A story generating buzz and controversy earlier this week amounts to a stinging indictment of the paid search industry as a whole. It was based on new research from eBay that argues SEM is all but worthless and has little or no impact on traffic and sales — except in marginal cases. However, Google studies argue SEM delivers clear and tangible benefits to advertisers and publishers.

In a paper published last week eBay describes its study (.pdf) and related results. The company says it sought to determine the impact of pausing paid-search ads on its organic traffic and sales.

eBay: SEM “Ineffective”

The company discontinued paid search ads containing brand (eBay) keywords for a limited time. It also looked at the impact of paid-search using non-brand terms. The studies have seemingly rigorous methodologies. In both cases eBay claims it saw little or no impact on traffic or sales from ending the SEM campaigns.

Branded keywords — eBay argues that the impact of ending branded paid-search campaigns was negligible because people clicked on eBay’s organic links:

[T]he evidence strongly supports the intuitive notion that for brand keywords, natural search is close to a perfect substitute for paid search, making brand keyword SEM ineffective for short-term sales. After all, the users who type the brand keyword in the search query intend to reach the company’s website, and most likely will execute on their intent regardless of the appearance of a paid search ad. This substitution is less likely to happen for non-brand keywords…

Non-branded keywords — The company found a marginal traffic impact after discontinuing non-branded SEM but no impact on sales:

[S]earch advertising only works if the consumer has no idea that the ﬁrm has the desired product. Large ﬁrms like eBay with powerful brands will see little beneﬁt from paid search advertising because most consumers already know that they exist, as well as what they have to offer. The modest returns on infrequent users likely come from informing them that eBay has products they did not think were available on eBay. Active consumers already know this and hence are not effectively inﬂuenced.

The company argues that SEM only works in instances where consumers are nearly totally ignorant of a brand and its offerings. By not-so-subtle implication eBay urges other well-known brands to stop using SEM:

“This begs the question: why do well-known branded companies spend such large amounts of money on what seems to be a rather ineffective marketing channel?”

If eBay is correct and other marketers take its research and recommendations seriously there are some profound implications for not only Google but the SEM industry as a whole.

Google: Ads Offer Incremental Traffic not Replaced by Organic

Not surprisingly Google has research (.pdf) that says the exact opposite of what eBay found.

In early 2012 Google published the results of a “meta-analysis” of “six months of Search Ads Pause studies” where advertisers had reduced AdWords spending “at least 95 percent.” According to Google, “these amounted to 390 studies between April, 2011 and October, 2011.”

These studies were conducted in the US, UK, France and Germany. They looked broadly at search marketing and not just AdWords.

The conclusion of that analysis was that SEM offered a major lift to advertisers and that organic rankings and traffic did not compensate when search campaigns were paused:

[O]n average, 81% of ad impressions and 66% of ad clicks occur without an associated organic result . . . On average, 50% of the ad clicks that occurred with a top rank organic result are incremental, i.e., they would not be recovered organically if the ad campaign is paused. For ad clicks with an associated organic result in rank 2 – ­5, on average, 82% of the ad clicks are incremental. Finally, for ad clicks with an associated organic result in rank 5­ – n, on average, 96% of the ad clicks are incremental.

How can this meta-analysis of “pause studies” be reconciled with eBay’s research? Wordstream’s Larry Kim has a theory: eBay ad creative, bidding and keyword practices are poor. He actually used a much stronger word.

Wordstream: eBay’s Ads “Suck”

Wordstream CEO Kim argues that the outcome of eBay’s research can be explained by the notion that eBay’s SEM campaigns “suck.” He says that eBay’s policy of using dynamic keyword insertion creates absurd search ads and dramatically compromises their potential effectiveness.

Kim argues eBay has been very lazy and failed to employ SEM best practices: “The problem with eBay’s carpet-bombing ad strategy is that it’s doomed to fail.” He offers screenshots and myriad examples of eBay dynamic-keyword AdWords that don’t make a lot of sense.

And here’s another list of “humorous” eBay AdWords ads. It would appear to at least partly validate Larry Kim’s arguments about eBay’s weak ad creative.

Not the First Time eBay “Pauses”

When Google introduced Checkout, its PayPal competitor, in 2007 eBay pulled (“paused”) its AdWords campaigns in protest. At the time the company publicly said that it was trying to “determine the best allocation of its advertising and marketing budget.” Presumably this latest research is a continuation of that effort.

EBay says that last year it spent $51 million on paid search, using 170 million keywords. The majority of that spend went to Google. The company is clearly not happy about that.

Are eBay’s findings valid: AdWords won’t work for a big brand? Or are eBay’s AdWords strategy and execution misguided and very weak as Larry Kim suggests?

Do you tend to buy eBay’s findings or Google’s research?

Postscript From Danny Sullivan: An important note to consider is that eBay’s “pause” happened in early 2012, before Google shifted Google Shopping to a paid inclusion format. After that shift, eBay’s “free” visibility in Google Shopping would have plunged dramatically. However, the bulk of searchers still likely saw free eBay listings within Google’s main results.