ABOUT MERKLE & METHODOLOGY

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2 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 2 TABLE OF CONTENTS 03 EXECUTIVE SUMMARY 05 PAID SEARCH 1 6 ORGANIC SEARCH & SOCIAL 20 DISPLAY & PAID SOCIAL 24 AMAZON ADS 27 COMPARISON SHOPPING ENGINES 30 ABOUT MERKLE & METHODOLOGY Click on the icons at the top of each page to jump between sections quickly.

3 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 3 EXECUTIVE SUMMARY Investment growth for Google search ads decelerated for the third straight quarter, but spending still came in 18% higher Y/Y in. Since late, search advertisers have seen average Google cost per click (CPC) growing faster than ad clicks, but advertisers are still generating positive returns from Google search, as the revenue per click produced by their Google ads has also increased across key segments. One driver of this improved Google search ad performance has been the increasing role that audience targeting has played in the past year. In, 37% of Google search ad clicks were impacted by Google s specific audience targeting products, including: remarketing lists for search ads (RLSA), Customer Match, and similar audiences. This rate was up from 21% of clicks a year earlier. Google Shopping ads also remain a growth engine for Google, as spending on Google Shopping ads was up 31% Y/Y in, more than five times the rate of growth for Google text ads. Impression growth for Shopping ads has been robust, likely directly cannibalizing impressions for text ads, which have shown weak to declining growth in recent quarters, even on mobile. After two very strong quarters, Bing and Yahoo search ad spending growth decelerated sharply in, despite accelerating click growth, as CPC growth dropped from a 17% increase Y/Y in to a 10% decline in. Bing Product Ad CPCs have been depressed by rapid mobile growth, but CPCs are also trending lower across individual device types. Facing stronger year-ago comps, Google organic search visit growth still improved nearly three points between and, coming in at 2.4% Y/Y growth in. Bing organic search visits fell 12% in, but that marked a big improvement from the previous quarter, which came despite accelerating Bing ad click growth. Site visits produced by YouTube grew nearly 300% Y/Y in, while Instagram-produced visits rose 236%. Facebook, which accounted for a majority of social media-driven site visits in, produced 8% Y/Y visit growth in the quarter, down from 19% in. Instagram also significantly outpaced Facebook in terms of Y/Y ad spend growth, 177% to 40%, as impressions on Instagram more than tripled. As has been the case for the last two quarters, pricing continued to drive Facebook ad spend growth, as impressions fell 17% Y/Y. YouTube ad spend grew 189% Y/Y for advertisers investing in the platform since last. Amazon search ads continue to grow rapidly, with Sponsored Products spend up 165% and Headline Search Ads spend up 162% Y/Y for the quarter. Sponsored Products continue to account for the vast majority of Amazon search investment, with 88% spend share in, and they also drive the highest sales per click for advertisers among Amazon s search formats. PAID SEARCH Google search spending grew 18% Y/Y in, as clicks grew 7% and CPCs rose 10%. Phone spending grew 37%, but desktop spending slowed to 12%. Google Shopping ad spending grew 31% Y/Y in, while text ad spending grew just 6%. For retailers, Google Shopping ads also known as Product Listing Ads (PLAs) produced 59% of all Google search ad clicks in the quarter.

4 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 4 EXECUTIVE SUMMARY Average CPC for advertiser brand name keywords jumped 30% Y/Y in. Brand CPCs have spiked in recent quarters, after falling by as much as 13% Y/Y in. Bing Product Ad click growth accelerated to 110% Y/Y, but CPCs declined more sharply Y/Y. With similar CPC trending for text ads, total Bing and Yahoo search spending growth decelerated to 11% Y/Y, despite improving click growth. Phones and tablets produced 60% of search ad clicks across all platforms and 64% of Google clicks. ios devices and desktop Safari alone produced 47% of Google clicks. ORGANIC SEARCH & SOCIAL Total site visits driven by organic search rose 2% Y/Y in, with phone visits growing nearly 11% in the quarter. Desktop organic search visits fell 5% in, an improvement from recent averages. The share of all site visits produced by organic search was down slightly from to, but has largely stabilized in the last three quarters. On mobile devices, organic search produced 24% of site visits in. Social media produced 3.7% of all site visits in, up from 2.9% a year earlier. On mobile devices, social media sites produced 4.6% of site visits in. Mobile devices accounted for over 77% of site visits driven by social media platforms in. DISPLAY & PAID SOCIAL Facebook spend, excluding Instagram, grew 40% Y/Y, even as impressions fell 17%. Quarterly mobile traffic share for Facebook eclipsed 90% for the first time for Merkle advertisers in. Instagram spend grew 177% Y/Y as impressions more than tripled. While Instagram remains smaller than Facebook for brands advertising on both, the gap got smaller from to. AMAZON ADS Amazon Sponsored Products spend grew 165% Y/Y in, while Headline Search Ads grew 162%. Sponsored Products continue to account for the vast majority of Amazon search spend, with Headline Search Ads and Product Display Ads accounting for just 12% of spend combined. Clicks from both Sponsored Products and Headline Search Ads convert at about three and a half times the rate of Google Shopping ads, looking across all brands bidding on either format. COMPARISON SHOPPING ENGINES Traditional comparison shopping engines continue to struggle to find traction on mobile devices, as 89% of all CSE clicks came from desktop in, a figure that has remained roughly the same over the past couple of years. Advertisers that continue to compete on CSEs saw sales from these platforms fall 23% Y/Y, a figure that does not reflect the advertisers which have given up on CSEs in recent years.

