The adage “a picture is worth a thousand words” takes on new meaning in search advertising: Analysis of 6.87 billion paid clicks by Adobe Digital Index shows that cost-per-click (CPC) increased across search and social paid advertising in Q4, but CPCs for Google’s new product listing ads (PLA) saw the largest spike—up 70% in Q4 (80% YoY). Talk about the power of a picture—or, in this case, an image-based ad format.

In comparison, the average CPC for Google’s standard search ads increased only 4% in Q4 (11% YoY). The big takeaway: Growth of PLAs represents a transformation in paid search advertising from single-format text ads to a more varied, diverse marketplace filled with multiple ad formats which that include many paid social options for digital advertisers.

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Google’s newest ad format is bigger than Bing/Yahoo search for retailers

Overall, advertisers who use both Google PLA and standard text ads are now seeing about 22% of clicks from PLAs. In comparison, Bing/Yahoo capture about a fifth of search. PLA growth has come on top of growing market as total paid search clicks are up 16% since last year. The success of PLAs is a very positive sign for Google. It signifies both increased revenue potential (advertisers are willing to pay more for ad formats that work better) and better diversification (greater diversity in ad formats = better hedging of advertising revenue).

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Advertiser ROI is roughly flat YoY

Retailers should expect even more competition for the “product image plus price” ad format. Even as costs skyrocketed in Q4, the return on investment from PLAs stayed relatively flat since last year. As the paid search space becomes increasingly complex, there will be greater need for marketers to employ scalable, algorithmic solutions that can handle this complexity and compute the optimal allocation of advertising budgets.

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Predictions & Recommendations for ’14:

  • Despite the strong Q4 results, PLA CPCs are expected to fall in Q1 / ’14 as retailers regroup and evaluate budget allocations. Q1 traditionally sees the lowest search CPCs and this year retailers will need some time to prove the lifetime customer value of new PLA traffic.
  • Expect more vertical specific ad formats as PLA success signals a shift from text only to more informative image based search ads. The product images used by PLAs are more informative to shoppers looking to quickly determine which retailers have the items they are ready to buy. Advertisers should expect that search engines will look for similar solutions to serve the needs of searches with other goals in mind.
  • For retailers, success with PLAs will depend on deeper cross-functional collaboration. PLA advertising enables marketers to drive placement to move inventory or maximize margins whereas traditional text advertising is more copy based. PLAs pricing levels determine not just orders but whether ads are even served or clicked on in the first place. This strengthens the link between marketing performance and all other aspects of business. Organizations that streamline data communication between departments will stand to reap the greatest benefits.
  • Fragmentation will continue. There have always been multiple ad platforms and channel to decide between. More recently digital advertisers have needed to add multiple devices types to their buying decisions. And now PLAs ad a new dimension to consider in that decision. Marketers will find more sophisticated ways to scale digital marketing across so many emerging ad formats and platforms.
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