That's a good question. Has anyone tested whether adding the words Sponsored Ads or similar wording created better earnings?
More clicks is not the object. In theory those clicking the ads are going to be cognizant that they are clicking ads and more likely to have their credit cards in hand, thus be a better click than a click from someone who is just browsing and not ready to buy.
I don't label mine either because Google already does it. But I'm wondering whether labeling it will increase the quality of the clicks as well as increase quality clicks, resulting in better earnings.
On the negative side, a reason not to do it is that it might be possible that adding those words will trigger a loss of ranking in Google because what the page is understood to be will be tipped more toward commercial or some other black box reason. Scary, scary!
image and flash ads are not being labled by google in every case.
Thanks for noting that and bringing that fine point into the discussion. Google's opting to not label ads could be a problem for us if they generate low quality clicks, particularly if they siphon off clicks from higher paying ads.