5 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 5 PAID SEARCH Google search spending grew 18% Y/Y in, as clicks grew 7% and CPCs rose 10%. Phone spending grew 37%, but desktop spending slowed to 12%. Google Shopping ad spending grew 31% Y/Y in, while text ad spending grew just 6%. For retailers, Google Shopping ads also known as Product Listing Ads (PLAs) produced 59% of all Google search ad clicks in the quarter. Average CPC for advertiser brand name keywords jumped 30% Y/Y in. Brand CPCs have spiked in recent quarters, after falling by as much as 13% Y/Y in. Bing Product Ad click growth accelerated to 110% Y/Y, but CPCs declined more sharply Y/Y. With similar CPC trending for text ads, total Bing and Yahoo search spending growth decelerated to 11% Y/Y, despite improving click growth. Phones and tablets produced 60% of search ad clicks across all platforms and 64% of Google clicks. ios devices and desktop Safari alone produced 47% of Google clicks.

6 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 6 Facing Stronger Performance Comps, Search Spend Growth Slows +30% +20% +10% Overall US Paid Search Y/Y Growth Ad Spend Clicks CPC +17% +10% +7% Total US search ad spending growth slowed to 17% Y/Y in as growth for Google continued to decelerate, and a recent spending rebound for Bing and Yahoo faltered. Click growth held roughly steady at 7% Y/Y, while CPC growth fell from 13% in to 10% in. Advertisers faced stronger year-ago growth comps in for Google, as well as for the Bing and Yahoo search ad platforms. 10% Google Search Spending Growth Slips to 18% Y/Y as Desktop Weakens +30% +20% +10% Google Overall US Paid Search Y/Y Growth Ad Spend Clicks CPC +18% +12% +5% Spending growth for Google search ads slowed for the third straight quarter, but still came in at 18% Y/Y in. Spend growth hit a peak in, as desktop delivered relatively strong performance. The surge was driven by a late 2016 change by Google to allow advertisers to segment desktop and tablet search ad bids. Over the last few quarters, however the benefit of that change to year-over-year growth rates has subsided. 10% Google Shopping Ads Growing over Five Times as Fast as Text Ads +50% +25% Google Spending by Ad Format Y/Y Growth Google Shopping (PLAs) Text Ads +31% +6% Spending on Google Shopping ads was up 31% Y/Y in, more than five times the rate of growth for Google text ads. While Google text ad spending growth improved from 4% in to 6% in, that rate remains well below levels seen throughout. Impression growth for Shopping ads has been robust, likely cannibalizing impressions for text ads, which have shown weak to declining growth in recent quarters, even on mobile.

7 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 7 Google Desktop Search Spending Growth Falls to Seven-Quarter Low +75% +50% +25% Google Search Spending by Device Type Y/Y Growth Desktop Phone Tablet +37% +12% 2% Spending on desktop Google search ads grew 12% Y/Y in, their lowest rate of growth since Desktop spending accelerated in late 2016, after Google began allowing search advertisers to segment desktop and tablet bids. Elsewhere, mobile Google search ad spend growth ticked up to 37% Y/Y in. Tablet spending declined 2%, up from an 11% decline a quarter earlier. 25% Click Growth Remains Weaker than Usual for Google Non-Brand Search Ads +40% +30% +20% +10% Google Non-Brand US Paid Search Y/Y Growth Ad Spend Clicks CPC +13% +8% +6% Spending on non-brand Google Shopping and text ads grew 13% Y/Y in, down from 17% growth in the first quarter. Click growth for non-brand search ads continued to slow, coming in just 6% higher Y/Y. Average CPCs increased 8%, in line with results, but CPC growth remains well above early levels. Rising CPCs have coincided with improving conversion rates and sales-perclick performance for non-brand ads. 10% Price for Brand Keyword Clicks on Google Continues to Spike +30% +15% Google Brand US Paid Search Y/Y Growth Ad Spend Clicks CPC +34% +30% +3% The average CPC paid by Google search advertisers for keywords that included their own brand name rose 30% Y/Y in, while brand keyword clicks rose just 3%. Brand keyword CPCs had fallen as much as 13% Y/Y in mid-, following a Google change to Ad Rank that seemed to have the opposite effect on non-brand keywords. Brand CPC growth entered correction territory in late and remains elevated. 15%

8 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 8 Google Minimum Search Ad Bids Up About 20% from a Year Ago +50% +40% +30% +20% +10% Google Non-Brand Text Ad Minimum Bid Estimates Relative to April +21% The minimum bids required for non-brand keyword ads to appear in Google s results have come down from their highs. However, they still ran about 20% higher in than they did at the start of. Minimum bids began to spike in May, around the time that Google made a confirmed change to its Ad Rank calculations. In the period since, advertisers have seen Google click growth slow, while CPC growth has risen. OCT JAN APR JUL OCT JAN APR Fewer Google Clicks Driven by Lower Position Search Ads 25% 20% 15% 10% Share of Non-Brand Google Text Ad Clicks from Top-of-Page Position 3 & 4 Ads Desktop Phone 13% 11% Through 2016 and early, new search ad inventory in positions three and four at the top of the search results page helped Google drive large increases in click growth. In recent quarters, however, the impact of this lower position inventory has lessened, as a larger share of clicks has gone back to the ads at the top of the page. This shift has contributed to the overall rise in advertiser CPCs on Google. 5% 2016 Google Search Partner Click Share Hits New Low, Clicks Down 16% +15% +10% +5% Search Partner Share of Google Search Ad Clicks JAN 2016 APR JUL Phone Desktop Overall OCT JAN APR OCT JUL JAN APR 8% 5% 3% Clicks from Google s search partners were down 16% Y/Y in, compared to 7% growth for Google.com clicks. Search partner click share has been on the decline overall since mid-2016 and hit a new low of under 5% in. On phones, where Google s partners have historically had less impact, partner click share was down from the previous quarter, but up slightly compared to a year ago. Partner traffic generally converts worse for advertisers and carries lower CPCs.

