the article that suggests consumers or marketers abandon Google. But growing research suggests caution on multiple fronts. For most marketers, Google is better understood as a vendor than an ally.
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Questions for Academics/Instructors in the Classroom
- Should Google be permitted to favor its own services in search results? Why or why not? What are the key downsides of your approach?
- Suppose eBay wants to assess the true causal impact of advertising through AdWords, identifying and measuring the sales the company makes only if it advertises, versus those that would have occurred anyway. Can it do so? How?
Benjamin Edelman and Zhenyu Lai. Design of Search Engine Services: Channel Interdependence in Search Engine Results. Forthcoming, Journal of Marketing Research.
Luca, Michael, Timothy Wu, Sebastian Couvidat, Daniel Frank, and William Seltzer. "Does Google Content Degrade Google Search? Experimental Evidence." Harvard Business School Working Paper, No. 16-035, September 2015.
Benjamin Edelman. “Does Google Leverage Market Power through Tying and Bundling?” Journal of Competition Law & Economics 2015 11(2):365-400.
Tom Blake, Chris Nosko, and Steve Tadelis. “Consumer Heterogeneity and Paid Search Effectiveness: A Large Scale Field Experiment.” Econometrica 2015, 83(1):155-174.