While last week’s €2.4bn antitrust fine on Google Shopping broke records, it won’t exactly break the bank for Google, whose parent company Alphabet reached $665 billion in market value earlier this year.
But the EU’s demand that Google stops favouring its own price-comparison shopping service in search results within the next 90 days – or face penalties of up to €10.6m a day – may have far reaching and highly damaging consequences for the internet economy that the EU antitrust regulators have failed to anticipate.
Currently Google allows only retailers to use Google Shopping but the EU’s ruling may force it to allow other price-comparison sites and aggregation services into the ad platform. In the short-term this may sound like good news for Google. After all, the more companies using the platform the greater the competition for search traffic, and the higher the CPCs it can achieve. Yet Google made a conscious decision to exclude price-comparison services from its platform, and with good reason.
Let’s take a closer look at some of the potential ramifications of the EU ruling if other price-comparison sites are indeed allowed into Google Shopping:
Deterioration of user experience
The fact is consumers like Google Shopping Ads. Product Listing Ads (PLAs) account for more than half of retail search ad clicks because they provide shoppers with far more relevant information than standard text ads, including images, price, user ratings and shipping options. This saves consumers time and effort in product research, and Google has ploughed a lot of resources into perfecting its PLA format to make it as user-friendly as possible.
PLAs reach consumers who are already well along the path to purchase, have done their basic research and are using product-specific search terms because they are ready and willing to buy. These consumers want the purchase process to be quick and simple, and here is the beauty of Google Shopping ads. A single click on a PLA takes the shopper directly to the retailer’s site where they can complete the purchase. Job done.
Including ads from price-comparison services and aggregators throws a spanner in the works for customer experience. If shoppers click on a PLA from an aggregation service they will be obliged to go through a third-party website to get to the product they have already decided they want, rather than being able to go directly to the retailer.
This complicates the process, putting more clicks between the initial search and the final conversion – and we all know shoppers don’t want complicated. The more steps they need to take before they make their eventual purchase the less likely they are to complete it. Reducing the number of clicks before purchase is the aim for most ecommerce businesses – as illustrated by the introduction of Amazon's virtual Dash button – so making the purchase process longer doesn’t make any sense.
Long-term reduction in competition
The EU regulator’s fine is based on its conclusion that Google denied consumers real choice, and prevented rival firms from competing on a level playing field. One would assume then that its ruling would encourage fair competition, but this is far from the case.
In the long term this “fair competition”, and the higher CPCs it generates, might price small-to-medium sized retailers out of the platform, leaving only the usual big players to vie for product placements at the top of search results. This is not only anti-competitive, it also deprives the user of real choice – we’re back to user experience again.
There’s still something of a question mark over whether price-comparison sites will actually want to advertise on Google Shopping. To make the practise viable they would need to play an arbitrage game – either buying traffic from Google Shopping for less than they charge their own partners for referrals, or converting one visitor from Google Shopping into multiple outward clicks to their partner sites. Google may still be able to get around the EU ruling by giving ads created by price-comparison sites a marginally lower quality score than retailer ads, which should be sufficient to prevent the arbitrage model being profitable.
The fine itself may be small beans to Google, but meeting the EU regulator’s demands is likely to have a negative impact on both the consumer and smaller retailers, which in my eyes makes it the wrong decision.
Andreas Reiffen is chief executive and founder of Crealytics