9 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 9 Revenue Per Click from Google Search Ads Higher Across Devices, Formats +20% +15% +10% +5% Non-Brand Y/Y Revenue Per Click - Google Shopping & Text Ads by Device +10% +10% Mobile Text Ads Desktop Text Ads +20% Mobile Google Shopping +4% Desktop Google Shopping With Google search ad CPCs rising across devices and ad formats, ROIfocused advertisers are still generating positive results, as the revenue per click that their Google ads are generating has also increased across segments. Mobile Google Shopping ads saw the biggest improvement in revenue per click in, rising more than 20%. Desktop Shopping ads revenue per click rose a more modest 4%, while text ad revenue per click rose 10% across both desktop and mobile devices. Audience Targeting Used for 37% of Google Search Ad Clicks 40% 30% 20% 10% Share of Google Search Ad Clicks by Audience Type Customer Match Similar Audiences RLSAs Combined 37% 31% Across Google s RLSA, Customer Match, and similar audiences products, advertisers employed specific audience targeting for 37% of the Google search ad clicks they produced in June. That rate was up from 21% a year earlier. The share of Google clicks associated with RLSAs has risen sharply since late 2016 when Google tripled RLSA list membership duration to 540 days. 3% 3% Oct Jan Apr Jul Oct Jan Apr Google Maps Share of Google Text Ad Clicks Holding Steady Get Location Details Share of Google Text Ad Traffic 8% Brick-and-Mortar Advertisers Phone Desktop 6% 6% 4% 2% 1% Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr 2016 For the past two years, brick-and-mortar advertisers have seen appreciable Google Maps traffic to their brand keywords via the Get Location Details click type. These clicks produced a little over 5% of Google phone text ad clicks in, up from, but slightly below a mid- peak. In, Google began testing Local Search Ads Experiment campaigns, which do not rely on advertisers keywords and initially appear to be triggered exclusively by non-brand queries.

10 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 10 Retailers Non-Brand Google Traffic Increasingly Dominated by Shopping Ads 80% 60% 40% 20% Google Shopping Share of Google Paid Search Clicks Aggregate Results - US Retail Non-Brand Overall 82% 59% Google Shopping ads produced a little more than 59% of US retailers Google search ad clicks in, up from 53% a year earlier. Excluding brand keyword clicks, Shopping ads generated more than 82% of retailers Google search ad clicks in the quarter. Google s recently launched Shopping Actions program appeared to have little impact across the broader sphere of advertisers running standard Shopping ads LIAs a Significant Google Shopping Contributor for Participating Brands 25% 20% 15% 10% Local Inventory Ad Share of Google Shopping Clicks US Retail - Participating Brands Phone Desktop Tablet 16% 11% 10% For participating retail brands, Local Inventory Ads (LIAs) produced 16% of all Google Shopping ad clicks on phones in, up from 9% a year earlier. LIA share of desktop Shopping clicks rose from just 4% in to 11% in. LIAs now have the lowest share of Shopping clicks on tablets, where they produced just under 11% of clicks. 5% Showcase Shopping Ad Format Continues to See Strong Growth Showcase Shopping Ad Share of Google Shopping Clicks US Retail - Participating Brands 5% 4% 3% 2% 1% 1.6% 3.3% 4.4% Google s Showcase Shopping ad format is still a relatively small contributor to retailers Shopping ad clicks, even among participating brands, but its share of mobile Shopping clicks has jumped in just the last three quarters. In, Showcase Shopping ads produced 1.6% of participants phone Shopping clicks, but that more than doubled in and rose further to 4.4% in.

11 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 11 Google Shopping Click Share Trending Mixed Across Product Categories 100% Google Shopping Share of Non-Brand Google Paid Search Clicks ( Median Site Results - US Retail ) 67% Apparel 77% Automotive 78% Consumer Electronics 70% Flowers & Gifts 89% Health & Beauty 74% Home & Garden 75% Sporting Goods After rising across all seven product categories measured in, Google Shopping s share of non-brand Google search ad clicks showed more mixed trends in. Three of seven product categories saw Shopping ads lose click share ground between and, with consumer electronics seeing the biggest share declines. At the other end of the spectrum, the automotive category saw Shopping ads gain over six points of non-brand Google click share between and. Amazon Resumes Google Shopping Program After Brief Hiatus 50% 25% week of Amazon Google Shopping Impression Share Home Goods Category Jan 2 Apr 17 Jul 31 Nov 13 Feb 26 Jun 11 37% Toward the end of April, Amazon s Google Shopping ads suddenly vanished from Google s listings. This hiatus lasted two full weeks before Amazon reappeared in Google s auctions, with a similar presence as it had before. Since it first began buying Google Shopping ads at the end of 2016, Amazon has made the biggest waves in home goods auctions. Its current share of home goods impressions is down from all-time highs, but still well above early levels. Amazon Sticks to Familiar Product Categories in Google Shopping Auctions 50% 25% Amazon Google Shopping Impression Share Select Product Categories 37% 29% 24% 20% When Amazon returned to Google Shopping auctions in mid-may it did not appear that it had changed its approach by broadening the number of product categories it advertised. In addition to general home goods, Amazon s presence in Google Shopping auctions remains strongest within furniture and office supplies, with some more niche categories like novelty gifts and athletic apparel also seeing meaningful competition from Amazon. week of Jun 3 Aug 14 Sep 25 Nov 6 Dec 18 Jan 29 Mar 12 Apr 23 Jun 4 General Home Goods Furniture Office Supplies Novelty Gifts

