NEW YORK ( MainStreet) — Gregory Smith spent more than $500 on online advertisements promoting the T-shirts he sells at Teespring, an online custom-design T-shirt retailer. The results were less than stellar. His most successful campaign was a Facebook advertisement, which cost him about $200 and brought in a total of $144 in revenue, he says.

Recent research echoes Smith's experience, at least when it comes to purchases via paid search ad results. Steven Tadelis, an economist at UC Berkeley's Haas School of Business, using data from eBay, found that when paid advertising was turned off, traffic was re-channeled through free avenues. The study was co-authored by Thomas Blake, an economist at eBay and Chris Nosko, a marketing professor at the University of Chicago's Booth School of Business and former eBay economist.

The researchers first stopped paid search ads in 68 direct marketing areas in the U.S. for 60 days and compared sales in those markets to eBay's sales in markets where paid online search ads continued and found that sales were basically the same. Where the search ads were stopped, visitors came directly to eBay or through organic searches. In a second experiment, the researchers eliminated eBay paid keyword searches across the country and compared sales with an equivalent period that had paid search ads. There was virtually no impact on sales.

But another established brand is claiming success with paid online search ads. Working with with ReachLocal, an online marketing company for local commerce, Scion San Francisco dealerships used targeted paid search ads and display ads as well as mobile ads. Dealerships saw website visits increase by 200%, nearly 2,000 new leads, and more than 28,000 clickthroughs in a four-month period, which helped increase participating dealers' sales 17% compared with the previous year.

But results of paid online ad campaigns by smaller businesses seem to back Tadelis's research results.

"I have used online ad campaigns through Google and MSN," says Erik Powers from Mobile Service Pros, which provides on-site oil changes for autos. "I found that a well-written website and regular blogs can create as much attention and are free."

"We've experimented with online advertising, including Google Adwords and Facebook advertising, and after a pilot run with each of them, the results were poor relative to the cost," says Alex Zorach, founder and editor at, a social review website for teas.

"In the case of RateTea, our website is an informational resource – we don't sell any tea," he explains. "But in the ad market, we're competing against companies that do sell tea, and thus earn much more per visitor than we do. These tea companies bid up the ads to a rate that is competitive for a retailer, but prohibitive for an informational website."