EBay report claims Google Adwords losing significance; why it is not applicable for India
06 Jun 2013

Internet advertising continues to grow significantly with paid advertisements on search platforms constituting the bulk of its revenue. Most businesses spend a major chunk of their advertising money in buying up keyword advertising on Google via its Adwords program. It offers pay-per-click, that is, cost-per-click (CPC) advertising, cost-per-thousand-impressions or cost-per-mille (CPM) advertising, and site-targeted advertising for text, banner, and rich-media ads.

Basically, Adwords allows its advertisers to target users by location (country, region, city, state, etc), language (if you are located in a country that speaks multiple languages), and by keyword phrases, to name a few. These tools help the marketer to know what keywords are typed in by the visitors, thus helping them to make their campaign effective.

The program continues to be Google’s main advertising product and also the highest revenue source for the company. Google, which earns most through advertising, posted whopping revenue of USD $42.5 billion in 2012. In Q1 of 2013, the search giant reported advertising revenues of $12.95 billion, up 22% from $10.65 billion revenues posted in the same quarter last year. These revenues accounted for 93% of Google’s consolidated revenues for the quarter.

While interacting with upcoming online businesses in India, we have found most of them have been spending considerable amount of money on Google Adwords programme and were satisfied with ROI. However, its efficacy came under the cloud when auction portal, EBay released a report in March this year questioning the significance of Google Adwords for established brands.

The study has been conducted by EBay Research Labs economists Thomas Blake, Chris Nosko, and Steve Tadelis analyzed eBay sales after halting purchases of some Google search ads. They kept the ads going in some regions so that they could compare results from the two different approaches. The test began in April 2012 and lasted into July 2012.

As per the study, the ads did attract some purchases by online shoppers who had not bought on eBay much. But for customers who had bought on eBay three times in the prior year, the search ads produced almost no benefit.

"The conclusion: Incremental revenue from paid search was far smaller than expected because existing customers would have come to eBay regardless, whether directly or through other marketing channels," eBay spokeswoman Johnna Hoff wrote in an email to Reuters.

However, Hoff refused to reveal Ebay Inc’s spends on Google paid search ads. She also would not say whether eBay has cut spending on these ads, or plans to do so.

The report highlighted that eBay and Amazon.com Inc, which have been buying Google paid search ads may not need the service anymore due to its decreasing relevance for the company’s business.

A Google spokesman declined to comment on the eBay study specifically. However, he said that Google's own studies, based on results from hundreds of advertisers, have found that more than 89 percent of search ad clicks were "incremental’ and that 50% of the search ad clicks were incremental even when there was an organic search result for the advertiser in the top position. Since outcomes differ so much among advertisers and are influenced by many different factors, we encourage advertisers to experiment with their own campaigns. We provide tools such as Adwords campaign experiments and content experiments and recommend a statistical method for advertisers to conduct their own geo-targeted experiments."

It can be argued that the findings of the report may hold true for mature markets like US but in India where Ebay is still trying to get its hold coupled with the competition offered by the Indian ecommerce portals and with Amazon entry in the market,  Google is still going to be relevant believe analysts.

When we reached out to Ebay India for their reaction on the report and how Adwords has helped them in the country, the spokesperson gave us a standard reply without answering to any of our queries “As one of the world's largest Internet advertisers, we continually look for ways to engage our customers, drive traffic to our site and maximize our marketing investment. EBay’s research paper on paid search effectiveness – unveiled at the Economics of Digitization conference – addresses a fundamental question: 'Why do large, branded companies like eBay spend such large amounts of money on paid search?' The test methodology used in the study analysed the true returns from this significant investment. The conclusion: Incremental revenue from paid search was far smaller than expected because existing customers would have come to eBay regardless, whether directly or through other marketing channels."

Meanwhile, we have received responses from bunch of small businesses on how Google Adwords programme is helping them to scale their revenues and reach out to consumers. Below are the testimonials.

Ola Cabs, an online aggregator of car rentals and point-to-point cab service says that Adwords has immensely helped reach out to potential customers and also lead to successful conversion.  Since we’re present only in five cities (Delhi, Mumbai, Bangalore, Pune and Gurgaon), Adwords gives us specific city targeting which no other online services does”, says Ashish Verma, Head of Marketing of the company.

Another business, PolicyBazzar.com an online insurance aggregator uses Google Adwords for cost effective lead generation. Yashish Dahiya, the CEO of PolicyBazaar believes Adwords is the best friend a marketer can have
“You can measure your ROI; you can monitor and optimize your campaign, all at your own pace- so you are totally in control. We have used Google Adwords for our earlier businesses and the product was therefore, a natural choice for us, “he adds.

The portal currently has 25% of their total advertising budget on Google Adwords, the company looks forward to expand their scope with Adwords - this time with focus on a clear strategy of spend and performance-based advertising.

Meanwhile, brick and mortar company, Kathana Jewelers which has made its online debut in 2010 raised its Adwords budget from modest Rs. 20, 000 per month to over a lakh. The revenue scaled phenomenally and today, Ad-Words accounts for 100% of their advertising budget. “Adwords worked great for our jewelry store and it was the best strategy that we invested in”, says Aditya Gupta, Director and Marketing at Kathana jewelers.

BankBazaar.com, online marketplace that gives its consumers instant customized rate quotes on loans and insurance products started dedicating 90 % of its advertising budget to the online medium, the target group being the urban, net savvy consumers. With Google Adwords, the company expects to increase their branding, as well as generate leads exponentially. Arjun Shetty, Co-founder of BankBazaar.com, says. “We started at Rs 5, 00, 00,000 in monthly disbursals and now we are disbursing over Rs 150, 00, 00,000 per month. This growth is primarily via the Google Adwords engine which is an excellent tool.” Starting with a modest advertising budget, the company now spends over Rs 25 Lakh a month on Google Adwords. 

We have reached out to Indian ecommerce’s arguably most successful player FlipKart which declined to participate in the story. We have not elicited any response from Jabong and SnapDeal on their reaction and investment in the Adwords programme.

It is to be noted that online ecommerce businesses use aggressive email marketing to reach out to consumers. This, however, still constitutes a small fraction of advertising budget of the companies.

India, still a growing market, offers a big opportunity for businesses to leverage Google Adwords for customer discovery. This assumes more importance for competitive ecommerce space in India which is in an interesting phase with recent entry of marketplace giant, Amazon in the country.


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