As the bur­geon­ing world of search adver­tis­ing expands with new ad for­mats, our data indi­cates that Google has seen con­tin­ued growth in its ad busi­ness in Q2. Last July, Google changed search adver­tis­ing by migrat­ing adver­tis­ers to Google Enhanced Cam­paigns, which groups desk­top and tablet bids together while dis­tin­guish­ing them from smart­phone and other mobile traffic.

Based on adver­tiser data across key ver­ti­cals in the U.S., U.K. and Ger­many, we looked at the var­i­ous ad for­mats from Google includ­ing Prod­uct List­ing Ads (PLAs) – which are becom­ing part of Google Shop­ping – to see how they’re per­form­ing for adver­tis­ers. The analy­sis is based on the most com­pre­hen­sive set of indus­try data includ­ing $2+ bil­lion of annual man­aged search spend of 500+ Adobe Media Opti­mizer cus­tomers and 200+ bil­lion search impressions.

Over­all Search Spend Up YoY

Over­all search spend in the U.S. grew by 9% year-over-year (YoY) with most of the increase com­ing from click growth. The UK and Ger­many saw 10% and 6% YoY search spend growth, respectively.

Overall Spend Trends

When com­par­ing Google search ad spend to Yahoo/Bing in Q2, Google con­tin­ued to dom­i­nate with a 78% share of search adver­tiser spend, while Yahoo/Bing gar­nered 22% of the share. The search spend allo­ca­tion in then U.S. remained the same for Google and Yahoo/Bing YoY (from Q2 2013). How­ever, com­pared to Q1 2014, Google search ad spend dropped by 2% while it rose 2% for Yahoo/Bing (see charts below).

For Q4 2013, Google’s spend share rose to 82%, which can be attrib­uted to its strength in the retail adver­tis­ing mar­ket and the hol­i­day shop­ping sea­son. How­ever, in the UK, Yahoo/Bing have made some head­way with its mar­ket share increas­ing from 7.7% to 8.8% YoY, while Germany’s share remained at about 4.4% of the market.

Spend by Quarter

Spend by Engine

Mobile Spend Con­tin­ues To Grow

Desk­tops now rep­re­sent 70% of paid search (com­pared to 77% in August 2013) while mobile/smartphones account for 30%. Cur­rent trends indi­cate that the share for desk­tops will con­tinue to decline and hit 60% of paid search by the end of 2014 due to the organic increase of smart­phone adop­tion. The uptick in smart­phone adop­tion and usage can be attrib­uted to bet­ter WiFi avail­abil­ity, greater mobile data band­width, and improved mobile land­ing pages, site and app expe­ri­ences con­ducive to bet­ter facil­i­tate mobile shop­ping. For the UK, mobile adop­tion has out­paced the U.S. (64%) with desk­tops only account­ing for 56% of all paid search spend. Tablets account for a quar­ter of all search spend and mobile rose to almost 20% (from just 11% ten months earlier).

Over the past year, adver­tis­ers have seen a big tran­si­tion to Google Enhanced Cam­paign; how­ever, despite fears of ris­ing CPCs, the tran­si­tion has been smooth, over­all. CPCs have remained rel­a­tively sta­ble and the per­cent­age of mobile/tablet spend has increased. Mobile CPCs have his­tor­i­cally been lower than desk­top CPCs, but despite the rise of mobile CPCs, they remain lower than desk­top CPCs.

Device Share by Country - June 2014

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Click-Through Rates Are Up

CTRs have risen across the board (devices, engines, sec­tors), espe­cially for mobile/tablets due to Google’s new ad for­mats includ­ing Enhanced Cam­paigns and PLAs. Google CTRs rose by about 20% in the U.S. and we believe this shift is the result of Google chang­ing its text ad for­mats for search queries (denoted by a sub­tle yel­low “Ad” icon opposed to being explic­itly high­lighted as an ad or spon­sored result). How­ever, CTRs have also increased for Yahoo/Bing, which can be attrib­uted to the increase in mobile adop­tion rates, strong Finance related spend­ing in Q4/Q1 and adver­tis­ers pay­ing more attention.

CTR by Engine

Y-Axis: Indexed Aug. 2013 = 100%

CTR by Sector

Y-Axis: Indexed Aug. 2013 = 100%

Mod­est Increase For CPCs

Google CPCs saw a small increase of 4% YoY, but decreased 6% YoY for Yahoo/Bing. Retail CPCs remained rel­a­tively flat YoY, while Finance CPCs decreased by 7% YoY and Auto­mo­tive CPCs increased by 8% YoY.

 CPC Trends

CPC Trends by Sector

Y-Axis: Indexed Aug. 2013 = 100%

PLAs Sta­ble At 15% Of Retail Spend

Fol­low­ing an upswing in Q4 2013 with the hol­i­day sea­son, retail adver­tis­ers saw strong ROI with Google PLAs. How­ever, PLAs have now sta­bi­lized to around 15% of retail spend share in the US and Ger­many, while PLAs rep­re­sent 20% of retail spend in the UK.

PLA Spend Share

As we move from a world of key­words to audi­ences when it comes to paid search adver­tis­ing, it’s clear that dif­fer­ent peo­ple behave dif­fer­ently across devices, geo­gra­phies, time of day, and ver­ti­cal mar­ket. Adver­tis­ers are intent on reach­ing the right peo­ple at the right time with the right mes­sage at the opti­mum bid price to drive ROI/revenue. We expect to see a sec­u­lar shift from key­words to audi­ences in the future where adver­tis­ers will be able to tar­get audi­ences with per­son­al­ized mes­sages, with levers extend­ing beyond key­words as a mea­sure of intent. Google Enhanced cam­paigns rep­re­sent the first in these series of shifts where we have moved from key­word and match types to devices, time of day and geo­graph­i­cal levers. Mar­keters should expect more shifts and an even­tual audience-based buy­ing of search ads.  Some addi­tional changes we expect to see by the end of this year:

  • Paid search spend will increase by 10–12% YoY for the rest of the year.
  • Mobile and tablets will account for 35% of paid search spend by the end of the year.
  • Ad for­mat changes have led to sharp increases in CTR, but it remains to be seen whether this leads to higher ROI for advertisers.
  • Google’s CPCs have slightly risen while Bing’s CPCs have fallen. This hints at an under-allocation of bud­gets for Yahoo/Bing. We expect a slight shift in mar­ket share in Bing/Yahoo’s favor in the com­ing quarters.
  • The tran­si­tion from PLAs to Google Shop­ping cam­paigns might revive the growth of PLA spend if eas­ier feed man­age­ment (for exam­ple) allows smaller retail adver­tis­ers to engage in PLA spending.
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