30 Nov 2010Working Paper Summaries

Sponsored Links’ or ’Advertisements’?: Measuring Labeling Alternatives in Internet Search Engines

by Benjamin Edelman and Duncan S. Gilchrist

In processing a search for a particular phrase, Internet search engines generally offer two types of results: the algorithmic results, which a search engine selects based on relevance, and the "sponsored links," for which advertisers pay. The latter often occupy prominent screen space. But does the average web surfer realize that they are advertisements? In an online experiment, Harvard Business School professor Benjamin Edelman and doctoral candidate Duncan S. Gilchrist show that "sponsored link" is too vague a term for some users to understand, and that "paid advertisement" is a label that better clarifies the nature of the link. They call on the FTC to compel search engines to improve their disclosures. Key concepts include:

Through October 2010, leading search engines Google, Yahoo!, and Bing presented their advertisements with the labels "sponsored links," "sponsored results," and "sponsored sites," respectively. (In November, Google substituted the term "ads.")
In an online experiment that replaced these labels with the term "paid advertisement," users were up to 33 percent less likely to click on the sponsored link.
Certain categories of users were particularly influenced by the improved label. The improved labels had largest effect on users without college degrees, users with annual income below $100,000, and users who utilize the web less than 12 hours per week.
The Federal Trade Commission has called for "clear and conspicuous disclosures" to label search advertisements. Because available evidence suggests users do not understand widely used labels, the researchers believe the FTC should require search engines to use the label "advertisement" or "paid advertisement" rather than vague or easily overlooked alternatives.

Author Abstract

In an online experiment, we measure users' interactions with search engines, both in standard configurations and in modified versions with improved labels identifying search engine advertisements. In particular, for a random subset of users, we change "sponsored link" or "ad" labels to instead read "paid advertisement." Relative to users receiving the "sponsored link" or "ad" labels, users receiving the "paid advertisement" label click 23% and 26% fewer advertisements, respectively. Users seeing "paid advertisement" labels also 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. We find no evidence that consumers find Google's new "ads" label more informative than the longstanding prior label "sponsored links."