12 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 12 Most Industries See Single-Digit Google Search Ad Click Growth +10% Google Overall Paid Search Metrics by Industry - Y/Y Growth +5% +5% B2B +8% +1% +7% Insurance +21% +9% +12% Financial Services +26% 2% +29% Health & Pharma +18% +7% +10% Retail & Consumer Goods +13% +6% +6% Travel Across six major industries analyzed, five saw Google search ad CPC growth outpace click growth in. Health and pharma, retail and consumer goods, and financial services advertisers saw the largest increases in CPC. With the exception of health and pharma, which saw a slight Y/Y decline, all industries saw single-digit Google search ad click growth in. After a relatively weak, travel search spending growth continued to improve, coming in 11% higher in. Metrics: Ad Spend Clicks CPC Google Phone Click Share Rises Most for Retailers Google Phone & Tablet Click Share by Industry 28% 3% 25% 50% 6% 44% 59% 7% 52% 66% 7% 59% 69% 7% 61% 59% 9% 50% Phones produced 61% of retail and consumer goods advertisers Google paid search clicks in, up from 56% a year earlier. Along with tablets, mobile devices produced 69% of retail and consumer goods clicks in the quarter, the highest rate across six major industries surveyed. Mobile continues to have a lesser impact for B2B search programs, where phone and tablets combined to produce just 27% of Google clicks. B2B Insurance Financial Services Health & Pharma Retail & Consumer Goods Travel Metrics: Phone Tablet Travel, Insurance See Smallest Gap Between Phone Click and Spend Share Google Phone & Tablet Spend Share by Industry 16% 2% 14% B2B 47% 6% 41% Insurance 47% 4% 43% Financial Services 51% 7% 44% Health & Pharma 48% 7% 41% Retail & Consumer Goods 52% 9% 44% Travel Phones accounted for 41% of insurance advertisers Google search spending in and 44% of their clicks, the smallest gap in spend and click share across six major industries. Travel advertisers also saw a relatively small gap, with phones taking 44% of spend and generating 50% of clicks. Despite seeing the largest share of clicks from phones, retail and consumer goods advertisers had the second-largest gap between phone spend and click share, following only B2B advertisers. Metrics: Phone Tablet

13 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 13 Bing and Yahoo Search Rebound Falters as CPCs Crash +40% +20% 20% Bing Ads & Yahoo Gemini Overall US Paid Search Y/Y Growth Ad Spend Clicks CPC +23% +11% 10% Spending growth for Bing and Yahoo search ads decelerated sharply in to 11% Y/Y, down from 30% growth in. CPC growth dropped from 17% Y/Y in to a 10% decline in. Bing Product Ad CPCs have been depressed by rapid mobile growth, but are also trending lower across individual device types. In addition, Bing brand keyword CPCs had mysteriously spiked in mid-, eventually increasing by more than 40% Y/Y for many advertisers. In, brand CPC growth slowed considerably to 9% Y/Y. Bing and Yahoo Spend Growth Slows, Despite Higher Click Growth +75% +50% +25% Bing Ads & Yahoo Gemini Spend by Ad Format Y/Y Growth Bing Product Ads Text Ads +40% +5% Although Bing Product Ad click growth accelerated from 110% Y/Y in to 147% in, spend growth for the format slowed from 64% to 40% as CPC declines steepened from 22% to 43%. While most Product Ad click growth is due to mobile, where CPCs are lower, mobile Product Ad CPCs are themselves down 70% Y/Y. Bing and Yahoo text ads also saw higher click growth in, but CPC growth decelerated sharply for both brand and non-brand keywords. 25% Bing Product Ads Now a Third of Bing Search Ad Clicks Bing Product Ad Share of Bing Ads Paid Search Clicks 60% Aggregate Results - US Retail Non-Brand Overall 54% 33% 30% Bing Products Ads have gained 13 points of Bing search ad click share in the past year and now produce 33% of all Bing paid search clicks. An influx of mobile traffic has fueled Product Ad growth, but desktop is also growing at a healthy rate. Excluding brand text ads, Product Ads produced 54% of advertisers Bing search ad clicks in, roughly the rate that Google Shopping ads produced for Google in late

