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Do Advertisers Gain from Sponsored Searches?

In lecture, we have been learning about sponsored searches. Google undeniably gains a big profit from selling its slots for advertisements, but do the receivers receive a significant payoff as well? This question crossed my mind based on personal experience. When searching on Google, I tend to ignore the ads, and go straight to the results. According to an article from Quartz, written by Tim Fernholz, a study has shown that eBay traffic does increase when eBay buys these advertised slots. However, more traffic does not necessarily mean more purchases. Furthermore, because eBay is a relatively well known company, it already has a wide reach. As a result, those who would like to purchase a specific item would probably already know about eBay, rendering eBay’s advertising useless. It’s important to take this with a grain of salt, though, since it is only one based off of one study.

Game theory also plays a role in this situation, particularly with regards to the prisoner’s dilemma. Despite eBay’s little gain from advertising, eBay knows that other competitors are buying these slots. As a result, eBay ends up investing in advertising slots, so that the other companies won’t have an edge over it. In the game, both companies are probably better off not investing because they’re not gaining much from these advertisements. However, the dominant strategy is to invest. If the other company chooses not to invest, eBay’s best response is to invest in order to promote itself over the other company. Instead, if the other company chooses to invest, eBay should choose to invest, as well, so that the other company doesn’t reach a wider audience that eBay doesn’t. The same evaluation process of best response goes for the other company. Both companies end up with lower payoffs than they could have ended up with, if they both chose to not invest.

Although not as prevalent in Google searches, click-baiting is a method in garnering many clicks on a page. Examples can be seen on YouTube, where videos would be labeled as “Must See,” in order to accumulate views. It is usually used for driving traffic, as stated in the article on futurehosting.com. If advertisers in the auctions for sponsored searches are only looking to obtain clicks, click-baiting may be a more viable option. They would only have to think of an interesting title, rather than paying a price for a slot.

 

Source: http://qz.com/220909/does-the-advertising-business-that-built-google-actually-work/

https://www.futurehosting.com/blog/businesses-shouldnt-be-tempted-to-mimic-click-baiting-publishers/

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