Search Advertising and Information Discovery: Are Consumers Averse to Sponsored Messages?

We analyze a large-scale field experiment conducted on a US search engine in which 3.3 million users were randomized into seeing more, or less advertising. Our data rejects that users are, overall, averse to search advertising targeted to them. At the margin, users prefer the search engine with higher level of advertising. The usage of the search engine (in terms of number of searches, and number of sessions) is higher among users who see higher levels of advertising, relative to the control group. This difference in usage persists even after the experimental treatment ends. The increase in usage is larger for users on the margin who, in the past, typed a competing search engine's name in the search query and navigated away from our focal search engine. On the supply side, higher level of advertising increases traffic to newer websites. Consumer response to search advertising is also more positive when more businesses located in the consumer's state create new websites. Quantitatively, the experimental treatment of a higher level of advertising increases ad clicks which leads to between 4.3% to 14.6% increase in search engine revenue. Taken together, patterns in our data are consistent with an equilibrium in which advertising conveys relevant new information, which is unknown to the search engine, and therefore missed by the organic listings algorithm. Hence, search advertising at the margin we study makes consumers better off on average.