Google unearths a gold mine below the search bar
Before Sergey Brin and Larry Page founded Google, they wrote a research paper as doctoral students at Stanford University in which they questioned the appropriateness of ads on search engines. “It could be argued from the consumer point of view that the better the search engine is, the fewer advertisements will be needed for the consumer to find what they want,” the pair wrote in the 1998 paper.
How times change. Two decades later, it’s not unusual for a smart phone user to see only ads on a Google search page before scrolling down to the regular results. When Google’s parent company, Alphabet, reports earnings this week, the internet giant’s big profits are expected to demonstrate yet again that the billboard space accompanying Google queries is the web’s most valuable real estate for advertisements.
In the 17 years since Google introduced text-based advertising above search results, the company has allocated more space to ads and created new forms of them. The ad creep on Google has pushed “organic” (unpaid) search results farther down the screen, an effect even more pronounced on the smaller displays of
smart phones.
The changes are profound for retailers and brands that rely on leads from Google searches to drive online sales. With limited space available near the top of search results, not advertising on search terms associated with your brand or displaying images of your products is tantamount to telling potential customers to spend their money elsewhere.
The biggest development with search ads is the proliferation of product listing ads, or PLAs. In a departure from its text-based ads, Google started allowing retailers to post pictures, descriptions and prices of products at the top of search results in 2009.
In recent years, Google has served more product ads and expanded their availability to more general search terms – for example, showing photo ads on a search for “running shoes,” not just “Nike Air Max”. It has also tinkered with the size, location and number of ads on results pages for both computers and smart phones.
Retailers are snapping up product ads. They accounted for 52 per cent of all Google search ad spending by retailers in the first quarter of 2017, versus eight per cent in 2011, according to Merkle, a digital marketing agency. “PLAs takes the search engine results page to a different level,” said Andy Taylor, Merkle’s associate director of research.
A Google spokeswoman said the company’s goal had always been to quickly give people the best search results. “Our goal has always been to deliver results that people find immediately useful, which is even more important on mobile devices with smaller screens,” said Chi Hea Cho, a spokeswoman. “For most queries, we show no ads, and we recently removed righthand text ads for all queries. For highly commercial queries, our extensive testing shows that people find relevant ads and offers extremely useful.”
The importance of being at the top of search results is fuelling fierce competition for ads. Reef, a beachwear manufacturer best known for its sandals, said it increased spending with Google 76 per cent last year — mainly because it nearly quadrupled the money it put into product ads.
On a search result, Reef is competing with other manufacturers of flip flops, as well as retail partners selling Reef sandals. On a desktop computer, a Google search for “Reef flip-flops” brought back three text ads above the search results — one from Reef, one from Zappos and one from Amazon — selling Reef sandals. There were also nine image-based product listing ads (PLAs) displaying different Reef sandals for sale; only three were offered by reef.com while the rest were ads from other retailers.
Reef competes with even more retailers when users search for their sandals on a mobile phone. The same search on mobile brought back only Reef’s text ad, but below a scrolling carousel featured more than 20 image ads for different types of Reef flip-flops. Only the first two images linked to reef.com. “We’re competing against each other,” Jessica Levens, the director of e-commerce at Reef, said about the company’s retail partners. “We need to spend the dollars to defend that real estate.”
Ms Levens said the advertising strategy was effective, although she had to convince her chief financial officer about the wisdom of spending more. Those product campaigns helped triple sales that started from online queries, including instances where customers searched without including the Reef brand name.
Google’s prospecting for ad sales has not been limited to PLAs. The company has introduced new forms of search advertising for automobiles, hotels and even home services such as plumbing. “It’s impossible to rely simply on organic” search, said Caitlin Aylward, a senior associate at L2, a research and advisory firm for consumer brands. “The winner in all this is Google.”
Andreas Reiffen, the chief executive of Crealytics, a search engine marketing firm, said Google’s revenue from PLAs on smart phones was more than double its revenue from text ads, because it can place three
product ads in the same space as a single text ad, and consumers are more likely to click on image-based ads than text-based ones.
The rise of product ads is also a reflection of a shift to people doing more searches on mobile phones. Google’s mobile searches surpassed desktop queries for the first time last year. That’s important for product ads, because PLAs take up a larger proportion of phone displays, and Google increased the size of those mobile ads in 2015 to make them stand out even more. Alphabet doesn’t break out revenue from search ads, but growth in paid clicks on Google’s web properties – search, Gmail and YouTube, among others – is accelerating. It rose 40 per cent last year, after an increase of 33 per cent in 2015. At the same time, the average price of Google ads fell 13 per cent in 2016, in part because mobile ads and PLAs are less expensive than traditional desktop text ads.
Product ads that appeal to shoppers are also strategically important because consumers often start online shopping at Amazon.com. Last year, a survey of 2,000 US shoppers found that 55 per cent of them turned to Amazon first when searching for a product, while only 28 per cent started with a web search.
While retailers and brands may feel like they have no choice but to spend on search advertising, many do so willingly because it works. Kristi Argyilan, a senior vice president of marketing at Target, said search advertising was accounting for a larger portion of her digital spending because the ads were “becoming so useful” and more relevant. Traffic from product listing ads accounted for more than 10 per cent of sales on Target’s website, while information in the ads, like whether a nearby store has inventory of a popular product, has provided important information to consumers. “The ads are becoming more purposeful,” Ms Argyilan said.
© New York Times