Joshua, there is actually an extensive empirical literature on this subject. The short answer is that the bulk of searchers do not understand that search engines charge for placement or inclusion. Further, when told that, searchers respond that they feel like the search engines violate their trust.

HOWEVER, it's also not clear that searchers change their behavior based on knowing about the fees. Instead, the overwhelming evidence is that searchers base their search engine choices on the perceived relevancy of the results. Indeed, there is some empirical evidence that searchers find paid results relevant.

See, e.g., Stefanie Olsen, Software Tool Smothers Sponsored Search, Nov. 14, 2003, at http://news.com.com/2102-1032_3-5107846.html?tag=st_util_print (citing a survey showing that 24% found sponsored search results more useful than algorithmically-generated search results and 51% found them just as useful); Leslie Marable, False Oracles: Consumer Reaction to Learning the Truth About How Search Engines Work, Consumer WebWatch, June 30, 2003, at 21, at http://www.consumerwebwatch.org/news/searchengines/ContextReport.pdf (in ethnographic study, 12 of 17 participants found paid search listings helpful in e-commerce searches); iProspect Search Engine User Attitudes, Apr.-May 2004, available at http://www.iprospect.com/premiumPDFs/iProspectSurveyComplete.pdf (survey showing that users of several search engines found paid search advertisements more useful than algorithmically-generated search results); icrossing, How America Searches, June 2005, at 12 (49% either preferred sponsored ads or were indifferent between natural search results and sponsored ).

Eric.

Hmmmm. Based on the research of groups like MarketingSherpa, I disagree with Eric. Searchers do the differnce between organic and paid listings. Specifically, MarketingSherpa found...

"Once again search users have confirmed that 69.6% of the links they click on are ORGANIC and not the paid ads. (This percent rises to 76.7% if they are Google users.)"

Here's the link...http://www.marketingsherpa.com/sample.cfm?contentID=2852

An alternative resource is Niki Scevak at Jupiter Research. In this Search Engine Watch article (http://searchenginewatch.com/searchday/article.php/3459961), she's quoted as indicating...

"According to Scevak, six out of every seven search engine queries results in a click on organic listings and only one out of seven clicks on paid listings. To get these numbers, he said JupiterResearch looks at records of companies and define where their sales are coming from."

I noticed Victor's article on Search Engine Payola after posting my comment above.

Just a thought...Perhaps the higher percentage of organic searches for Google users reflects the clearer differenciation between organic and paid ads.

The statistics are pretty confusing in this area, so it's possible to find at least one empirical study supporting virtually any proposition.

Having said that, we need to be clear--assuming searchers prefer organic over paid search results, it is because (a) the labeling? (b) the degree of relevance? (c) an intrinsic preference for editorial content over marketing content or (d) something else?

To support point A, see Bernard J. Jansen & Marc Resnick, Examining Searcher Perceptions of and Interactions With Sponsored Results, June 2005, at http://www.ist.psu.edu/faculty_pages/jjansen/academic/pubs/jansen_ecommerce_workshop.pdf (showing degraded perceptions of relevance in search results solely because they were labeled as advertising).

To support point B, consider FN 15 in yesterday's GEICO v. Google opinion, where the plaintiffs did a survey with a control group where the sponsored ads were, by design, not relevant to the inquiry--surprise! no one clicked on them.

Eric.

Great comments. The empirical data is interesting, but looks pretty ambiguous (as Eric points out). I think the more interesting data is what consumers actually DO in terms of searches in response to disclosure of paid results rather than what they say they prefer.

Though slightly outdated (2002), this study from Consumers Webwatch found that about 60% of users did not know paid placement existed, and 56% said disclosure would not affect their use of such a search engine. Interestingly, the study found that when search engines do provide links on the page with disclosure of paid placement results, they are rarely clicked by consumers.

http://searchenginewatch.com/sereport/article.php/2164891#consumers

I believe a more recent study from Consumer WebWatch (or maybe it was Pew?) suggested that very little has changed in terms of consumer awareness. I agree with you 100% that it's more interesting to look at consumer behavior, not consumer self-reporting of preferences, and we do have some data on that (see, e.g., the Jansen/Resnick study, although the information science literature is replete with empirical studies--some good, some not so good--looking at consumer behavior in various contexts). We also know that sponsored links have mushroomed into a multi-billion dollar a year industry in about a half-decade; that should give some very useful insights into consumer behavior. Eric.