Is Selling Brand Terms On Search Engines Signposting Or A Shakedown?

"Data-Driven Thinking" is written by members of the media community and contains fresh ideas on the digital revolution in media.

Today’s column is by Nico Neumann, assistant professor and fellow, Centre for Business Analytics at Melbourne Business School.

Many governments have started looking into Big Tech and how to address practices that may be harming a society’s wealth and competitiveness. During the ongoing COVID pandemic, an interesting discussion about the importance of search engine marketing (SEM) emerged. Even in 2020, when many brands cut ad budgets, search ads attracted more dollars from advertisers.

What’s behind this trend? Is this evidence for market domination?

Certainly, the strong performance of SEM can partly be explained through natural business adjustments. In a world where consumers increasingly shop online, advertisers will boost their online presence too. COVID lockdowns have only accelerated the trend.

However, a key question is still whether search ads have a special role and whether other forces may have contributed to the fact that search advertising was not reduced.

Does search advertising have a special role?

Traditionally, advertising has been used as a demand-generation tool, both in the short- and long-term history of the medium. Several industry observers have argued that search ads serve a different role and should rather be seen as a means of making products available online. Search ads were compared with name signs above or near to the store (‘signposting’), shelf-space in a physical store or even stores or shopping malls themselves.

While thought-provoking, these comparisons are misleading. The digital equivalent of a physical store is a brand’s website. Shelf-space in the store would also be the product comparison page. If it was the same as a search engine, then there would be no need for Google Shopping.

What about store signs and signposts? Could these be the offline equivalent to search ads? To answer this, we first must understand the two types of search advertising.

Distinguishing brand search and generic search

When talking about SEM, it is critical to distinguish between brand-search and generic-search terms. The former represents searches related to one specific (trademarked) brand or product of a brand, such as “Toyota” and “Prius” or “Samsung” and “Galaxy S20.” As the word "generic" implies, the latter type of terms represents any broader online searches, such as “car” or “tablet.”

We can see that these two search types fulfill different roles. Generic search ads can indeed be seen as a signpost (similar to a phone book entry). The ads and listings help consumers to find products or services that they seek. Search engines act as an agent in this case and connect two parties who would otherwise probably not have found each other.  And selling ads in a search engine is an efficient, non-intrusive way to make consumers aware of brands. This is why generic search will always be one of the most effective advertising channels. Once customers know where and how to find their desired product (and provided they were happy and don’t seek a new solution), the value contribution of the phone book entry or store sign ends.

However, in the case of brand searches, consumers clearly know what they are looking for (by definition). If search engines do not act as a matchmaker here, what value do they provide?

Well, the two reasons consumers may keep using a search engine instead of other methods (e.g. direct URL entry) to get to their desired destination is convenience and a lack of options for “digital transportation.”

The search engine becomes the equivalent of a digital transportation network

Today, nearly all browsers will present search engine results when users type some keyword and not an exact web address into the address bar. That makes browsers an important gateway to search engines, but it also makes the default search engine a powerful digital transportation network that consumers use to navigate the web. In fact, in Google’s ad addressing the Australian News Bargaining Code, Google compared its services to a bus that people take to reach their destination.

The “transportation role” of search engines is more critical for the economy than the “matchmaker role.” Both add value, but serve different consumer needs. Transportation has a deep impact on people’s lives, which is why it was one of the first industries to be regulated.

Let’s use Google’s bus example to illustrate the issues of transport dependency and selling brand-search terms.

Is selling brand search terms a shakedown?

Imagine you wish to take the bus to your favorite Italian restaurant. You don’t really have any other choice than taking a bus, but that’s OK because all buses in your city are free. You can select your favorite bus (most don’t differ and one operator has 90% market share).

But here’s where things get strange. Once your chosen bus company notices you are on board and where you want to go, it reaches out to several other restaurants and offers to divert you to their doorstep in exchange for money. The bus operator will also ask the Italian restaurant you wanted to visit in the first place how much it wants to pay to have you brought to its entrance directly (and not be diverted to competitors).

Of course, if some other restaurants are willing to pay more for diversions, the bus company cannot really force you to go there by giving you no other choice. No one would enter such a bus. However, the bus operator will make the originally desired option very inconvenient, to the point where you may just choose a different restaurant. For example, it may say that you can go to some other Italian restaurant in 5 seconds (the highest bidder), some steak restaurant in 1 minute (second highest bidder), or go to your originally indicated restaurant in 10 minutes (or 20 minutes, depending on the number of other bidders).

No bus company would engage in such practices, but the outlined scenario is exactly the “offline transportation” equivalent of selling brand terms in search result rankings for a given search query while hiding the organic link further down the page. Many brands recognize that paying for their own brand search terms provides no incremental value, but feel forced to pay this unnecessary tax to the digital transportation providers so not to lose their [existing] customers:

Advertisers and regulators need to take action

First, regulators should review this practice as it can be annoying to customers and is also likely to reduce competition. Small, emerging companies may be able get customers interested in visiting their websites, but lack the funds to prevent diversions and customer poaching from established brands with deep pockets.

Second, advertisers should avoid brand-search bidding wherever they can. It’s unethical and search engines are the only winners in this game. It’s a classic case of prisoner’s dilemma, where every brand (who competes) would be better off just doing nothing.

Finally, search engines should reconsider their business models. They deserve to be paid for their services, but should stick to methods that do not hinder the growth of innovative new companies or interfere with consumer intent.

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