Google Tax — Are branded keywords a waste of advertising dollars?

eBay recently commissioned a study that declared an end to branded keyword advertising.
The study shows that when turning Google Branded keywords off, eBay’s total click volume from Google only dropped by 3%.
At first glance, the conclusion that paid search spend is a waste of advertising dollars.
The problem with percentages is that they can be misleading when viewed out of context — given that eBay’s paid search volume as a percentage of their total search volume (organic + paid) is 6.2%, the 3% drop in overall search volume means that nearly 50% of eBay’s branded paid search traffic was lost!

Where did the other 50% of eBay’s Paid Search potential visitors go?

Since eBay owns the entire first page of natural search results for most search terms including the “eBay” term (i.e. ebay motors, eBay apparel, etc.), it is logical to assume that any prospects that didn’t click on a competitor’s paid search ad did one of the following:

  • Clicked on an eBay natural search listing — 50% of the brand keyword prospects clicked on a natural search listing rather than the now missing paid search ad.
  • Paid search competitors — Paid Search is a great mechanism for peeling away competitor’s prospects via special offers. In the absence of an eBay ad and presented with a “sale” ad from a competitor, some prospects may have decided to click on the competitor’s ad instead of eBay’s natural search results.
  • Abandoned the search or modified the search to a search term excluding the word “eBay.” — Only Google has this data for sure, but this action seems counter-intuitive.
  • Nothing. In the absence of a paid search ad, there’s nothing to click. Given the proliferation of “paid search spy” software out there, it is safe to assume that some of those clicks are by “bots” which are simply recording paid search data (i.e. landing page URL, landing page keyword density, etc.)

Did eBay make the right call by turning off branded keywords?

Consider that eBay has:

  • Relatively low profit margins –> Net Income / Net Revenue = 18.5%
  • Low branded Return on Ad Spend ( ROAS ) –> ( Revenue from branded / branded spend ) -1 = 18%
  • Negative ROI for branded paid search –> ( branded Net Income – branded spend ) / branded spend = -78%

It doesn’t make sense for eBay to advertise on their branded terms.

In fact, by not advertising on branded terms, eBay nets +$12M in annual profit while freeing up $18M in cash flow.

Should your company turn off branded paid search keywords?

Whoever coined the term “Google Tax” certainly did the company a disservice — advertising on branded keywords (or any other keyword) is either profitable or not depending on your company’s product/service, profit margins, paid search account management effectiveness and natural search (SEO) proficiency.

It may make sense for your company to turn off branded keywords if most of the following are true:

  • Your company owns the first page of natural search results completely or you have at least the top three or four natural search listings.
  • Your company’s brand keywords are not plagued by competitors’ ads with offers to entice your prospects away.
  • Your company has relatively low profit margins (i.e. resellers, affiliates, marketplaces, commodity product manufacturers)
  • Your top-most natural search result (usually your home page) conversion rate is equal to or exceeds the conversion rate of your branded paid search landing page.
  • Your branded paid search ad simply dumps the visitor to your company home page and does not utilize any additional paid search site links.

The only way to truly know whether your company should advertise on your branded terms is to conduct a branded keyword test.

By | 2017-08-29T13:58:11+00:00 August 1st, 2013|Adwords, Brand, PPC, SEM|0 Comments

About the Author:

Over the past 20 years, Chris has successfully added millions in incremental revenue and profit for his clients. SEM, PPC, SEO, marketing messaging, conversion optimization -- these are but a few of the concepts that get his blood flowing in the mornings.