The fight for the top position on Google
Advertisers bid crazy amounts on Google to be placed at the top position in Google’s list of sponsored results ($20 per click is not uncommon in some industries). In recent research, we investigate whether it’s worth paying these high amounts.
We find that although these top slots get advertisers a lot of eyeballs (clickthrough rates can be 5-10% for top ranked ads and decrease exponentially after that). However, they are often not revenue-maximizing (let alone profit-maximizing) for the advertisers. Specifically, a smaller fraction of visitors from top positions “convert” (i.e. buy products) relative to lower positions. The lower conversion rates are partly because top ads draw attention from casual browsers with low purchase intent. But even among buyers, it appears that many of them click on 3-4 ads and then often buy from the most recently clicked ad (i.e. the one ranked 4). Thus, for 100s of keywords belonging to 2 different advertisers, positions 3-6 generated higher revenues than position 1. Further, given the high cost of top placement, profitability is very poor for the top slots. So the top position is best for brand advertisers who want clicks but positions 4 or 5 may be better for those seeking transactional revenues.
The full paper is available at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1151537 and will be appearing in Journal of Marketing Research soon.
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