E-commerce merchants: The CPC calculation is changing on Google Shopping
In June 2017, the competition authority in Brussels imposed a record €2.42 billion fine on Google and asked the company to review how its Google Shopping search engine operated. For years, 19 price comparison services had been fighting to prove that Google held a dominant position in the price comparison sector, and Europe ruled in their favor.
The origins of the conflict
In 2007, Google launched a new information indexing tool called Froogle, later renamed Google Product Search. The service was the complete opposite of a traditional price comparison service. First of all, it was entirely free and did not offer listed e-commerce businesses better positioning in exchange for payment. Google Product Search quickly became Google Shopping when the Mountain View company introduced a paid version of this advertising placement.
At the same time, Google reportedly revised its SEO ranking algorithm, which may have affected the ranking of price comparison services, and provided direct access to Google Shopping from its search results page. According to the European Commission, it was the combination of these two events that demonstrated an abuse of dominant position.
At the end of 2017, Google therefore brought itself into compliance with EU requirements by allowing price comparison services to display their catalogues in this advertising placement on the same basis as other advertisers.
A first update with limited impact
This first update introduced by Google did not have a major impact on our clients’ results. In order not to penalize the e-commerce business or confuse users, Google displays an advertiser’s offer only once.
For example, if a table and chair set is published by a merchant through both Google Shopping and Leguide.com with the same CPC level and equivalent feed quality, Google Shopping will display only one offer.
An update to CPC calculation
For the competition authority, this update was not sufficient. It wanted Google Shopping to be treated in the same way as other price comparison services.
It therefore asked Google Shopping to apply a margin to CPC, just as any other platform might do.
This update in the Google Shopping help documentation best explains the new way Google Shopping calculates CPC:
How do I know how much CSSs bid in the auction on my behalf?
CSSs typically report the number of clicks sent to a merchant and the cost charged per click. Depending on their pricing scheme, they may also report additional information or share detailed bidding data. Google Shopping also reports the number of clicks sent to a merchant and the cost charged per click, together with other metrics. Google Shopping is required by the European Commission to be independently profitable. Google Shopping currently ensures profitability by deducting a fixed percentage margin from each merchant bid before entering it into the auction. The margin is included in the CPC paid by the merchant and is charged only when a user clicks on one of the merchant’s ads. In general, we recommend that merchants compare cost and returns of different marketing channels to assess which ones work best for them.
In practice, the final CPC paid by the e-commerce business will not change in itself. Previously, with a CPC of €0.10, the full €0.10 went to Google Adwords. Today, with this new update, Google Shopping must take a margin from the CPC.
The level of Google Shopping’s margin is of course not disclosed, but assuming a 10% margin on a €0.10 CPC, €0.09 would go to Google Adwords and €0.01 to Google Shopping.
What impact will this have on e-commerce results?
At first glance, we might assume that this update will have no impact on the e-commerce business, since the net CPC paid on Google Shopping will not change. However, what we understand from this new model is that the reference CPC used to compare price comparison services remains the Adwords CPC, rather than the Adwords + Shopping CPC. As a result, competition between price comparison services and Google Shopping will become tougher.
Logically, the share of voice of price comparison services should increase at the same CPC level. As a consequence, if you want to maintain your share of voice, you may also be forced to increase your Max CPC.
To measure the impact of this update, we recommend monitoring the “ClickShare” indicator available in your Google Adwords interface. “ClickShare”, or click share, corresponds to the number of clicks generated on the Search Network divided by the estimated maximum number of clicks you could have received.
If you wish, ask one of our Shopping experts to help you with this process!
