Investigative journalists dug in to the world of digital advertising and asked an important question, is it truly effective? Here's Milestone's highlights of their report.
Digital advertising surpassed Television ads in expenditure in 2016 and has long passed traditional print ads and direct mail. In 2018, $273bn was spent on digital ads around the world, but what do we really know about their effectiveness?
Investigative journalists Jesse Frederik and Maurits Martijn took an intriguing deep dive into the world of digital advertising in their article “The new dot com bubble is here: it’s called online advertising”. Their engaging interview with UC-Berkley Economist and one-time employee of Ebay, Steve Tadelis, reveals some major misconceptions large companies have with digital ads. Facing down a conference room of marketing consultants equipped with jargon and vague graphs, Tadelis was amazed that Ebay was spending millions on what can be summed up as a correlation, not a causation, of the effectiveness of Google AdWords expenditure.
The crux of his critique of Ebay’s digital marketing revolves around the paid ads that appear at the top of search results. What is their true value when the regular search results are right below? We know the marketing agency appreciates the click to boost their numbers, but is the consumer’s sales journey truly being improved? The authors offer a real-world example to convey the optimistic but misplaced intentions of digital advertisers:
“Picture this. Luigi’s Pizzeria hires three teenagers to hand out coupons to passersby. After a few weeks of flyering, one of the three turns out to be a marketing genius. Customers keep showing up with coupons distributed by this particular kid. The other two can’t make any sense of it: how does he do it? When they ask him, he explains: "I stand in the waiting area of the pizzeria."
If the potential customer is already seeking the product, how useful is an ad when the search results might be one more result down on the page? While Ebay’s advertising agency was making the claim that for every dollar spent on search result ads, Ebay was making $12.28, they failed to factor in how many people would have went to the website anyway.
The Ebay executive team allowed Tadelis to run a test on a third of their online market to see what the true value of paid links were. The sales team were certain that at least a 5% drop in sales was inevitable, but the 8-week test left many in the company shocked:
As you can see, almost all of the paid clicks were now going to the regular links to Ebay’s pages. Tadelis calculated that Ebay was actually losing $0.63 for every $1 spent. The important distinction to be made here is the Selection Effect (clicks, purchases and downloads that are happening anyway) versus the Advertising Effect (clicks, purchases and downloads that would not have happened without ads). As digital advertising expands with more complex algorithms, companies should be cautious when advertisers sell the most personally targeted ads to an audience that is already likely to buy the product.
This perspective should be tempered when you consider the size of companies seeking to grow with advertising. Going from page 4 to page 1 on google is a huge factor in growth, but once you’re there the effectiveness diminishes. If a company is seeking to grow their potential customer base, they first have to ask ‘Does the public know your product is out there?’
People can’t google something they don’t think about, so that’s when traditional marketing tactics such as Direct Mail are essential. It’s important to resist the mindset of jumping on any new trend in advertising when there’s time-proven tactics. The digital marketplace is still the wild west in many ways and pay-per-click claims must be scrutinized against other more proven methods such as Data-driven Direct Mail strategies. As Tadelis put it from his time at Ebay:
"I kind of had the belief that most economists have: businesses are [online] advertising, so it must be good. Because otherwise why would they do it?" He added: "But after my experience at eBay that’s all out of the window."