What a Buy Button on Google Ads Could Mean for Retailers
On Friday, the Wall Street Journal reported that Google is preparing to roll out a “Buy” button on its search engine results in an attempt to compete with Amazon.com and Ebay.
Instead of directing a shopper to a retailer’s product page, the button will lead the user to a Google checkout page where they can select sizes, colors, and shipping options and ultimately complete their purchase on Google. While this process will skip the retailer site altogether, the retailer will still fulfill the order.
If true, this is a bold, but not entirely unexpected move by Google. There are two forces likely driving Google toward becoming more of a marketplace—Amazon and mobile adoption.
Google seeks to unseat Amazon
First, Google is in the business of monetizing search and intent. For years, Amazon has outperformed Google in terms of retail search volume and converting that search traffic. According to Forrester Research, 39% of U.S. online shoppers began researching their purchases on Amazon and only 11% started on search engines like Google. Amazon arbitrages Google by buying search traffic low and then monetizing that traffic via the Amazon Marketplace. Amazon makes a percent of every transaction they drive through their Marketplace and therefore can purchase relatively inexpensive traffic on Google and then profit from transactions that happen in the Marketplace. Amazon reported that there are currently more than 2 million sellers on Amazon worldwide that account for over 40 percent of the total units sold on Amazon. This represents a massive portion of the ~$100 billion in revenue they are expected to generate this year. Google wants a piece of that pie.
Mobile searches overtake desktop, but conversion rates still low
The second major driving force is the consumer shift to mobile. Earlier this month Google reported that more Google searches take place on mobile devices than computers in 10 countries including the US and Japan (source). Google, however, has struggled to translate this shift to revenue in the same way they did on desktop. CPCs on mobile devices are weak compared to desktop primarily due to advertiser conversion rates and average order values being weaker on mobile devices than desktop. The CPC an advertiser is willing to pay is directly correlated to the revenue they are able to generate for each click. If advertisers are struggling to monetize mobile in the same way they monetize desktop traffic, this results in lower CPCs on mobile.
To date, advertisers have been slow to take mobile seriously despite the shift of traffic towards mobile. Mobile sites continue to lag their desktop counterparts in investment leading to reduced functionality and performance. At Adlucent, we have seen retailers whose mobile sites perform nearly on par with desktop when the right investments are made, but few retailers make these investments. If Google can solve the retail conversion rate issue by enabling transactions easily through a “Buy” button, the theory is that advertisers will be willing to pay more. It’s a solid bet. Google doesn’t have a mobile traffic problem today. Rather, their revenues are dependent on their advertisers ability to monetize that traffic. By stepping in and enabling transactions directly on Google, conversion rates will rise and CPCs are likely to rise.
The potential downside of the Buy button for retailers
While the reported move to add a buy button to paid mobile search results makes sense, it is not without controversy. Customers will bypass the retailers Web site and per the WSJ article, retailers “fear such a move will turn them into backend order takers, weakening their relationship with shoppers.” The concerns are understandable and retailers who participate will need to determine how to build a relationship with customers that purchase without visiting their site. It is also unknown what the impact will be on a retailer’s ability to upsell and cross sell customers, which is a key strategy to improving cart value today. Consumers will need to opt in to marketing for retailers to get physical and email addresses for future marketing programs.
Benefits of the Buy button for retailers
At the same time, this move by Google may be welcomed by retailers who are also struggling with monetizing mobile and taking advantage of the shift from desktop to mobile. As traffic shifts to mobile, it becomes harder to monetize which is placing pressure on most retailers. Many retailers have struggled with making the right investments fast enough to keep pace with these changes and compete with Amazon, who currently dominates mobile sales. In fact, this past holiday season nearly 60 percent of Amazon.com customers shopped using a mobile device.
This move by Google, if successful, is likely to help retailers better compete in the mobile arena. Consumers who are presented with a lot of friction on retailer mobile sites can simply turn to Amazon.com for their purchases. Google has the power to remove this friction and support their retail advertisers, which could help buoy mobile sales across retail and improve Google’s mobile revenue.
Buy button pricing
The pricing model, according to WSJ, will be the existing advertising model, presumably CPC, versus a share of revenue. If true, this is positive news. While a flat commission is easier to manage by putting the onus on Google to predict which retailer is likely to win the sale, it could hurt retailer margins. Our research at Adlucent has shown that the lowest priced retailer often has the highest likelihood of conversion. If Google were to charge based on a percent of revenue, there could be a race to the bottom as retailers try to discount prices to win Google’s version of the “Buy Box,” a phenomenon that happens today to win the Buy Box on Amazon.com’s marketplace. Maintaining a CPC model will help ensure consumers are given choices of which retailers to shop with.
Buy button data collection
The article also mentions that some large retailers don’t want to work with Amazon because “they collect valuable customer information.” When you sell through a third party marketplace like Amazon, you risk Amazon.com owning the customer relationship. Many retailers have also expressed fears that Amazon will use sales data and retailer data to directly compete with them since Amazon is a retailer versus just a marketplace. Google’s approach appears different where they are treading carefully to ensure the retailer still owns the relationship.
According to the WSJ, rollout will begin in the coming weeks and starting slowly with a small percentage of the search traffic it handles. As such, the results are likely to be slow initially, but provide critical data for Google to decide if a wider launch is likely to be successful.