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Online retailers are putting more stock in Google Shopping (GOOG, GOOGL)
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Online retailers are spending more on Google Shopping ads, a sign that the format is likely delivering increasing conversion rates.
This means that shoppers are clicking on retail ads on Google's search engine more often, rather than going directly to a retailer's site or third-party marketplaces. As consumers become more reliant on digital devices when researching a purchase, Google Shopping could begin to drive more traffic to retailers' websites. But the company will have to compete against Amazon as the e-commerce giant strengthens its hold on product searches.
Online merchants are likely seeing a lot of engagement with Google Shopping ads. During Q3 2016, retailer spending on Google Shopping ads grew 36% YoY, according to a report from Merkle. Google Shopping is driven solely by its Product Listing Ads (PLAs), which are bought by online merchants and feature an image and text promotion on a search results page. The growth in spending is probably due to an observed increase in consumer engagement with the ads as Google drives consumers to retailers' e-commerce channels.
During Q1 2016, retail revenue from Google Shopping grew 52% YoY. The company's stature and number of users on its search engine also make for an attractive platform to reach shoppers as they do online research. As the e-commerce market grows and new entrants continually come onto the scene, we expect Google to become a much more vital resource for retailers looking to lift visibility and onboard customers.
However, Google faces heavy competition as Amazon seizes more control over the customer purchase journey. Fifty-five percent of consumers first searched for an item on Amazon as of September 2016, up from 44% in the previous year, according to new report from BloomReach. Meanwhile, only 28% identified search engines as their starting point, down from 34% in September 2015.
That said, the increase in ad spend on Google Shopping reinforces the value that retailers place on the search engine when it comes to product research. If Google can maintain this growth and continue to drive online sales for retailers, it could lessen Amazon's threat, even as the e-commerce giant creates an entire ecosystem for its consumers that encourages them not to look elsewhere.
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