Google recently announced the launch of a new advertising option – Sponsored Product Listing ads. Designed primarily to cater to online retailers, these ads offer a risk-free option for retailers to appear in Google search results. In stark contrast to their AdWords counterparts, Product Listing ads are almost entirely images. And management of Product Listing ads is nearly effortless – requiring only a bulk product upload – and eliminating tedious keyword uploads and account management.
 
At first glance it appears Google has created the ideal form of an online retail ad. They've eliminated the complexities of account management by facilitating simple, bulk product feeds. Additionally, the Product Listing Ads are essentially free - advertisers are only charged when a conversion occurs.
 
Is Google really offering free ad space?
At face value the ads are free with essentially zero financial risk. However, it is interesting to note how these ads impact the existing top ten AdWords placements. Based on a handful of test queries, I noticed the Product Listing ads seem to reside exclusively in the top-right corner of a search results page (where the top four AdWords ads used to appear). Essentially, these new ads take over up to three positions previously occupied by traditional AdWords ads. When Product Listing ads are present, the other ads are pushed further down the search results page and relegated to the space traditionally reserved for PPC ads in positions 7-9.

 
As a PPC manager who frequently works with small businesses I find this worrisome. By forcing ads not currently in the top three search results further down the page, Google is essentially imposing a tax. So while Google does not increase cost-per-click directly, it is introducing additional hurdles that make it more difficult for advertisers with ads in lower positions to compete without increasing their maximum bids – thus creating greater competition for the top three positions.
 
Remember, your adRank is factored with respect to a number of variables - including, but not limited to, your maximum bid, click-through rate, and Quality Score. Driving lower-ranking ads further down the search results page will make it increasingly difficult not only to attract eyeballs, but also to maintain a respectable click-through rate. Suddenly, your ad simply isn't deemed as relevant as it was prior to the introduction of Product Listing ads, due to its lower click-through rate.

How are Product Listing Ads ranked?
Google’s product FAQ says the following:
 
“Ad Rank = Commission × Quality Score. The Quality Score takes into account the relevance of your product to the user’s query, conversion rate of the query, and the matched product ad on Google, your account history, and other relevant factors.”
 
In order to rank well advertisers will have to compete on relevancy, and offer a sizeable commission on each sale (paid to Google). My fear is that the program will continue to be dominated by big-box entities whose primary concern is top-line growth, not the small business owner who relies on net-profits simply to remain in business.
 
Will Sponsored Product Listing ads be profitable for Google?
Consider the following example:

Based on the above example, Google will need to demand very high commissions from their affiliates. They will also rely on the affiliate’s ability to convert at a high rate (3%) to offset the traditional AdWords ad that would have appeared in the same position. Remember AdWords generates revenues on a per-click basis. This might also explain why we currently see only large retailers in Sponsored Product Listing ads.
 
It seems very probable that Product Listing ads will become a loss-leader for larger retail brands and possibly for Google. The Product ads may generate more revenue than standard AdWords ads but only if they achieve lofty conversion metrics and generous commissions from advertisers.
 
But maybe that’s not the point – might it be that the Sponsored Product Listing ads are merely a means for Google to increase competition and CPC rates for the top 3 positions? Time will tell…
 
Tony Soric, Clickable SEM Guru

Note: Clickable employees volunteer several hours a week to helping other search marketers succeed. "Clickable Gurus" participate in numerous online search communities to provide straightforward answers to numerous questions, and, each week, one of the gurus posts a search-marketing tip to the Clickable Blog

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