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.