Researcher Kinshuk Jerath argues search engines are the only real winners

NEW YORK – Advertisers spend a lot of money on paid search. By 2019, paid search ad spending will reach nearly $40 billion in the U.S. alone. But, according to research from Columbia Business School’s Kinshuk Jerath, this tactic has many subtleties and doesn’t always result in increased profits for advertisers.

Rooted in the problem of keyword management costs – the operational costs associated with customizing keyword searches and ads – Jerath’s research questions the effectiveness of tools like broad match that have been developed by search engines to help advertisers mitigate those costs.

Figuring out all of the possible keywords that consumers might search for and customizing bids and ad copy based on geographical location, time of day, and other characteristics requires a huge investment of advertising resources. But broad match automates the process, saving advertisers a great deal on these resources. While the use of broad match has become commonplace, accounting for the lion’s share of search ads displayed and clicked, Jerath identifies one increasing issue.

“Tools like broad match have led to too many advertisers competing over the same keywords, because now bidding on keywords is so easy,” said Kinshuk Jerath, Associate Professor of Business at Columbia Business School. “The result is that the search engines are actually the only real winners.” 

About the Research

The paper, entitled Keyword Management Costs and “Broad Match” in Sponsored Search Advertising and co-authored by Wilfred Amaldoss of Duke University’s Fuqua School of Business and Amin Sayedi of the University of Washington’s Foster School of Business, weighs the costs and benefits of using a tool like broad match to automatically increase brand visibility online, instead of manually bidding on keyword match results. More importantly, it raises the question of how broad match accuracy influences the effectiveness of advertisers’ paid search campaigns.

The key findings of the research suggest that, ultimately, broad match is only effective to a point, a threshold driven largely by the accuracy of broad match that is controlled by the search engine, not the advertiser.

Broad match was initially developed because the keyword management costs associated with tailoring sponsored searches was inhibiting advertisers from participating in bidding for multiple keywords, forcing search engines to reduce their prices on sponsored searches.

Many advertisers have now adopted broad match as a cost-saving and time-saving measure. When the tool matches advertisers with high-relevance keywords, there is a visible value-add for advertisers. But what Jerath and his co-authors discovered through this study is that when the match between a consumer’s keyword search and the advertiser’s product is low or intermediate, exactly when broad match seems most useful as such keywords are difficult to pre-list for advertisers, using broad match can actually decrease return. 

Implications for Advertisers

What can happen, Jerath explains, is a situation where, as an advertiser, you’re getting too many inaccurate search results with high competition because everybody else is using broad match too. For example, if a consumer searches “German luxury cars” then, in addition to brands like BMW and Audi, ads of brands like Jaguar (which is British) and Cadillac (which is American) may be matched too if they have opted for broad match, which leads to higher competition in the auction and overall higher ad spend.

Furthermore, while it would seem natural to expect search engines to continuously improve broad match results, the research shows that search engines are only motivated to do so to the point that advertisers choose broad match. Beyond that point, further increases in accuracy start to reduce search engine profits by driving down bid prices.

Jerath’s research indicates that there is work to be done in auditing tools that search engines offer advertisers because, while taking for granted their accuracy and effectiveness, anything that makes advertising cheaper creates more competition—and can ultimately hurt your return on investment.

Source: Columbia Business School