Amazon (NASDAQ:AMZN) has become the No. 1 source for online product searches, besting Google and other search engines for several years now. The retail giant took nearly half of all product searches last year, according to a survey from Survata. The Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) subsidiary, by comparison, took just 36% of the market.
It should be no surprise Google has done an excellent job monetizing those product searches. Google’s product listing ads accounted for 59% of the company’s ad clicks in the second quarter, according to data from Merkle. But Amazon’s search ads could be worth a lot more than Google’s.
Clicking like crazy
Google typically highlights its product listing ads above text ads when users search for a product. These ads, with product images and prices, can produce a lot of clicks. And since they lead to a product listing on a retailer’s website, they can be worth a lot in sales for retailers.
But there’s an ad format on Amazon that gets even more clicks than product listing ads on Google. And while merchants usually have to share the product listing ad banner on Google, they can completely buy out the headline search ads on Amazon. Users click on those Amazon ads 42% more often, according to data from Merkle.
Not only do Amazon’s headline search ads get more clicks, they convert better than Google’s ads, too. In fact, both Amazon’s search ads and sponsored product ads convert at a rate nearly 3.5 times that of Google’s product listing ads.
The stark difference in conversions is likely due to the nature of the two platforms: People go to Amazon with the intent to buy, and they go to Google with the intent to research. That also makes Amazon’s search ads much more valuable than Google’s.
That’s not to say Google’s product listing ads aren’t valuable. Spending on those ads increased 31% year over year, according to Merkle, five times faster than spending on text ads. The growth in shopping on mobile devices has supported that growth, along with Google’s dominance of search on mobile. That said, the Amazon mobile app is one of the most popular apps among millennials for looking up product information, so Amazon may become a bigger threat to that revenue growth in time.
Amazon’s ads business is still just getting started
Amazon’s ad business is growing extremely quickly. The company’s “other” revenue line — which includes advertising, among other smaller businesses — grew 132% year over year in the first quarter. That number was positively impacted by accounting changes, but the line still grew 60% in the fourth quarter.
Spending on headline search ads and sponsored products increased 162% and 165% year over year, respectively, among the median ad format buyers, according to Merkle’s data. Spending on product display ads is declining, but only accounts for about 1% of total ad spend on Amazon. What’s more, as more vendors and third-party merchants flock to Amazon, spending on its ads is likely outpacing those numbers.
Interestingly, advertisers are getting their best value from sponsored products, not headline search ads, despite significantly lower click-through rates on the former. That leaves room for Amazon to increase the pricing on its most popular ad format. There are still opportunities for Amazon to tweak its core search ad products to maximize value for itself and its advertisers.
Amazon’s ad business is only going to keep getting bigger. While product listing ads account for nearly three-fifths of ad clicks on Google, Alphabet investors shouldn’t worry too much. The format is still growing spend quickly, and caters particularly well to merchants and vendors that don’t sell on Amazon, as well as other retailers.
Amazon’s dominant position in product searches should, however, give the company’s investors confidence that there’s a lot of ad revenue yet for the retailer to capture.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Levy owns shares of Alphabet (C shares) and Amazon. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), and Amazon. The Motley Fool has a disclosure policy.
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