Google is expected to report a solid third quarter, but analysts are beginning to salivate over a big fourth quarter partially because of Google Shopping.
The search giant had a free product search program that switched completely to a pay service as of Wednesday. The previous shopping program surfaced products from retailers in search results. The move, which began over the summer, made Google a bit of an e-commerce gatekeeper.
Now that free product search program is called Google Shopping and retailers have to buy image ads---also known as Product Listing Ads (PLAs). In addition, advertisers also need to upload product information ranging from size, color and inventory.
Analysts have been trying to handicap Google Shopping uptake and are generally upbeat.
Jefferies Internet research team said in a research report:
Our comprehensive checks show twice as many advertisers are now using Google’s PLAs compared to late spring, suggesting rapid adoption of this ad format across a wide range of verticals. Overall, we now track about 3.9K different advertisers (vs. prior ~1.8K) running ~95K Product Listing Ads (vs. prior ~64K). Digital marketing companies Rimm Kaufman (RKG) and Kenshoo were the #1 and #2 advertisers (running campaigns for third-party retailers), followed by well-known retailers like Amazon, Wal-Mart, and Target. Notably, previously top PLA advertiser eBay was absent.
The upshot is that Google is stepping in as a competitor to eBay and Amazon in some respects. At the very least, Google is the middleman between shoppers and retailers.
Google's plan likely revolves around surrounding these PLAs with reviews, coupons and other services it owns.
Deutsche Bank analyst Ross Sandler said that Google Shopping is likely to lift large retailers' ad spend by 10 percent to 20 percent. That increased spending with Google is likely to result in a good fourth quarter.
"Google is transitioning the Shopping product from a mix of free and paid listings to 100% paid, in an effort to make its merchants more accountable and improve the user experience," said Sandler. And oh by the way, Google will also make more money with this better user experience.
The ultimate game here is to lock-in so-called commercial queries. Amazon has commercial queries locked down in e-commerce and is expanding into advertising. Google has ads locked down and venturing into being a commerce gatekeeper. "It is the roll-out of new products like PLAs by Google and more resources invested into advertising platforms by e-commerce platforms like Amazon that suggest an escalating battle for lock-in for commercial queries," said Wedbush analyst James Dix.
Google Shopping is most likely the most financially notable item to be talked about following the company's third quarter results. Analysts are expecting Google to report third quarter earnings of $8.23 a share on revenue of $9.16 billion. Among the other key items:
Motorola Mobility. Few analysts expect much from Google's Motorola unit. In fact, they see more pain and integration ahead. Executives are likely to reiterate Google's device strategy. Piper Jaffray analyst Gene Munster said:
As Motorola continues its turnaround, we believe the company may see weakness in the unit's performance in Q3 as it comps against the launch of the Samsung Galaxy SIII and iPhone 5. We were modeling for a 6% y/y decline in Motorola's total business; however, we believe that Motorola's business may be weaker than previously expected.
YouTube will be talked up a good bit going into the fourth quarter. Like previous quarters, however, YouTube's financial health won't be revealed.
Mobile. Android will take up a healthy part of Google's conference call. The overall message will be that Google has its mobile ad bases covered.
Social. The pressure for Google to talk up its social backbone plans is off a bit. Why? Facebook shares have been a disaster and the business model is in question.