Google Should Thank Holiday Shoppers for Boosting Cost Per Click

Google completely overhauled its shopping experience this summer, which required merchants to pay if they wanted their products to appear on the site.

While the move was controversial — and still ruffles some merchants’ feathers — the fact is, it seems to be working.

In the company’s earnings call on Tuesday, Chief Business Officer Nikesh Arora said, “Our core business is strong and investments in mobile and shopping this holiday season passed with flying colors. … Search performed well during Cyber Monday and Black Friday. We saw a greater proportion of queries with commercial intent.

Google offered some anecdotal evidence on how well the new business is performing, but clearly holiday shoppers did some good in boosting one of the company’s key metrics.

Arora reported that Front End Audio, which sells recording and live-sound equipment, said that sales resulting from their ads quickly made up 15 percent of the company’s revenue within weeks of launching. Further, the company reported that its click-through rates tripled and product conversions increased by 75 percent to 80 percent.

If only a portion of Google Shopping retailers are seeing those kinds of results, that could translate into meaningful ad revenue for the search giant, especially during peak times like the holidays.

During the fourth quarter, Google said its cost-per-click business increased 2 percent compared to the prior quarter, reversing a long period of declines. (The business was still down from the previous year, however.)

In a note to investors, Citi analyst Neil Doshi said he was expecting some improvements due to policy changes that Google made in regards to click arbitrage from its partner sites. He also believed that some uptick came from improvements in mobile rates.

But based on third-party research, the official October launch of Google Shopping clearly played a role.

Seattle-based Mercent, which provides retailers with tools to help them compete on Amazon and Google, said CPC rates increased to 70 cents per click on Google Shopping in December, up from roughly 55 cents in November. In June, it was less than half as much, or closer to 30 cents.

Mercent’s data is based on its customer base, which consists of 70 retailers using Google Shopping, including 1-800-Flowers, REI and Office Depot.

Indeed, Google’s efforts in the space are still in their infancy.

By its own count, it has tens of thousands of merchants participating in the platform and more than one billion products listed. Even Amazon is participating, despite it being one of the big holdouts. It buys product ads for the Kindle.

During the earnings call, analysts peppered Google’s Larry Page with questions about Google Shopping, but he mostly dodged them, especially when they were related to future product launches.

“I think that we are at the early stages of that. We just rolled out Google Shopping and we’ve seen tremendous uptake from merchants and users,” he said.

In response to a question about whether Google will enable consumers to pay or check-out within Google Shopping, Page said: “I’d expect the ease of buying things will improve over time, but I won’t comment on details. We are always focused on making our user experience better.”

Last month in an interview with AllThingsD, Sameer Samat, Google Shopping’s VP of product management, did clarify that the company has no aspirations to compete with merchants directly, even though the experience is starting to look more like a traditional e-commerce site.

“We aren’t planning on being a retailer,” he said. “We don’t view being a retailer right now as the right decision.”

Google justifies charging for Google Shopping because of the investments it has made over the past several months. It has completely overhauled the shopping experience, stressing product images over text and allowing consumers to easily conduct price comparisons across numerous sites.

The purpose of the efforts is to close the gap between it and Amazon as a starting point on the Web for shopping. Analysts estimate that 30 percent of consumers start their research on Amazon, whereas 13 percent of consumers start on Google.