Google Drops Charges on Shopping Service to Counter Amazon's Surging Ad Sales

Updated: Apr 26

Google said on Tuesday it would stop charging merchants to place products on its Google Shopping search page as it looks to win e-commerce advertising business from Amazon and other online retailers, just as they are struggling to supply customers with some items due to the coronavirus pandemic.

Google has up to now charged merchants whose products appear when users click on the Shopping tab on Google's search engine. Amazon, which charges merchants only to promote items high on searches but takes a cut of their sales, is increasingly eating into that business.

By adopting a system akin to Amazon's, Google is hoping more merchants will put their products on its service, which will attract more shoppers and ultimately increase ad revenue as merchants vie to be featured.

"If you work with the ecosystem, there will be monetization opportunities that come on top of that," Google's president of commerce Bill Ready told Reuters in an interview.

Google's plan will take effect next week in the United States and by the end of the year globally.

The move is a gamble for Google, as it may lead to a short-term loss of advertising revenue and does not guarantee an influx of new customers.

Amazon compete

Google executives have debated for months how best to push back against Amazon, rejecting the idea of spending billions of dollars to revamp the Google Shopping service, according to previously unreported accounts from 12 current and former high-ranking staff.

Staffers last year explored partnerships with delivery companies to match Amazon's speedy shipping, but did not get the go-ahead from top executives to strike a deal, one source said.

In 2019, Google had its worst sales growth in four years, but still added $18 billion (Rs. 1.38 lakh crores) in ad revenue, compared with an estimated $4 billion (roughly Rs. 30,000 crores) bump for Amazon to about $12 billion (roughly Rs. 92,000 crores).

Google's steady ad sales growth as more spending moves online has enabled top executives to justify limited investments in shopping, sources said.

Buy on Google

Google also gets a cut of the purchase price when customers use the Buy on Google feature available on some products on Google Shopping, which lets people buy items using a credit card on file with Google without leaving the search engine.

Merchants benefit because shoppers are more likely to buy the fewer clicks they have to make. Google gets a cut of sales and details on consumer purchases for ad targeting, while still avoiding fulfillment.

But some stores are not sold. Jeff Cayley, CEO of bicycle retailer Worldwide Cyclery, said he pays Google on average 11 percent of sales for search ads taking shoppers to his website, compared with 15 percent when they purchase through Buy on Google.

"It seems like a way (for Google) to dabble in marketplaces, but it's an uphill battle and a confusing experience for consumers," Cayley said.

Google signed up about 4,000 merchants for Buy on Google by the end of the last year, behind its targets despite temporarily discounting its cut on product purchases by about 20 percent, according to two of the sources.

Last month, Google again suspended promotions and marketing plans because of concerns related to the new coronavirus.