eBayEarlier this year, Ray Fisman wrote an article for the Harvard Business Review Blog about how eBay had made the decision to stop using Google AdWords. Apparently, the folks at eBay felt paid search just wasn’t working for them, and so they tasked their research labs economists with conducting an experiment. According to the article, “[t]heir findings suggest that many paid ads generate virtually no increase in sales, and even for ones that do, the sales benefits are far eclipsed by the cost of the ads themselves.”

The amount of backlash generated by eBay’s “findings” set all of the internets on fire. It seems eBay’s less-than-stellar efforts at paid search have become somewhat legendary, at least within online marketing circles. As early as 2007, eBay was making claims that Google AdWords was simply not an effective marketing channel for them. Other advertisers spoke up in defense of AdWords and claimed the problem was with eBay’s scattershot approach to choosing keywords.

And therein lies the crux of the matter.

You see, eBay makes extensive use of Dynamic Keyword Insertion, or DKI. The way it works is that an advertiser writes up a somewhat generic ad, leaving space for the keyword. When someone comes along and does a search on something like “digital cameras,” the ad gets served up on Google with the keyword in place:

Buy Digital Cameras Online
Find new and used digital cameras for reasonable
prices at Crazy Hank’s Electronics Emporium.

This tactic only works when you’re selective about your keywords. For small and medium-sized businesses, this goes without saying. They don’t have the money to throw away on useless keywords, so they pore over their list and edit it mercilessly to make sure they’re only bidding on words that are going to drive customers to their website.

However, eBay apparently has some pretty deep pockets. Their list of keywords appears to be every known word in the English language. When coupled indiscriminately with the DKI, the results are both funny and tragic, like a clown dying hilariously in his sleep.

ebay adsSo for years, eBay was offering up ads for everything from world peace to babies to Bill Gates. And let’s face it… how many of us, when presented with an ad about buying and selling babies cheap online, wouldn’t click on that bad boy just to see what came up? I mean, we’re only human!

But when you’re paying for your advertising by the click, the worst thing you can do is generate clicks that have absolutely no chance of converting to sales. No doubt eBay has been paying through the nose for all of these silly ads, which would certainly explain the findings of their “experiment.”

So what’s the takeaway here? A paid search campaign will only be as good as the time and effort you devote to it. Take the time to put together a list of intelligent keywords, come up with some negative keywords to keep your ads from cropping up during irrelevant searches, and test your ads thoroughly before you release them into the wild.

Also, you shouldn’t buy or sell babies on eBay. It’s wrong.

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