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Google Shopping Changes its Advertising Model Amid COVID-19 Pandemic

If you are an eCommerce merchant, you are likely running Google Shopping Ads. The economic results of the COVID-19 pandemic has led Google to make some big changes to its advertising structure.

Google recently announced that anyone with a qualifying merchant center feed would be eligible for free listings in the Google Shopping platform. As you can imagine this created a lot of industry buzz.

Advertising on Google Shopping

Google Shopping ads are one of the most important parts of marketing for eCommerce businesses. In many cases Google Shopping Ads have proven themselves to be more effective than traditional PPC Google text ads, driving a higher ROI with a more data-driven management approach.

According to recent statistics, 65 percent of Google Ads clicks are from Google Shopping and 89 percent of non-branded clicks are for clicks retailers.

Shopping Ads can appear in many places in the Google ecosystem, but most commonly are found at the top or right-hand side of a Google Search or under the Google Shopping tab results. The dominant position of shopping ads tends to get significantly more exposure than a standard text result. This coupled with a strong data-driven management approach can often result in a higher return on advertising spending (ROAS).

The Relationship Between Amazon and Google

In many ways, Amazon and Google are fierce competitors, yet at the same time, Amazon is one of Google’s largest advertisers.

In fact, Searchmetrics did a recent study, reviewing 10,000 KW in which Amazon is the #1 organic search result. In 31% of those results, Amazon was also running shopping Ads. Our own data suggest that Amazon can take up to 50% of the available impression share for any given eCommerce vertical.

The COVID-19 Pandemic and Amazon’s Advertising

When the COVID-19 pandemic began to hit the United States in mid-March, online shopping became even more common and Amazon, along with many other eCommerce retailers, found itself flooded with orders. The retail giant’s supply chain was strained, and shipments were delayed, so it decided to prioritize “essential product” to allow them to keep up with the demand.

Amazon also temporarily paused orders for non-essential products from their vendors from March 17 to April 5 and extended the delivery windows for other non-essential items. You could still buy most things, but your two-day Prime shipping was closer to two-week.

Sorry Google

The Motley Fool reported in mid-March that many agencies had reported a significant drop in Amazon’s ad impression share, suggesting a massive cut int Amazon’s Google Shopping Spend.

According to our own data, we have seen a very similar drop.

In the industries we support, we typically see Amazon taking between 30% and 60% impression share. Yet beginning in March, Amazon completely dropped off the map. The change has created downward pressure on CPC, reducing our median cost per click by 47% without having any impact on traffic volume.

-Wes McMahon, CEO – Method Marketing

Google’s Response

On April 21, about a month after Amazon reduced its advertising on Google, the tech giant announced that it would stop charging merchants for ads in Google Shopping. Google decided to change its model and only charge merchants who want their ads to be featured prominently;

Bill Ready, the president of commerce at Google, says that this move has been in the works for a while now, “but was brought forward as some stores struggle to find buyers because of the virus. Some merchants said they lost sales during the outbreak when Amazon.com stopped offering fast shipping on some products so it could prioritize what it called essential items.”

“For retailers, this change means free exposure to millions of people who come to Google every day for their shopping needs,” said Ready. “For shoppers, it means more products from more stores, discoverable through the Google Shopping tab. For advertisers, this means paid campaigns can now be augmented with free listings.”

While we believe that Google has likely been planning this move for a while, a sudden drop in advertisers combined with an increase in inventory (for Google inventory are eyeballs) it makes a lot of sense they would decide to expedite the release of this update.

This new advertising model has already been activated in the United States, and it should be rolling out to the rest of the world over the next few months; it is anticipated that it will be available worldwide by the end of the year.

What This May Mean for Advertising

Google’s change gives merchants the chance to get free organic listings for their products. We can expect a flurry of new merchants popping up in Google Shopping ads now that they can do so for free. The question is what impact this will have on merchants across the board. It is unlikely Google would roll this out if it didn’t fit a long term competitive strategy to increase advertiser revenue. That said we are curious as to how this will impact both the quality of listings and ROI for advertisers.

When ads were free prior to the 2012 update, there was often a quality issue with the shopping ads on Google; many searches yielded results of items that were out of stock, and sometimes even items that were completely different from the initial search query. Charging for ads seemed to help clear this up, as advertisers took their feed management much more seriously when they started paying for ads.

As in the early days, many advertisers will find that free product listings will be a boon to business. Either providing new exposure or cutting existing spend. But as with any competitive environment, the more actors injected into the supply and demand equation will drive ROI toward equilibrium. As more and more advertisers fill the organic results, the only way to stand out will likely be through paid results.

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