Google nears saturation point: Will incremental marketing dollars go elsewhere?

Adobe's latest Digital Index report highlights how retailers depended on Google's shopping ads in the fourth quarter, but chief marketing officers were more than willing to experiment on Microsoft's Bing and Facebook.

Google may be reaching the saturation point as a marketing vehicle and incremental ad dollars may be exploring new options including Microsoft's Bing and Yahoo as well as Facebook if you read between the data nuggets in Adobe's Digital Index report.

Adobe's quarterly take on digital marketing is based on more than 500 billion Google and Yahoo/Bing impressions and more than 400 billion Facebook pages. The upshot is that Google's Shopping Ads, formerly Product Listing Ads (PLAs), had a big fourth quarter. In addition, Google ads were optimized well by marketers as click-through-rate growth outpaced cost per clicks by more than two times.

Spending on Google's shopping ads, visual placements embedded into search results, was up 47 percent. The upshot is that Google is dependent on retailers for revenue---especially in the fourth quarter. "But there are signs that Google is getting saturated and the next available marketing dollar is going elsewhere," said Tamara Gaffney, principal analyst for the Adobe Digital Index.

Reading between the data, marketers do seem to be pushing some money to Bing as a test bed. In addition, Adobe's data shows that Facebook has been taking incremental dollars. There's no need to worry about Google, which benefited from its shopping ads accounting for 20 percent of all search engine marketing clicks in the fourth quarter. Google's text ads lead U.S. retail with 66 percent market share.

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Here's the rub though. Google recently ditched regional pricing for its shopping ads and forced retailers to go with national-only prices. We've heard that some retailers have chosen to abandon Google Shopping Ads as a result rather than making internal changes to comply. It's worth noting that Bing has regional pricing. Regional pricing is important to retailers since products are often priced differently by region. A big box retailer with regional pricing can no longer advertise on Google Shopping Ads following the compliance changes unless they make operational shift to price uniformly on the Web rather than having consistent pricing across all their sales channel nationwide.

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"The recent suspension of regional pricing has been a challenge for some of our clients," said Tim Daly, CEO of Vincodo, a digital marketing agency with national advertising clients. "Our clients just can't easily comply from an operational standpoint and frankly it's not good business practice to put forward pricing on the Web which is inconsistent with the in-store experience. For Google, a national pricing requirement is easier to automate, but it's unclear if the consumer benefits---especially if that shopper is in a market with a cheaper regional price. Google has not publicly disclosed its compliance requirements to date.

In any case, any defection from Google over regional pricing won't hurt revenue since the demand for shopping ads is there for now. What's unclear is whether incremental search marketing dollars go elsewhere. "I'm not going to say that marketers are going to lower their spend on Google, but there is saturation," said Gaffney.

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Gaffney noted that one obvious product option for Google would be to expand its shopping ads---geared to retail only---to other categories such as travel. An industry that is transactional and visual could use Google's shopping ad approach on a broader scale. Google dabbled with expanding its shopping ad techniques last October

Based on Adobe data, click-through-rate on Google was up 19 percent in the fourth quarter compared to a year ago. Bing was flat. Google and Bing saw cost per click growth of 8 percent and 7 percent, respectively, in the fourth quarter. That variance in click through and cost per click indicates that Bing is attracting dollars, but hasn't been optimized by marketers. Bing at this point is more of a test option to keep Google honest.

Perhaps the larger threat to Google's digital marketing dominance is Facebook. Retailer Facebook posts were up 64 percent from a year ago, according to Adobe and paid impressions were up 13 percent. Adobe's data also shows that marketers adjusted to Facebook's algorithm changes well. "The response to the algorithm change is an indication that marketers are paying attention to Facebook and branching out from Google," said Gaffney. "Google has a lot of inertia that's hard to overcome for anybody, but the next available dollar will go elsewhere if Google doesn't do something with its product."

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"Our agency has shifted our client's focus to expanding budgets into alternatives other than Google in the past 6 months, particularly Facebook. Results of expansion have been initially fruitful with the Bing/Yahoo alliance and Facebook, although there have been bumps in the road," said Daly. "Issues such as Yahoo re-launching their under- performing contextual ads and Facebook's Power Editor performance issues due to browser caching malfunctions, there will still be heavy reliance on Google for all our clients."

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