14 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 14 US Phone Search Ad Click Share Rises to 53% Across Platforms 60% 40% 20% Phone and Tablet Share of Paid Search Clicks Phone Tablet Combined 60% 53% Phones produced 53% of search ad clicks across all ad platforms in, up from 48% a year earlier. Over the same period, tablet click share fell from 10% to 8%. The yearly gain in phone click share was helped by a significant contribution by the Bing Ads platform, which saw its own share of clicks from phones double. It has now been four years since tablets were irrevocably surpassed in click share by phones. 8% Phone and Tablet Search Spend Share Close to Reclaiming All-Time High 45% 30% 15% Phone and Tablet Share of Paid Search Ad Spend Phone Tablet Combined 40% 32% 7% Phones and tablets combined to account for 40% of spend across paid search platforms in, close to an all-time high. Phone and tablet spend share had dipped in, following Google s late 2016 move to allow advertisers to segment bids for desktop and tablet, which led to renewed growth for desktop and a pullback on tablet spending. Phone spend share did hit a new high of 32% in, but remains depressed by relatively low share across Bing and Yahoo Bing Phone Click Share Doubles in Past Year Due to Product Ads 36% Device Click Share by Search Ad Platform 56% 67% 67% 8% 9% 24% 25% Desktop Phone Tablet 8% Bing Ads generated 25% of its paid search clicks from phones in, double the rate it saw a year earlier. That growth has been driven by Product Ads, where 53% of clicks were from phones in, up from just 10% in. For text ads, Bing s phone click share has fallen slightly over the same period. At the same time, the share of its clicks that Google generates from phones and tablets is still nearly double the share that Bing and Yahoo see. Google Yahoo Gemini Bing Ads

15 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 15 Overall Gap Between Phone & Desktop Search CPCs Impacted by Product Ads Desktop CPC 75% 50% 25% Non-Brand Mobile CPC vs. Desktop Average Site Results Phone Tablet 69% 41% Although Google has seen its gap between phone and desktop non-brand CPCs close over the last few quarters, large phone CPC declines for Bing Product Ads have kept the overall gap roughly flat in the past year. After falling precipitously compared to desktop CPCs beginning in late 2016, tablet CPCs have recently stabilized and managed to gain some ground back in. Revenue Per Click for Mobile Devices Remains Well Below Desktop Levels Desktop CPC 75% 50% 25% Non-Brand Revenue Per Click vs. Desktop Average Site Results Phone Tablet 54% 32% Phones produced an average online revenue per search ad click that was just 32% of desktop levels in. With phone CPCs at 41% of desktop levels for comparable traffic, advertisers are paying a premium for phone traffic that reflects other aspects of value including cross-device and offline behavior. Similarly, tablet revenue per click was 54% of desktop levels in, while tablet CPCs were 69% of desktop levels. ios Devices and Safari Nearing Half of US Search Ad Market 40% US Paid Search Click Share by Browser/OS 39% % 21% ios Chrome Android Edge/IE Safari Firefox Other Desktop Desktop 7% 6% 3% 0% ios devices produced 39% of all US paid search clicks in, up two points from a year earlier. With desktop Safari accounting for 6% of clicks, Apple held sway over 45% of the search ad market. For Google alone, ios devices and desktop Safari produced 47% of search ad clicks. Google also commanded 85% of Firefox clicks, up from 72%, before it regained its status as the default search provider. However, Firefox produced just 3% of all search ad clicks in.

16 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 16 ORGANIC SEARCH & SOCIAL Total site visits driven by organic search rose 2% Y/Y in, with phone visits growing nearly 11% in the quarter. Desktop organic search visits fell 5% in, an improvement from recent averages. The share of all site visits produced by organic search was down slightly from to, but has largely stabilized in the last three quarters. On mobile devices, organic search produced 24% of site visits in. Social media produced 3.7% of all site visits in, up from 2.9% a year earlier. On mobile devices, social media sites produced 4.6% of site visits in. Mobile devices accounted for over 77% of site visits driven by social media platforms in.

17 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 17 Organic Search Delivers Modest Site Visit Growth +15% 15% 30% +11% Organic Search Visits by Device Y/Y Growth 6% 2016 Phone Tablet Desktop Overall 5% +2% Total site visits driven by organic search rose 2% Y/Y in, up from flat growth a quarter earlier. Organic search visits on phones grew nearly 11% in the quarter, up from 8% growth in, but down from 15% growth in. Desktop organic search visits fell 5% in, an improvement from recent averages and roughly in line with growth for desktop search ad clicks. Tablet organic search visit declines have also lessened in recent quarters. Google and Bing Organic Search Growth Trends Improve +20% 20% 40% Organic Search Visits by Engine Y/Y Growth +2% % Google Yahoo Bing 12% Facing stronger year-ago comps, Google organic search visit growth still improved nearly three points between and, coming at 2.4% Y/Y growth in. Bing organic search visits fell 12% in, but that marked a big improvement from the previous quarter, which came despite accelerating Bing ad click growth. After losing its position as the default search provider for Firefox, Yahoo organic search visits have now fallen by over 30% Y/Y for three straight quarters. Google Produces 96% of US Mobile Organic Search Visits 91% 94% US Organic Search Visit Share by Engine Overall Mobile 93% 96% Google s share of total site visits produced by organic search was 93% in, up from 91% a year earlier. On mobile devices, Google produced 96% of organic search visits in, up from 94% in. Google s share gains have come primarily at the expense of Yahoo, which saw its share of organic search fall from 4% in, to a little under 3% in. 4% 3% 5% 4% 4% 2% 2% 2% Google Yahoo Bing Google Yahoo Bing

