Study: Clear Ad Labeling Reduces Paid Clicks By 25 Percent

Google has just changed the labeling on its paid search ads from “sponsored links” to “ads.” Described by Google as being in a “limited trial” there was no further explanation behind the change. Harvard Business School’s Ben Edelman is ambivalent about the change. While it more clearly identifies what the links are, the word “ads” is smaller and arguably harder to notice.

Edelman believes the labels should unambiguously read “paid advertisement” to comply with FTC disclosure guidelines. He makes this argument in a new article that also contains some interesting consumer research (.pdf). The research, based on controlled behavioral testing and surveys of roughly 300 consumers, showed that when the words “sponsored listings” (or their eqivalents) are replaced with the phrase “paid advertisement,” paid clicks decline — dramatically.

Here’s a summary of the overall findings in Edelman’s words:

[F]or a random subset of users, we change “sponsored link” labels to instead read “paid advertisement.” We find that users receiving the “paid advertisement” label click 25% to 33% fewer advertisements and correctly report that they click fewer advertisements, controlling for the number of advertisements they actually click. Results are most pronounced for commercial searches, and for users with low income, low education, and little online experience.

There’s an extensive discussion of the study and its methodology in Edelman’s article: “Sponsored Links” or “Advertisements”?: Measuring Labeling Alternatives in Internet Search Engines.

Edelman wants Google to adopt “paid advertisement” but his study found that the wording reduced ad clicks by least 25 percent, even in a  commercial query context. This pretty clearly suggests that if Google were to adopt the “paid advertisement” label it runs the risk of biting into paid search revenues.

Google’s on track to make $30 billion this year. A 25 percent revenue decline amounts to roughly $7 billion off the topline. Even if we use a smaller subset of revenues as the base, it’s still a very material number (billions) that Google might lose if Edelman’s research can be generalized to larger online populations.

Clearly Google doesn’t want to discourage users from clicking on ads. It’s very unlikely that, unless compelled by regulators or lawmakers to do so, the company will adopt the phrase “paid advertisement,” as Edelman recommends — especially after reading his research.

Yet the FTC has provided no “magic language” that must appear on PPC ads. Rather it has said that paid results need to be “clearly delineated” from organic results:

Each separate set of paid placement listings should be clearly labeled as such so they can be easily distinguished from other types. Of the 12 search sites owned or operated by the 7 named search engine companies, 11 segregate paid ranking results by placing them above the non-paid results or prominently elsewhere. Many of these sites appear to be headed in the right direction, using terms such as “Sponsored Links” or “Sponsored Search Listings” to denote payment for rankings. In some cases, these sites display more than one set of paid placement listings, and these additional listings are labeled using terms such as “Recommended Sites,” “Featured Listings,” “Premier Listings,” “Search Partners,” “Provided by the [________] Network,” or “Start Here.” Other sites use much more ambiguous terms such as “Products and Services,” “News,” “Resources,” “Featured Listings,” “Partner Search Results,” or “Spotlight,” or no labels at all. To avoid deception, these sites should be labeled to better convey that paid placement is being used.

It would be hard to argue persuasively that “ads” fails to clearly disclose the nature of the associated listings. It might be reasonable, however, to require the font to be of a certain minimum size or relative proportion so that it can be easily seen vs. other text or images.

Related posts:

• Google Does Away With “Sponsored Links” Label, Now Ads Are Labeled “Ads”
• Google Blurs The Line Between Paid & Unpaid Results Again
• Google Experiments With Paid Inclusion & Does “Promoted” Meet FTC Guidelines?