Search Advertising and Information Discovery: Are Consumers Averse to Sponsored Messages?

75 Pages Posted: 24 Aug 2019 Last revised: 5 Sep 2019

See all articles by Navdeep S. Sahni

Navdeep S. Sahni

Stanford Graduate School of Business

Charles Zhang

Stanford University

Date Written: August 23, 2019

Abstract

We analyze a large-scale field experiment conducted on a US search engine in which 3.3 million users were randomized into seeing more, or less advertising. Our data rejects that users are, overall, averse to search advertising targeted to them. At the margin, users prefer the search engine with higher level of advertising. The usage of the search engine (in terms of number of searches, and number of search sessions) is higher among users who see higher levels of advertising, relative to the control group. This difference in usage persists even after the experimental treatment ends. The increase in usage is higher for users on the margin who, in the past, typed a competing search engine's name in the search query and navigated away from our focal search engine. On the supply side, higher level of advertising increases traffic to newer websites. Consumer response to search advertising is also more positive when more businesses located in the consumer's state create new websites. Quantitatively, the experimental treatment of a higher level of advertising increases ad clicks which leads to between 4.3% to 14.6% increase in search engine revenue.

Overall, patterns in our data are consistent with an equilibrium in which advertising conveys relevant “local” information, which is unknown to the search engine, and therefore missed by the organic listings algorithm. Hence, search advertising makes consumers better off on average. On the margin, the search engine does not face a trade-off between advertising revenue and search engine usage.

Keywords: search advertising, search engine, marketing, economics

JEL Classification: M37, D83, L10

Suggested Citation

Sahni, Navdeep S. and Zhang, Charles, Search Advertising and Information Discovery: Are Consumers Averse to Sponsored Messages? (August 23, 2019). Available at SSRN: https://ssrn.com/abstract=3441786 or http://dx.doi.org/10.2139/ssrn.3441786

Navdeep S. Sahni (Contact Author)

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

Charles Zhang

Stanford University ( email )

Stanford, CA 94305
United States

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