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NYU Stern Study: Organic Search Engine Listings Positively Impact Paid Search Engine Ad Performance

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NEW YORK--The presence of organic listings on a search engine positively impacts the click-through rates of paid search advertisements, and vice-versa, according to a new study by NYU Stern Professors Anindya Ghose and Sha Yang. This is the first empirical study to assess the impact of search engine advertising on all three entities involved in the process – consumers, advertisers and search engines – in the presence of both organic listings and paid advertisements.

Using a unique panel dataset of consumer responses to keyword ads on Google, Professors Ghose and Yang found:

  • On average, the impact of organic listings on paid advertising is 3.5 times stronger than vice-versa, possibly because of the tendency of consumers to trust organic listings more than paid ads.
  • The positive association between paid and organic listings increases advertisers’ profits by at least 6.15% when compared to profits in the absence of either of them. The positive association is strongest when advertiser-specific keywords are used and weakest when brand-specific and generic keywords are used.
  • Click-through rates, conversion rates and total revenues are higher when both paid and organic listings are present simultaneously than when paid search ads are absent.  
    • The combined click-through rates are 5.1% higher when paid and organic listings are present simultaneously than when only the organic listings are present.
    • The combined conversion rate increases 11.7% when paid and organic listings are present simultaneously than when organic listings alone are present.
    • Paid search advertising drives up to 54% of total revenue growth. 

 “These findings have important implications for the incentives of search engines to strategically modify the rankings of their organic search listings in order to boost their revenues from paid search advertisements,” explained Professor Ghose.

The paper, “Analyzing the Relationship between Organic and Sponsored Search Advertising: Positive, Negative or Zero Interdependence?” is forthcoming in Marketing Science and is available at: http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1491315.

November 16, 2009: http://www.businesswire.com/news/home/20091116006053/en