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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