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Google Shopping Listings Will No Longer be Free to Advertisers

A major announcement from Google today portends significant ramifications for retailers, search marketers and managers of Comparison Shopping Engines in the days and months ahead.  The change will find Google monetizing a popular product, and it immediately raises a slew of questions, both practical and academic.

What’s the change?

Google Shopping is transitioning from being a free CSE to being a 100% paid product. The shift will take place beginning in June with plans that it be fully completed by the fall. During the transition period, advertisers already investing in Product Listing Ads (PLAs) will begin paying for and qualifying for the Google Shopping auctions. According to our discussions with Google, sellers utilizing Google Shopping without adopting PLAs will continue to receive free clicks on Google Shopping for some percentage of the auctions (near 100% at first), but by fall, all listings on Google Shopping will be paid advertisements. At that time, Google.com PLAs and Google Shopping results will both be driven by the same platform within AdWords, where advertisers can set unique bids and marketing segments (geography, time of day, query negatives, etc.). As an incentive to adopt PLAs, Google will offer two promotions: 1)     Current sellers on Google Shopping can receive a $100 AdWords credit if they become a new PLA advertiser. This seems to be Google’s “thank you” gift for working with them through this transition. 2)     Any Seller on PLAs prior to August 15th will qualify for a 10% discount on all paid clicks received from PLAs on Google.com and Google Shopping.  The discount will apply from July 1 through the end of the year.

Assessing the Potential Impact

Among the clients for which RKG manages both paid search and CSEs, we find that Google Shopping click levels are between 7-8% of those for Google AdWords paid search ads, on average in Q2.  Whether those levels hold up is a big question. Currently, Google Shopping results often appear smack in the middle of the standard SERP, but we hear that will no longer be the case.  Instead, Shopping results will appear above the organic listings in order to avoid mixing paid and unpaid results and giving the impression of deceptive paid inclusion.

A typical Google SERP, currently

Moving Google Shopping results out of the middle of the page and reducing the real estate devoted to them and PLAs seems likely to hurt their current combined click-through rate.  So, Google is probably looking at a 2+2 = 3 situation, at least in terms of traffic levels.

How the paid Google Shopping format will look

There's also the question of how cost-per-click will turn out for the newly merged Shopping/PLA product.  In our quarterly Digital Marketing Reports, we've spotlighted the rapid growth of the Product Listing Ad format, but also noted that CPCs for PLAs tend to run about 20% lower than comparable text ads: The key word is "comparable."  PLAs have an average CPC that is on par with our average overall CPC, but they trigger almost exclusively for non-branded search queries, which have a higher than average CPC.  To the extent that PLA clicks replace higher priced clicks on standard non-brand text ads, they have been a drag on Google's overall CPC. Google Shopping traffic does convert better than the Product Listing Ads format, so that should drive up bids for the new combined format.  Our results suggest that the bid increase for PLAs would be in the neighborhood of 10-20%, but there is likely to be some inertia there as bidding for PLAs across the industry is less sophisticated than it is for standard paid search ads. Google's 10% PLA discount will also have a material effect on their bottom line for the second half of the year.  In the end, don't expect this change to lead to a sharp turnaround in Google's year over year CPC growth.

Other Practical Questions That We Asked

Q: Currently negative keywords work for AdWords PLA campaigns. Will they also work for Google Shopping queries? A: Yes Q: Currently clicks on Google Shopping are directed through the Merchant Center feed column titled “link”. However, PLAs for RKG are directed through a special column “adwords_redirect”. Which one will be used in the future? A: adwords_redirect Q: Will we be able to see PLA traffic segmented by Google.com (Core Search) vs. Google Shopping in the AdWords UI? A: No

More Questions Remain

RKG has managed PLAs for dozens of clients and we were an early adopter of the product back in November 2010. PLAs have been a very strong product addition for Google.com. The new ad format has driven incremental traffic at ROI positive levels for the past one and a half years. That said, we’re a bit uncertain about the full impact of the move to drive Google Shopping listings by PLAs, because there are still a number of unanswered questions. 1)  How will this change the ability for consumers to compare pricing from various sites (traditional model for Comparison Shopping Engines)? 2)  Is Google seeking to eliminate small sellers from Google Shopping results? One could argue that only allowing stores that are capable of engaging in pay-to-play for listings will provide a better user experience by minimizing the set of low quality or "unreliable" sellers.  That seems to be one of Google's arguments, at least. 3)  Will advertisers begin to pay more attention to the content they’re providing in the Shopping feed, now that they’re paying for the clicks? If yes, will the Google Shopping engine become more useful? 4)  How will Shopping listings change once AdWords' trademark policy becomes the law of the land? We've seen many instances where the stricter AdWords policy has prevented a PLA from being eligible for display, but there were no issues with the same product for the Shopping results.  From what we've seen, this could reduce Google Shopping listings in the neighborhood of 10%.

Forcing CSEs and PPC Under one Roof

Google Shopping represents one of the largest Comparison Shopping Engines while Google AdWords holds a dominant position over its rivals in paid search.  As they have become more and more intertwined -- even before this change -- there has been a growing need to have paid search and CSE management under the same roof.  With this change, Google is forcing the issue, but that's not necessarily a bad thing. CSE managers know how to optimize a feed for maximum visibility (or invisibility) of products. Depending on the sophistication of the provider, they should also employ strong bidding logic to maximize ROI and scale at the same time.  Search marketers  are extremely familiar with AdWords and segmenting ads to the right audience, at the right bid.  Managing additional PLA traffic fits right in line with SEM core competencies. Combining CSE and PPC management can eliminate duplicated efforts and create efficiencies across both.  Coordinated tracking parameters help advertisers optimize ad segmentation, while consistent reporting methods ensure apples to apples comps.  Also, orders with touches from both channels can more easily be de-duped when managed by the same provider and the knowledge gained from either channel is more likely to flow to the other.

The Bigger Picture

Today's announcement is sure to reignite the debates around paid inclusion, whether Google is using monopoly power in one industry to gain an advantage in another, or even just plain being "evil."  From the retailer's prospective, it's easy to view this as just a revenue grab by Google, but there shouldn't be an expectation that Google continue to deliver free CSE traffic in perpetuity. Although we've often found fault with Google decisions, RKG has generally expressed a laissez-faire attitude toward their ability to control their web properties in the manner they choose, except for certain practices like using content from those who have expressed an unwillingness to allow it. It's an old argument, but if a particular Google change upsets users enough, the cost of switching to another search engine is zero.  Also, whether Google Shopping is paid or not, it still competes with other CSEs and Google makes a strong argument that users increasingly expect more than just ten blue links in the SERP.  Whether the government will see it all that way is another matter, but Google appears willing to have that fight, if necessary.
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