18/05/2024 2:21 PM


Be life confident

Google drops charges on shopping service to counter Amazon’s surging ad sales

SAN FRANCISCO (Reuters) – Google said on Tuesday it would stop charging merchants to place products on its Google Shopping search page as it looks to win e-commerce advertising business from Amazon.com Inc and other online retailers, just as they are struggling to supply customers with some items due to the coronavirus pandemic.

FILE PHOTO: The logo of Google is seen in Davos, Switzerland Januar 20, 2020. Picture taken January 20, 2020. REUTERS/Arnd Wiegmann

The move is the latest effort by Google to reinvigorate its Shopping service, which has been largely eclipsed by Amazon.com, where most online shoppers now start searches for products and merchants pay to feature prominently.

Google, part of Alphabet Inc, has up to now charged merchants whose products appear when users click on the Shopping tab on Google’s search engine. Amazon, which charges merchants only to promote items high on searches but takes a cut of their sales, is increasingly eating into that business.

By adopting a system akin to Amazon’s, Google is hoping more merchants will put their products on its service, which will attract more shoppers and ultimately increase ad revenue as merchants vie to be featured.

“If you work with the ecosystem, there will be monetization opportunities that come on top of that,” Google’s president of commerce Bill Ready told Reuters in an interview.

The new policy had been in the works for some time, Ready said, but was brought forward as some stores struggle to find buyers because of the virus. Some merchants said they lost sales during the outbreak when Amazon.com stopped offering fast shipping on some products so it could prioritize what it called essential items.

Google’s plan will take effect next week in the United States and by the end of the year globally.

The move is a gamble for Google, as it may lead to a short-term loss of advertising revenue and does not guarantee an influx of new customers.


Google executives have debated for months how best to push back against Amazon.com, rejecting the idea of spending billions of dollars to revamp the Google Shopping service, according to previously unreported accounts from 12 current and former high-ranking staff.

Staffers last year explored partnerships with delivery companies to match Amazon’s speedy shipping, but did not get the go-ahead from top executives to strike a deal, one source said.

Amazon has invested heavily in stocking warehouses and delivery drivers at the expense of its gross profit margins, which stand at about 40 cents on every dollar of revenue, according to Refinitiv data.

Google, which has no experience of such a physically intensive delivery operation, balked at a similar type of investment, which would cut its profit margins of about 60 cents per dollar of revenue, three sources said.

“It’s daunting the amount of capital and expertise it would take to run such a business, and even if you’re successful, are you just going to be No. 2?” said Jon Venverloh, who left Google last summer after 18 years, including some time as a director on Shopping.

Google declined to comment beyond Tuesday’s announcement.

Amazon’s tenfold surge in online ad sales over the last five years to 4{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} of the global market compared to Google’s 32{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f} has created what some financial analysts call Google’s greatest-ever threat.

As Google leadership planned 2020 budgets last summer, some managers who oversee ad buying and selling software called for a coordinated plan to beat back Amazon on several fronts.

They used presentations entitled ‘Amazon Compete’ from Google sales chief Philipp Schindler’s strategy team that tracked the online retailer’s growing power, including consumers’ preference for its shopping search tools, three sources said.

The name recalled an effort dubbed ‘Facebook Compete’ that led to big investments when Facebook Inc’s mobile ads business surpassed Google’s several years ago, five sources said. The project succeeded, with new ad formats and algorithms for mobile putting Google back on top.

But Google executives did not feel the same pressure to invest heavily to beat back Amazon, said Sreekant Lanka, a Google ads executive until a year ago, despite Amazon’s aggressive hiring, acquisitions and sales efforts.

In 2019, Google had its worst sales growth in four years, but still added $18 billion in ad revenue, compared with an estimated $4 billion bump for Amazon.com to about $12 billion.

Google’s steady ad sales growth as more spending moves online has enabled top executives to justify limited investments in shopping, sources said.


Google also gets a cut of the purchase price when customers use the Buy on Google feature available on some products on Google Shopping, which lets people buy items using a credit card on file with Google without leaving the search engine.

Merchants benefit because shoppers are more likely to buy the fewer clicks they have to make. Google gets a cut of sales and details on consumer purchases for ad targeting, while still avoiding fulfillment.

But some stores are not sold. Jeff Cayley, CEO of bicycle retailer Worldwide Cyclery, said he pays Google on average 11 percent of sales for search ads taking shoppers to his website, compared with 15 percent when they purchase through Buy on Google.

“It seems like a way (for Google) to dabble in marketplaces, but it’s an uphill battle and a confusing experience for consumers,” Cayley said.

Google signed up about 4,000 merchants for Buy on Google by the end of the last year, behind its targets despite temporarily discounting its cut on product purchases by about 20{3c4481f38fc19dde56b7b1f4329b509c88239ba5565146922180ec5012de023f}, according to two of the sources.

While top executives last year initially prioritized big subsidies to attract shoppers, they later backtracked and even froze hiring in some areas to cut costs, according to three sources.

Last month, Google again suspended promotions and marketing plans because of concerns related to the new coronavirus.

Ben Frederick said he listed his Dr. Frederick’s Original foot-health products through Buy on Google in mid-March when Amazon’s delivery times lengthened. But he said just three Google orders had trickled in by last week.

Reporting by Paresh Dave in San Francisco; Additional reporting by Sheila Dang in New York; Editing by Greg Mitchell and Bill Rigby

Source Article