David Reiley speaks at the ZEW Research Seminar

A special highlight of September’s ZEW Research Seminar was the guest appearance of David Reiley, a principal research scientist at the Internet company Yahoo!. During his talk with ZEW economists, he discussed his recent study on how online advertising affects sales.

Ad banners informing us about current deals or new products and services appear everywhere online. Yet despite the economic significance of online advertising, it has proven difficult to demonstrate a causal relationship between ad campaigns and revenues – that is, until now. In an experimental study of over one million Yahoo! customers, David Reiley and his co-author, Randall Lewis, were able to show that advertising has a statistically significant positive effect on sales.

The study analysed the purchase decisions of customers who had registered at both a nationwide retailer in the United States and at Yahoo!. Randomly selected customers from this pool were then shown advertising from the retailer while surfing at Yahoo!. The subsequent purchases of these customers were then compared with those of customers who did not receive the advertising.

Reiley and Lewis found that customers who saw the advertising were more likely to purchase the advertised product, leading to a 5% rise in revenue for the national retailer. This amounted to revenues that were seven times greater than the cost of the ad campaign.

David Reiley was a professor at the University of Arizona from 2006 to 2009. Since 2007 he has worked as an economist for Yahoo!. In addition to studies on the effectiveness of online advertising, he studies a host of other Internet-related subjects, including auctions, donations, and electronic commerce.

The ZEW Research Seminar brings together ZEW economists and external speakers to explore research findings from a variety of fields. Talks delivered by renowned scientists from Germany and abroad are a particular highlight of each session.