18 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 18 Organic Search Share of Mobile Site Visits Improves 30% 28% 26% 24% 22% Organic Search Share of All US Site Visits Overall Mobile 26% 24% The share of all site visits produced by organic search was down slightly from to, but has largely stabilized in the last three quarters. On mobile devices, organic search produced 24% of site visits in, a small increase from the previous quarter, but down one point from a year earlier. Before paid search mobile traffic share began to spike in late 2015, organic search produced roughly equal traffic share on mobile and desktop. 20% Mobile Share of Organic Search Visits Hits All-Time High of 55% 60% 30% Mobile Share of US Organic Search Visits Tablets Phones Combined 55% 46% Phones produced 46% of organic search visits in, up from 42% a year earlier. For comparison, phones produced 53% of paid search clicks in. Conversely, tablets produced a larger share of organic search visits than paid search visits in. Between phones and tablets, mobile devices produced 55% of organic search visits, a new all-time high following a slight dip in share in late. 9% Bing Sees Largest Mobile Click Share Gains for Organic Search 70% 35% Share of Each Engine s Traffic from Mobile Google Yahoo Bing 59% 50% 22% Mobile devices produced 22% of Bing organic search visits in, up four points from a year earlier the largest gain across the three major US search engines. These results echo mobile s increasing share of Bing paid search clicks over the same period. Still, far more of the organic search visits produced by Google come from mobile devices, which accounted for 59% of its organic search visits in.

19 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 19 Social Media Share of Site Visits Holding Steady in Recent Quarters 2.7% 3.1% Social Media Share of Site Visits Share of All Visits Share of Mobile Visits 4.7% 4.7% 4.4% 3.5% 3.7% 3.7% 3.8% 3.5% 3.7% 3.0% 2.9% 4.6% Social media produced 3.7% of all site visits in, up from 2.9% a year earlier. While social media has made decent traffic share gains in the past year, most of those occurred between and. On mobile devices, social media sites produced 4.6% of site visits in, a rate that has also run roughly flat for several quarters. Instagram & YouTube Traffic Growing Much Faster than Other Social Platforms +300% +200% +100% +8% Social Media Site Visit Growth Y/Y +236% +13% +26% +299% Facebook Instagram Twitter Pinterest YouTube Site visits produced by YouTube grew nearly 300% Y/Y in, while Instagram-produced visits rose 236%. Facebook, which accounted for a majority of social media-driven site visits in, produced 8% Y/Y visit growth in the quarter, down from 19% in. Other significant social platforms like Twitter and Pinterest delivered larger visit growth than Facebook, but still trailed Instagram and YouTube growth by a large margin. Mobile Share of Social Media Visits Continues to Rise 80% 75% 70% 65% Mobile Share of Social Media Site Visits 77% Between phones and tablets, mobile devices combined to produce more than 77% of site visits driven by social media platforms in, up from 76% in and about 69% in. As the largest social media site traffic producer for most brands, Facebook leads the way in these trends, both in terms of traffic levels and ad dollars. 60%

20 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 20 DISPLAY & PAID SOCIAL Facebook spend, excluding Instagram, grew 40% Y/Y, even as impressions fell 17%. Quarterly mobile traffic share for Facebook eclipsed 90% for the first time for Merkle advertisers in. Instagram spend grew 177% Y/Y as impressions more than tripled. While Instagram remains smaller than Facebook for brands advertising on both, the gap got smaller from to.

21 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 21 Facebook Spend Grows 40% Y/Y Even as Impressions Decline +75% +50% +25% +40% Facebook Y/Y Growth +70% Facebook spend (excluding Instagram) for advertisers on the platform since at least increased 40% Y/Y, a slight deceleration from what was observed in. Impressions declined 17% Y/Y for the quarter, but significant pricing increases continued to keep Facebook spend growth strong, as did increased ad engagement. 17% +25% Spend Impressions CPM Instagram Spend Growth More than Four Times that of Facebook Proper +200% +150% +100% +50% +177% Instagram Y/Y Growth +209% Advertisers investing in Instagram since last increased spend 177% Y/Y, far outpacing spend growth on Facebook proper. Average CPM went down modestly, but a 209% increase in impressions more than made up for the pricing decline. Given the same-client nature, these figures do not reflect the expansion in the number of brands adopting Instagram as part of their paid social programs over the last year. Spend Impressions +70% 10% CPM Instagram Growing Relative to Facebook for Advertisers on Both 25% 20% 15% 10% 5% Instagram Performance Relative to Facebook - Median Advertiser 23% 20% 9% Facebook continues to be the largest and most widely adopted paid social platform for advertisers, but Instagram is quickly growing and attracting more brands to its platform. For the median advertiser actively bidding on both platforms, Instagram accounted for 23% as much spend as Facebook in, up meaningfully from the 9% observed in. Spend Impressions Clicks

