Google Inc unveiled major changes to its shopping business on Thursday that will likely prove controversial in the e-commerce world.
Starting in the fall, product search results for users in the United States will be influenced by how much retailers and advertisers pay, a company executive said. In the past, product search results were based mainly on relevance and the program was free.
Google, the world's most popular Internet search engine, will rename its service Google Shopping from the current Google Product Search.
"We are starting to transition Google Product Search in the US to a purely commercial model," said Sameer Samat, vice president of product management at Google Shopping. "This will give merchants greater control over where their products appear on Google Shopping."
Google has been in the product listing and search business for about a decade. During that time, it has provided merchants with free access to shoppers. The company made money by running paid product search ads along with the organic, or unpaid, product listings, according to Eric Best, CEO of Mercent, which helps retailers sell through Google and other e-commerce websites such as Amazon.com Inc and eBay Inc.
"Today, that model goes away," Best said. "It's a very big deal."
The changes may ultimately help Google extract more revenue and profit from its retail advertisers, which account for up to 40 per cent of Google's advertising base, according to Best and others.
Google Product Search drives about $650 million in annual sales in the United States and about $1.3 billion globally, ChannelAdvisor, which helps merchants sell online, estimated on Thursday.
"That's the free sales that are going to disappear unless they decide to pay," Scot Wingo, CEO of ChannelAdvisor, said.
Under Google's new system, retailers may have to spend an extra $130 million a year in the United States and $270 million globally, to fill that sales hole, he estimated.
"The winner in this is Google," Wingo said. "That extra spending is pure margin and will drop to earnings per share."
Some of the retailers ChannelAdvisor works with are questioning Google's motives, Wingo added.
The changes will kick in by October, which does not give merchants much time to adjust to the new system in time for the crucial holiday shopping season, he said.
For retailers, there are upsides and downsides, according to Mercent's Best.
"The downside is that retailers are going to have to pay for performance when it comes to e-commerce traffic and revenue driven by or through Google," Best said. "The free traffic is disappearing."
The changes may be controversial in the Internet community because Google's search results have traditionally not been influenced by money, Best said.
"Pay-for-placement to some degree is an alternative to purely organic relevancy results," he said. "The fact that shopping results will be more closely tied to bid-for-placement will not sit well with all advertisers."
The new program will help retailers make their products more visible to shoppers searching on Google. The old system was difficult for Google to police because retailers could list a lot of products for free. If they have to pay, it may reduce clutter, Best said.
"Having a commercial relationship with merchants will encourage them to keep their product information fresh and up to date," Google's Samat wrote in a blog on Thursday. "Higher quality data - whether it's accurate prices, the latest offers or product availability - should mean better shopping results for users, which in turn should create higher quality traffic for merchants."
The quality argument is suspect, according to ChannelAdvisor's Wingo.
"That's a slippery slope because this could apply to websites, not just product listings," he said. "Why have organic search at all? Anyone can set up a website and use it for spammy purposes. That's what Google is supposed to deal with."
Amazon and eBay will likely be affected by Google's changes because the e-commerce giants currently get a lot of free traffic from Google Product Search. In the future, they will have to pay for that, Wingo said.
However, some merchants may decide to list more products for sale on Amazon's and eBay's online marketplaces, which would be a boon for those companies, he added.
Google shares fell 1.3 per cent at $580.86 on Thursday. The shares have fallen 13 per cent since the beginning of the year.
Amazon shares rose 1.8 per cent to $212.91 and eBay lost 1 per cent to $39.19.