This paper analyzes externalities generated by offline advertising campaigns on the performance of online ads.

Using advertising data on a panel of firms in the hotel industry, we estimate how a firm’s offline, display, and competing ad campaigns impact the effectiveness of Google and Facebook advertising.

We find a positive effect of traditional mass-media campaigns on Google clicks. Advertising from competitors does not affect Google ad performance but it increases advertising prices, suggesting keyword poaching. Further analyses hint that Google’s monopoly power and auction system allow free-riding on advertising externalities. Although we find similar positive effects on Facebook ads, they are not statistically-significant.

…This study proposes to test the existence of externalities across advertising media in a given industrial context, ie. the market for hotels. We leverage firm-level data from 5 advertisers belonging to an international hotel group to study how a brand’s offline and online display and competing ad campaigns impact Google and Facebook advertising outcomes. Using a fixed-effect regression with instrumental variables, we find offline investments have a positive impact on the effectiveness of Google search ads. For example, increasing the stock of offline advertising by 10% (≈ €7,200) increases clicks on Google ads by 0.5% (≈ 135 clicks). Surprisingly, we find a negative effect of display ads on Google clicks, suggesting that both media compete for users’ attention. Similar results are found for Facebook ads but they remain non-statistically-significant.

The presence of offline-to-online effects opens the path to a more important question, i.e. who benefits from such externalities? Further analyses show that by increasing the volume of searches and the propensity to click, offline advertising increases the overall Google price paid by the advertiser. In the long run, the increase in Google advertising performance (clicks) negatively affects the offline share of advertising budget.

Although they do not impact Google clicks, ads by competitors increase the Google cost for the focal brand, suggesting that firms compete in auctions to buy their competitors’ branded keywords (Desai et al 2014; Sayedi et al 2014; Simonov et al 2018). In other words, a firm can buy a well-known competitor’s Google keyword in order to free-ride its notoriety. For example, a London-based hotel chain could buy the keyword “Airbnb London” to appear in the latter’s search results. We refer to this strategy as brand poaching.

…Our results have several implications. (1) First, they suggest that online advertising’s return on investments (ROI) may be biased in the presence of externalities between offline and online ads. Given the positive effect of traditional media campaigns on search advertising outcomes, the effectiveness of the latter is likely to be over-estimated. (2) Second, as an online search monopoly, Google seems able to free-ride on such externalities. Indeed, the increase in queries and clicks generated by offline ads translates into additional revenues for Google since search ads are priced based on the quantity of consumer queries (cost-per-1,000 impressions model) or clicks (cost-per-click model). Thus when firms advertise offline, they affect Google advertising outcomes and pay additional search advertising costs. (3) Third, brand poaching creates a prisoner dilemma for brands that increase their Google advertising costs. We argue that this strategy should be regulated. (4) Finally, this study could suggest that offline and online advertising are complements rather than substitutes. While offline campaigns provide information and narratives to a mass of consumers, online ads guide consumers toward the purchase.

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