In 2012, Google launched a new ad format called product listing ads, or PLAs, to let companies buy visual advertisements.
They’re those photo boxes that appear at the top of Google’s results pages when you search for stuff that is shopping related, like “Ugg boots” or “iPhone charger.”
PLAs are important to Google because they counter the trend of more people starting their product searches directly on Amazon. I’ts easier to buy something on Amazon, where they have more information about a product and price comparisons, than clicking a sponsored link from Google.
Google has even started including reviews and more specific details in its PLAs, which makes them look more like product descriptions on Amazon, and more useful to shoppers.
The company’s efforts seem to be working. Sales from Google Shopping and PLAs are growing nicely, according to the latest post by ChannelAdvisor. March saw sales growth of 21.3% year-over-year, with the average order value growing from $US95.67 to $US115.51. ComScore sets the e-commerce growth rate baseline at ~15%, so PLAs are seeing healthier growth than e-commerce overall.
That’s good news for Google: Advertisers will be more willing to spend money on PLAs if they’re driving more sales.
However, a new note by Goldman Sachs says that its checks showed that Google’s “boost from PLAs is largely behind them.”
Why? If Google Shopping and PLAs are growing, shouldn’t that be a good thing?
“A lot of the success of PLAs is coming at the expense of AdWords,” ChannelAdvisor CEO Scot Wingo explained to Business Insider. An AdWords ad is Google’s traditional link, versus the visual PLA.
Google Shopping gave Google a revenue bump in the early days, because advertisers were spending money on both AdWords and PLAs. Now, that early bump is over, as advertisers decide to split their Google budgets between PLAs and AdWords.
“For our customers, when we look at their Google budgets, I think on average we’ve seen that they’re split 60% PLA, 40% AdWords,” Wingo says.
Sales from AdWords search is growing much more slowly. Sales from search overall (which is mostly Google AdWords, but also includes Bing/Yahoo search advertising) only grew 4.2% year-over-year. That’s because more and more search is coming from mobile, and mobile search ads don’t drive as much revenue as desktop search ads.
“So, one argument is, is Google self-cannabilizing?” Wingo says.
The conundrum for Google: Advertisers have a fixed amount they’re willing to spend across all types of advertising. For Google’s business to keep growing, it needs to convince advertisers to spend more overall on Google. If they’re simply allocating the same budget among different Google products, that doesn’t help the company as much — even if it does help keep a competitor like Amazon at bay.
We’re taking a closer look at Google, which seems to have gone flat as a company. We’d like to hear from Googlers and ex-Googlers. Email [email protected] or [email protected]
Disclosure: Jeff Bezos is an investor in Business Insider through his personal investment company Bezos Expeditions.