22 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 22 Phones and Tablets Account for 92% of All Facebook Traffic 100% 75% 50% 74% Facebook Ads Mobile Share Ad Spend Clicks 79% 82% 92% While Facebook has long drawn the vast majority of its ad traffic from mobile devices, marked the first quarter in which Merkle advertisers saw upwards of 90% of all Facebook clicks come from phones and tablets. Mobile spend share does lag click share, but still accounted for 82% of all Facebook investment for the quarter, up from 74% last. 25% Facebook CTR Up Meaningfully Y/Y for Newsfeed and Right Rail Ads +45% +30% +15% Facebook CTR Growth Y/Y +44% News Feed +28% Right-Hand Rail In, ads featured in the Newsfeed had a CTR 44% higher than last, while ads featured in the right-hand rail had a CTR 28% higher. The increase may be at least partially the result of Facebook s January Newsfeed update, which reduced the number of unsponsored posts from publishers and brands. This ostensibly decluttered the experience for users and potentially drew clicks to paid listings that might have otherwise gone to unsponsored posts. Facebook Audience Network Accounts for Small Share of Facebook Spend 2.0% 1.5% 1.0% Audience Network Share of Facebook Spend 1.2% 1.5% The Facebook Audience Network allows advertisers to use Facebook audiences to target users in other mobile apps besides Facebook, extending the reach of these segments. While the share of Facebook spend (excluding Instagram) attributed to this network did grow Y/Y, it accounted for just 1.5% of spend in. 0.5% Paid Social Traditional Display

23 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 23 Advertisers Nearly Triple YouTube Spend Y/Y in +250% +200% +150% +100% +189% YouTube Y/Y Growth +225% Brands investing in YouTube advertising since at least increased spend by 189% Y/Y, driven primarily by an increase in impressions, which grew 225% Y/Y. Of all YouTube ad spend, 79% came from phones and tablets in for advertisers on the platform Y/Y, compared to 71% a year earlier, as mobile impressions increased much faster than desktop. +50% Spend Impressions 11% CPM Paid Social Once Again Tops Video and Display in Mobile Spend Share 100% 80% 60% 40% Mobile Spend Share by Advertising Channel 85% 78% 49% Dominated by Facebook, which produced 82% of its spend from phones and tablets during the quarter, paid social topped video and traditional display advertising in terms of the share of spend coming from phones and tablets in. Traditional display advertising regularly lags paid social and video advertising in mobile spend share. 20% Paid Social Video Display Google Display Network Mobile Click and Spend Share Up Y/Y 80% 60% 40% Google Display Network Mobile Share Median Advertiser 51% 73% 68% 76% The median advertiser on the Google Display Network Y/Y saw spend share coming from phones and tablets increase from 51% in to 73% in. With mobile click share increasing from 68% to 76%, mobile CPC remains lower than that of desktop, but the gap has closed significantly over the past few quarters. 20% Spend Clicks

24 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 24 AMAZON ADS Amazon Sponsored Products spend grew 165% Y/Y in, while Headline Search Ads grew 162%. Sponsored Products continue to account for the vast majority of Amazon search spend, with Headline Search Ads and Product Display Ads accounting for just 12% of spend combined. Clicks from both Sponsored Products and Headline Search Ads convert at about three and a half times the rate of Google Shopping ads, looking across all brands bidding on either format.

25 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 25 Amazon Sponsored Product & Headline Search Spend Continue Strong Growth +200% +150% +100% +50% +165% Amazon Y/Y Growth by Ad Format Median Advertiser +9% Ad Spend +162% +21% CPC 55% 17% Brands investing in Amazon Sponsored Products since at least increased spend on the format by 165% Y/Y in. Headline Search Ads spend increased 162%, while Product Display Ads spend declined 55%. Product Display Ads have the lowest sales per click of the three formats and are also only available to vendors, while Amazon s other two ad formats can also be deployed by third-party sellers. 50% Sponsored Products Headline Search Product Display Sponsored Products Maintain Strong Share of Total Amazon Spend Amazon Ad Spend Share by Format 11% 88% Sponsored Product Ads Headline Search Ads Product Display Ads Across both vendors and third-party sellers, Sponsored Products accounted for 88% of all AMS spend in, up slightly from 86% in. Headline Search Ads received 11% of Amazon ad spend, while Product Display Ads accounted for just 1%. Nearly all Amazon search advertisers bid on both Sponsored Products and Headline Search Ads, while Product Display Ads are limited solely to vendors. Headline Search Ads CTR Tops Among Amazon Ad Formats Amazon Normalized CTR by Ad Format - Median Advertiser +272% Typically placed at the top of the Amazon search results page above Sponsored Products, Headline Search Ads continue to drive significantly higher CTR than Sponsored Products, of which there can be several shown per search. Product Display Ads, typically shown beneath the Buy Box on product details pages, have the lowest CTR of AMS formats. 21% Sponsored Product Ads Headline Search Ads Product Display Ads

26 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 26 Sponsored Product Clicks Provide Highest Value to Advertisers Amazon Normalized Sales Per Click by Ad Format - Median Advertiser 10% 50% Looking at the sales produced for advertisers from each click, Sponsored Products consistently provide the highest value among AMS formats, with Headline Search Ads producing a sales per click about 10% lower for the quarter. Product Display Ads significantly lag both of the other formats, with sales per click about 50% lower than that of Sponsored Products in. Sponsored Product Ads Headline Search Ads Product Display Ads Amazon Ad Clicks Convert at a Much Higher Rate than Google Shopping Ads Amazon vs Google Shopping Conversion Rate - Median Advertiser +248% +250% Looking at the median of all advertisers bidding on each format such that the samples are different for each both Sponsored Products and Headline Search Ads clicks convert at more than three times the rate of Google Shopping ad clicks. Importantly, many advertisers on Google Shopping do not sell on Amazon and thus don t bid on Amazon s ad formats, while some Amazon sellers don t sell through Google Shopping. Google Shopping Amazon Sponsored Products Amazon Headline Search Ads Sponsored Products CTR Lags that of Google Shopping Amazon vs Google Shopping CTR - Median Advertiser +42% Amazon Sponsored Products median CTR is less than half that of Google Shopping, largely due to the presence of Headline Search Ads at the top of Amazon search results. While Google Shopping ads do compete with text ads for clicks, they are typically shown above text ads when both formats appear. Headline Search Ads CTR was 42% higher than Google Shopping in. 62% Google Shopping Amazon Sponsored Products Amazon Headline Search Ads

