Sponsored Search: Do Organic Results help or hurt the Performance and under what conditions?

Sponsored search accounts for 40% of the total online advertising market. These ads appear as ordered lists along with the organic (regular) search results in search engine results pages. There is conflicting evidence regarding the impact of organic search results on the sponsored search especially when there is an overlap in the results. We evaluate the impact of advertiser’s link as well as the competing links in organic results on the its sponsored search performance using data generated through a field experiment for several keywords from the ad campaign of an online retailer. Using a hierarchical Bayesian model, we measure the impact of organic results on both click-through rate and conversion rate for these keywords. We find that while the advertiser’s link in organic result has a positive impact on its click through rate, it has a negative impact on its conversion rate. We find that conversion rate also depends on the quality perception of the advertiser as compared to its competitors’ links in organic results. The conversion rate is higher where the advertiser is perceived to be of higher quality among the competing organic links. Our results inform the advertising strategies of firms participating in sponsored search auctions and provide insight into consumer behavior in these environments. Specifically, we show that organic links may hurt performance for immediate transactions. However, as the click through rate increases, it helps in increasing the brand awareness for the advertiser.