> Wouldn't they spend a bigger part of their revenue on ads ?
That isn't the best question. Businesses spend stupid money on advertising in the mere hope and faith of grabbing attention. Sites like Google (the actual search engine) are really good at measuring effectiveness because their entire revenue model is built on micro-auctions measured by engagement.
The better question is: If digital advertising were so effective then why couldn't advertising customers contract to ad suppliers a percentage of their ROI for the supplied traffic?
The real answer is that a traffic impression certainly isn't a retail conversion. Those two are completely orthogonal. The hope is that increased total traffic volume suggests greater potential conversion rates, because 1% (assuming 1% of Google traffic converts on your site) of a 1,000,000 new customers from Google is a larger number than 20% of 5000 users from word of mouth marketing (assuming 20% of that higher quality traffic converts).
Unfortunately, this thinking is severely flawed, because traffic consumes resources and customer support that can be monetized as a fractional cost per user that quickly adds up. After consideration of expenses a retail site is likely still better off with the 1,000 (20% of 5,000) converted users from word of mouth marketing than the 10,000 (1% of 1,000,000) converted users from search engine traffic.
These things can be figured out decisively with precise numbers by analyzing past traffic, search engine spend, and conversion rates for any major online brand. Its just a few numbers with some applied calculus reviewing historical trends. Knowing this some business leaders see online advertising through the lens of a crack addict.
The drug addiction of online advertising for a major online brand works something like this:
1. In order to grow an online presence needs more traffic, so they increase marketing spend.
2. Marketing spend will bring traffic, but its expensive and that traffic may not buy anything. We called this dirty traffic.
3. Increased traffic means more eyeballs on the site not generating revenue, so put online advertising on the site so that those freeloaders can at least deliver some value back.
4. Nobody likes online advertising. Online advertising really repulses people, which is a hit to conversion. This hit is measurable.
5. Since conversions per capita nosedive you are pressured as a business leader to make up for the downward trajectory. Fixing the business takes time. Users take their time with purchasing decisions, which is what we called the buying cycle and this is also measurable. Click through on adds brings instant revenue at a substantially lower margin than a user purchasing anything (even really cheap crap). The hope is the difference in the immediacy of the result makes up for the reduced margin, but it won't.
6. By this point there are a couple of things going on. Traffic grows in a short term as marketing campaigns only (there are some rare exceptions) result in short term growth spikes that can dip once the campaign ends. The conversion rate drops and expenses go up. Impatience increases as the business cannot wait for the natural buying cycle to make up the difference on a macro-economic scale when the revenue from ads is instantaneous and predictable. Since ads decrease conversion need more traffic to feed the online ads to make up the difference, which means more marketing spend and further still more dirty traffic reducing the conversion rate.
Its a cycle of death to e-commerce. I can speak to this because I worked as an analyst and brand experiment engineer (A/B tests) for one of the most well known online brands of the last decade that ultimately failed due to a combination of internal conflict from management and over-spending on marketing. The brand still exists, but its now just a white label owned by its former primary competitor.