27 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 27 COMPARISON SHOPPING ENGINES Traditional comparison shopping engines continue to struggle to find traction on mobile devices, as 89% of all CSE clicks came from desktop in, a figure that has remained roughly the same over the past couple of years. Advertisers that continue to compete on CSEs saw sales from these platforms fall 23% Y/Y, a figure that does not reflect the advertisers which have given up on CSEs in recent years.

28 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 28 Phones Account for Just 7% of CSE Traffic in CSE Traffic Share by Device Type 7% 3% Desktop Phone Tablet Traditional comparison shopping engines (CSEs) continue to draw the vast majority of clicks from desktop computers, as phones and tablets combined to account for just 11% of traffic in. This is in line with the mobile traffic share observed over the last several quarters, as major CSEs like the ebay Commerce Network and Connexity have done little to gain phone and tablet traffic. 89% Connexity Phone CPC Continues Decline Relative to Desktop +30% +15% Desktop 15% 30% Connexity Mobile CPC Relative to Desktop Phone Tablet +10% 25% While phone and desktop CPC were fairly comparable during most of on Connexity, phone CPC has been significantly lower than that of desktop through the first two quarters of. Google paid search phone traffic has long been cheaper than desktop for most brands, as advertisers actively bid lower for mobile traffic to reflect lower mobile conversion rates, but Connexity advertisers do not have bidding controls to adjust bids by device type. Connexity Maintains Large Share of Total Traditional CSE Spend 75% 50% 25% CSE Spend Share by Engine 100% Connexity ebay Commerce Network Other 92% 28% 69% 3% 34% 65% 45% 53% 1% 1% 0% 70% 30% 8% 0% 86% 14% 0% Spend share for the ebay Commerce network has been in steep decline since, when ebay decided to sunset product ads from showing directly on ebay. com. This greatly reduced the amount of available inventory for these ad units, and Connexity has grown to dominate CSE spend share in the quarters since, accounting for 86% of spend in.

29 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 29 ebay Commerce Network CPC Continues Steep Decline CSE CPC by Engine CPC for the ebay Commerce Network has declined since ebay product ads were discontinued from showing on ebay.com in May of last year, as ebay chose to focus the ad inventory on its own website on Promoted Listings, which keep users on site. Meanwhile, Connexity CPC increased 36% Y/Y in, continuing a streak of strong growth. 5 7 Connexity ebay Commerce Network Sales for CSE Advertisers Fall Meaningfully Y/Y Advertiser Sales from CSEs Median Advertiser 23% Advertisers bidding on traditional CSEs saw sales from these platforms fall 23% Y/Y in after a 4% decline in. Based solely on advertisers that continue to advertise on CSEs, this figure does not take into account the advertisers that have abandoned these platforms in recent years, as limited campaign management controls and poor performance have led many to turn CSE programs off. Connexity Conversion Rate Comparable to Google Shopping CSE Conversion Rate Relative to Google Shopping - Median Advertiser +6% 86% Looking at the median of all advertisers on each given platform such that the samples studied are different for each the conversion rate of Connexity and Google Shopping clicks is fairly similar, while the ebay Commerce Network significantly lags both. Google Shopping has a much higher share of traffic coming from mobile devices, however, which converts at a lower rate than desktop traffic for most advertisers. Google Shopping Connexity ebay Commerce Network

30 MERKLE DIGITAL MARKETING REPORT PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS CSES 30 ABOUT MERKLE Merkle is a leading data-driven, technology-enabled, global performance marketing agency that specializes in the delivery of unique, personalized customer experiences across platforms and devices. For more than 30 years, Fortune 1000 companies and leading nonprofit organizations have partnered with Merkle to maximize the value of their customer portfolios. The agency s heritage in data, technology, and analytics forms the foundation for its unmatched skills in understanding consumer insights that drive people-based marketing strategies. Its combined strengths in performance media, customer experience, customer relationship management, loyalty, and enterprise marketing technology drive improved marketing results and competitive advantage. With 5,500 employees, Merkle is headquartered in Columbia, Maryland, with 24 additional offices in the US and 25 offices in Europe and APAC. In 2016, the agency joined the Dentsu Aegis Network. For more information, contact Merkle at Merkle or visit CONNECT WITH US WEBSITE merkleinc.com BLOG merkleinc.com/blog/digital-marketing-channels marketing@merkleinc.com CALL MERKLE DMR METHODOLOGY Figures are derived from samples of Merkle clients who have worked with Merkle for each marketing channel. Where applicable, these samples are restricted to those clients who 1) have maintained active programs with Merkle for at least 19 months, 2) have not significantly changed their strategic objectives or product offerings, and 3) meet a minimum ad-spend threshold. All trended figures presented in this report represent same-site changes over the given time period. Unless otherwise specified, the data points in this report are derived from the North American market region.