The 800-Pound Gorilla NOT in the Room

COVID-19 is taking its toll on search marketers in the form of slashed budgets and reduced consumer demand. In this difficult (and worsening) macroeconomic environment, it can be easy to ignore one search-specific tailwind that many Google advertisers are currently enjoying: the absence of Amazon in both Google Shopping and text ads.

While Amazon has been a longtime fixture in Google text ads, its strategy in Google shopping has been inconsistent. But 2019 saw sustained and increasing Amazon investment—a trend that was observable by mid-year, but which peaked in Q4 with impression share over 70% in certain product categories. The increase in Cost Per Click (CPC) was palpable, and because over 80% of non-brand click traffic had migrated to Shopping ads, the strain on budget was considerable.  

All this now feels like the distant past. With consumers shifting much of their purchases to online outlets, Amazon is enjoying the boon of increased demand to such a degree that it cut ad spend on Google in March to deal with fulfillment issues, and appears to have left the auction environment entirely, up to the present moment. 

The impact on performance may have gone unnoticed for advertisers preoccupied with other challenges in the wake of COVID-19, but failing to appreciate the gravity of Amazon’s—and to a lesser extent Walmart’s—departure will leave some advertisers in for a rude awakening if and when these sleeping giants re-enter the market.

To understand the significance of this trend, it helps to consider a concrete example. This particular advertiser is highly active in several distinct product categories, each with very different competitor sets. The chart below plots competition via impression share for Amazon, Walmart and major category competitors. 

Impression Share

2019 saw large impression share increases from both Amazon and Walmart; category competitors also increased investment during this period, putting substantial pressure on the category.

Amazon began a modest pullback in early 2020 before the seriousness of the COVID-19 pandemic was realized, and then abruptly left the market in mid-March; Walmart’s departure has been less complete and more gradual. Category competitors have been more consistent over time, but showing much less appetite for investment in the present month.

Impression Share

As competition reaches a low this May, we’re currently observing a nearly 60% increase in non-brand clicks in this category, while CPCs have fallen by over 10%. Contrast this with the rest of the account, where non-brand clicks are down slightly YoY, even as CPCs increased by over 10%. This is a stunning turnaround for a category that lost ground to competition in Q4 2020 and reveals the impact competitor investment decisions can make on account performance. 

Advertisers should review their auction insights reports to determine to what degree they’ve benefited from decreased competition in recent weeks. Those with access to cash should exploit these favorable auction dynamics while they last, but also anticipate an eventual reversal of this short-term trend as competition re-enters the market. 

It’s impossible to put a timeline on this trend correction given the greater uncertainty about life in the post-COVID world, but to assume Amazon won’t be a major factor in Q4 2020 would be overly optimistic. Eventually, this will mean slowing YoY growth rates for clicks and rising CPCs. As in Q4 2019, the strain on budgets could be substantial. Use this brief respite to plan for a more competitive future. Test and refine new strategies to best position your account for when Amazon and others resume a more aggressive posture in Google Shopping. Amazon will be back in a big way; it’s not a question of if, but when.

Eight Oh Two Marketing is a boutique, search-marketing agency for enterprise. As the VP of Digital Advertising, Dan Pietrucha is an industry veteran. With degrees in commerce, finance and philosophy, Dan takes an analytical approach to any challenge, and you’ll often find him knee-deep in projection models and pivot tables. Click here to learn more about Eight Oh Two, our methodology and our team.