With the new rules for Shopping, merchants who advertise their products through a CSS instead of Google get up to 20 percent CPC reductions and, for a limited period, a monthly credit refund of up to €32,000.
In June 2017, the European Commission fined Google €2.42 billion for abusing its dominance as search engine by giving unlawful advantage to its comparison shopping service, Google Shopping (link to the decision). In the verdict, the Commission points out that Google has systematically given its own shopping comparison service a prominent placement in the search result and demoted the comparison services of others. As a result – according to the Commission – Google had breached EU antitrust regulations and was given 90 days to end its conduct.
Following the European Commission’s decision, Google has made Shopping ads on the general search result page(s) equally available to all qualified Comparison Shopping Services (CSSs) in the EEA and Switzerland. This means that any CSS can now place Shopping ads on Google on behalf of merchants it represents and thereby compete with Google for each Shopping ad spot in the search result.
Precis was one of the first agencies in Europe to build and launch a fully-fledged CSS service to be used by merchants. The solution entails a product catalogue, https://shopping.precisdigital.com/, with all products that are currently run through Precis’ CSS service – i.e. collectively all items from our clients’ product feeds. The catalogue is synchronised with Google Merchant Centre, similar to the way each merchant’s Google Ads account is connected to one or more feeds belonging to the merchant.
In practice, the new rules do not change or alter the visibility or layout of the merchants’ ads, other than a small text snippet in the ad that clarifies which CSS is presenting the ad. Moreover, a click on a product ad still leads the user straight to the product page on the merchant’s website.
However, the introduction of CSSs in the Shopping landscape brings a number of changes to merchants’ ability to market their products cost-efficiently. We will go through these changes below and outline their effect on the short and long term.
SHORT TERM EFFECTS
To begin with, the European Commission demands that Google’s European Shopping entity absorbs a share of the revenue that the Google Shopping ad programme is generating in the EEA and Switzerland. As a result, when merchants market their products through Google Shopping, and not an external CSS, a 20 percent margin on the auction bid is deducted, which may lead to a relatively lower Ad Rank, and in some cases – as outlined below – a higher cost per click. The latter margin on the CPC is being funneled to Google Europe as revenue. Conversely, any ad that is generated from a CSS receives a 20 percent discount on the click, compared to had it been generated from Google Shopping and provided that the ad position below is from Google Shopping. This means that any merchant that joins Precis’, or any other, CSS service will see an immediate cost reduction of up to 20 percent of the overall spend from the Shopping advertisement, under these circumstances.
In addition to the CPC discount, Google is actively incentivising the shift to external CSS providers by offering a spend match programme to each merchant during a limited period of time. The spend match programme is an ad credit refund of up to €32,000 every 30 days. There is currently no information available regarding how long the spend match programme will be in place.
All in all, there are obvious (short-term) opportunities for merchants to move the hosting of their Shopping advertisement from Google to a third-party CSS like Precis. For many merchants, up to 20 percent CPC discount as well as a spend credit of up to €32,000 per month will account for enormous improvements of cost-efficiency. The two most obvious scenarios this can play out are: 1. Reduced cost and maintained revenue, and; 2. Maintained cost and increased revenue.
LONG TERM EFFECTS
Before designing and implementing our own CSS service, we had our data scientists compute thorough simulations of the changes outlined above. First and foremost, we wanted to understand how different formations of providers – Google and CSSs – in the auction affect the CPC. Our simulations show that the CPC reduction occurs only under one circumstance: that at least one of the other ads is served by Google and not a CSS, and only the CSS ads above a Google Shopping ad receive the reduction. This means that the auction can play out three ways, with different outcomes on the CPC and ad rank:
- Only Google-served ads – no CPC reductions and no relative effect on Ad Rank;
- Google- and CSS-served ads – CPC reductions and relatively higher Ad Rank to ads served by the CSSs, if position below is Google-served, and;
- Only CSS-served ads – no CPC reductions and no relative effect on Ad Rank
Since the new landscape is far from saturated, there really is a first-come-first-served advantage. This is so because we are likely to see Google still serve a large number of ads for the short to medium term ahead, meaning that merchants under a third-party CSS programme will reap a significant CPC deduction. Moreover, the ad credit spend match programme will come to an end at some point, and taking full advantage of it whilst possible means increased Shopping budgets of up to €32,000 per month for free.
However, as the number of CSSs and merchants joining them increase – and we can rightfully expect this to happen – merchants staying with Google Shopping will pay on average 25 percent more per click (all else being equal), so whilst shifting from Google to a CSS is currently a huge opportunity to improve cost-efficiency, not doing so will at some point turn into an actual and considerable disadvantage. The latter is going to be the case for the merchants that stay with Google, whilst all the rest have shifted to CSSs, thereby preventing the auction outcome from moving from scenario 2 to scenario 3 above.
PRECIS CSS – 100% TRANSPARENCY
We are operating our CSS service with full transparency in all aspects, from spend match and reduced CPC to data ownership. Merchants that are using our CSS solution still run the Shopping activities from their existing Google Ads accounts and have full access to the CSS Merchant Centre account. And we do not apply any hidden fees.
Read more about our Comparison Shopping Service and how to get started here.