June 1, 2012

Google To Charge Merchants For Shopping Search Placement

Google unveiled big changes on Thursday to its shopping business, saying product search results for U.S. users will be swayed by how much retailers and advertisers pay.

The company currently displays product search results based primarily on relevance, and the program is free.

The new changes, which will likely be seen as controversial by some in the e-commerce business, will take effect by October.

The search giant said it would rename its service “Google Shopping” from the current Google Product Search.

"We are starting to transition Google Product Search in the U.S. to a purely commercial model," said Sameer Samat, vice president of product management at Google Shopping.

"This will give merchants greater control over where their products appear on Google Shopping.”

Google has been in the product listing and search business for about a decade, having provided merchants with free access to shoppers during that time.

The company generated revenue by running paid product search ads along with the unpaid product listings, said Eric Best, CEO of Mercent, which helps retailers sell through Google and other e-commerce websites.

"Today, that model goes away," he told Reuters.

"It's a very big deal."

The changes could help Google earn additional revenue and profit from its retail advertisers, which account for as much as 40 percent of the company´s advertising base, according to Best.

Google Product Search brings in around $650 million in annual sales in the U.S. and about $1.3 billion worldwide, according to estimates by ChannelAdvisor, which helps merchants sell their products and services online.

"That's the free sales that are going to disappear unless they decide to pay," said ChannelAdvisor CEO Scot Wingo.

Under Google's new system, retailers may have to spend an additional $130 million a year in the U.S. along, and $270 million globally, to fill that sales gap, he estimated.

"The winner in this is Google," Wingo told Reuters. "That extra spending is pure margin and will drop to earnings per share."

Google´s new policy is not sitting well with some of the retailers ChannelAdvisor works with, who are questioning the company´s motives.

Indeed, the October rollout of the changes does not give merchants much time to adjust to the new system in time for the key holiday shopping season, he added.

However, for merchants, there are upsides and downsides, Best said.

"The downside is that retailers are going to have to pay for performance when it comes to e-commerce traffic and revenue driven by or through Google.”

"The free traffic is disappearing."

Best said the changes might be seen unfavorably by some in the Internet community because Google's search results have typically not been influenced by money.

"Pay-for-placement to some degree is an alternative to purely organic relevancy results.”

"The fact that shopping results will be more closely tied to bid-for-placement will not sit well with all advertisers."

Google said the changes would help retailers make their products more visible to shoppers searching on Google.  The old system, the company said, was difficult to regulate because retailers could list a lot of products for free.

However, Best said that merchants who have to pay might reduce their clutter.

"Having a commercial relationship with merchants will encourage them to keep their product information fresh and up to date," Google's Samat wrote in a blog posting on Thursday.

"Higher quality data - whether it's accurate prices, the latest offers or product availability - should mean better shopping results for users, which in turn should create higher quality traffic for merchants."

But ChannelAdvisor's Wingo is skeptical of that argument.

"That's a slippery slope because this could apply to websites, not just product listings," he said.

"Why have organic search at all? Anyone can set up a website and use it for spammy purposes. That's what Google is supposed to deal with."

Other online retailers, such as Amazon and eBay, will likely be affected by Google's changes because these sites currently receive a lot of free traffic from Google Product Search.

In the future, they will have to pay for that themselves, Wingo said.

Some merchants may decide to simply list more products for sale on Amazon's and eBay's online marketplaces, which would be a bonus for those companies, he said.

Shares of Google´s stock fell 1.3 percent at $580.86 on Thursday. The shares have fallen 13 percent since January.

Shares of Amazon´s stock rose 1.8 percent to $212.91, while eBay lost 1 percent to $39.19.