I’m not smart enough to think through the potential ramifications of Google Checkout on all of e-commerce or even on shopping behemoths like Amazon or eBay, but I can say that the shopping comparison engines should be very wary of this new Google service.
The shopping comparison engines are some of the biggest purchasers of pay per click (PPC) listings on Google Adwords and Yahoo! Search Marketing (YSM). Companies like Shopping.com, Shopzilla, and NexTag are also some of the savviest search marketers in the biz, looking at revenue derived from each and every click. Whether you call it arbitrage or not, the shopping comparison engines purchase keywords to drive traffic to their sites and then monetize that traffic through their own PPC listings, ideally at a higher rate than what they paid Google or Yahoo!.
As PPC rates on the general search engines have risen over the last couple years, the shopping comparison engines have had to raise their own PPC rates to cover their increased costs. A number of people I trust say that this is faulty logic, but I would say that the rise in PPC costs on the general search engines is definitely one factor in the rise in PPC rates on the shopping comparison engines.
Google Adwords ranks PPC ads “based on their maximum cost-per-click (CPC) and Quality Score on Google.com. (For the top positions above Google search results, we use the actual CPC.) The Quality Score is determined by the keyword’s performance history on Google: its clickthrough rate (CTR), relevance of ad text, historical keyword performance, landing page quality, and other relevancy factors.” (Full Explanation).
Now here comes Google Checkout. If you’re an AdWords advertiser, you can hook up your Adwords and Checkout accounts and display a Google Checkout shopping cart icon in your Adwords ads. If Google Checkout takes off, consumers will start to look for ads that have the Checkout icon, thus driving up the CTR of these ads. Because CTR is one determinant of ranking on Adwords, the merchants who list the icon should move up in ranking.
The comparison engines will not be able to show the Google Checkout shopping cart icon in their listings (unless some special deal is struck). This means that to effectively compete with the merchants who are displaying the icon, the shopping comparison engines will have to increase their maximum CPC bid, driving up costs.
If the shopping comparison engines are paying more on Google Adwords, they are going to have to raise the minimum price floors they charge merchants. Merchants are already pissed at the perceived high costs on the shopping comparison engines (I say perceived because I don’t think that all advertisers are properly tracking costs or optimizing listings and therefore could actually afford to bid a lot higher) so rate increases are always met with disdain.
Most of the large shopping comparison engines will increase their pricing in preparation for the holiday season. This is a normal phenomenon because conversion rate goes up during the holiday shopping season, but as I said a couple paragraphs ago, I think the engines also raise their rates to cover their own click costs. Now add the Google Checkout factor and shopping comparison engines might have to raise their rates even more.
Here’s a search for ‘Acer AL1916W – 19″ LCD WideScreen’ on Google:
Buy.com has already implemented the Google Checkout feature and hooked it up with its Google Adwords account. This results in the Google Checkout shopping cart icon being displayed in its Adwords ad (second down on right hand side). Above the fold on this results page, there are 2 shopping comparison engines bidding for placement: PriceGrabber and NexTag. Below the fold, there’s a 3rd: Shopping.com.
Watch for the Google Checkout icon. If you see more and more of them, the costs for the shopping comparison engines should rise. Some of the costs will be passed onto merchants, and I’m not sure they’ll stand for it.