Q1

20
1 7

DIGITAL MARKETING REPORT

Quarterly Benchmarks for Your
Digital Marketing Program
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 2

TABLE OF CONTENTS

03 EXECUTIVE SUMMARY

05 PAID SEARCH
12 HIGHLIGHT
AdWords Local Inventory Ads Becoming Increasingly
Important for Brick-and-Mortar Advertisers

1  8 ORGANIC SEARCH & SOCIAL

22 DISPLAY & PAID SOCIAL

25 COMPARISON SHOPPING ENGINES & FEEDS

28 ABOUT MERKLE & METHODOLOGY

MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 3

EXECUTIVE SUMMARY

NEW & NOTABLE FOR Q1 2017

Despite some headwinds from changes a year earlier that stood to decelerate growth coming into 2017, Google
AdWords spend increased 21% Y/Y in Q1 2017, a slight acceleration from Q4 2016. As has been the case in recent
years, Google Shopping ad spend grew much faster year-over-year (Y/Y) than spend on text ads.

The Product Listing Ad (PLA) format that powers Google Shopping ran into strong year-ago comparisons this
quarter, as Google had significantly ramped up the number of PLA impressions it was serving on google.com in
January of last year, particularly on mobile. Further, Google expanded the reach of PLAs by beginning to serve
them on Yahoo in March of last year through its search partner network.

However, both Google Shopping and text ad spend growth benefited from the uncoupling of desktop and tablet
bids, which Google started to roll out in Q3 2016. By Q4, search programs had adjusted their bidding to account
for the higher value of desktop traffic compared to tablets.

This increased control drove growth for advertisers by rooting out inefficiencies, and in Q1, Google paid search
desktop spend increased 19%, while spend for the smaller tablet segment declined 24%. Ultimately, advertisers
were able to spend more overall at the same return on investment than they would have been able to if desktop
and tablet were still grouped for bidding.

Google is also driving small, but appreciable incremental growth from the expansion of ads on Google Maps,
particularly for brand searches on mobile devices, as it attempts to monetize the rise of searches with local intent.

Local Inventory Ads (LIA), a variation of Google Shopping units, include information for when a product can be
picked up in-store. LIAs also play in the local intent space and are having a growing impact. These ads tend to
have a higher click-through rate (CTR) than traditional PLAs and can account for a significant share of total PLA
traffic for some brands.

Early Q1 brought the sunset of Google’s long-standing text ad format in favor of Expanded Text Ads (ETA), which
were officially launched last July and have run alongside traditional text ads since testing began in early 2016.
The legacy text ads will continue to show, but advertisers will not be able to load any new copy using the older
format moving forward. To date, there’s been no consistent meaningful difference in performance between ETAs
and older text ads, despite ETAs containing significantly more characters.

Bing Ads and Yahoo Gemini spend continued a steady Y/Y decline that has been observed over the past five
quarters. Both search engines have relatively weak positions on mobile devices, as Google is the default search
option on Android and iOS devices.

For organic search, Google visits grew overall for the first time in the past six quarters. While desktop has proven
to be a bigger drag on total growth in the past two quarters, the phone segment has rebounded nicely after
experiencing declines in early 2016 tied to Google’s increased monetization of its mobile search results.

Advertisers are increasingly investing in Amazon, particularly Sponsored Product Ads, but despite the growing
interest in Amazon advertising opportunities, Amazon and Google PLA spend declined at similar rates from Q4
to Q1, indicating that the two formats have similar seasonality.

Facebook spend growth continues to far outpace that of paid search, increasing 71% Y/Y in Q1 2017. A much
greater share of Facebook ad spend comes from mobile devices than paid search, both for its display advertising
units and video ads.
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 4

EXECUTIVE SUMMARY

PAID SEARCH

· Google search ad spending rose 21% Y/Y in Q1 2017, up from 19% growth in Q4. Clicks increased 20%,
while cost per click (CPC) rose 1%.
· Google Shopping spending grew 32% Y/Y, while Google text ad spending rose 12%. Across formats
and engines, phone and desktop spend increased 51% and 12%, respectively, while tablet spend
declined 23%.
· Bing Ads and Yahoo Gemini combined search ad spending fell 14% Y/Y in Q1 2017, compared to a 13%
decline in Q4. Bing Product Ad spending held flat Y/Y, while Bing text ad spend declined 16% with a
19% decline in clicks.
· Google’s share of phone paid search traffic rose to 97% in Q1. Bing Ads and Gemini traffic share are
greatest on desktop computers, where the two platforms combine to account for 19% of clicks.

ORGANIC SEARCH & SOCIAL

· Total organic search visits fell 4% in Q1 2017 as a slight Y/Y increase for Google was offset by a small
decline for Bing and a 28% decline for Yahoo. Phone organic search visits grew 15% across engines.
· Phones produced 43% of all organic search visits, while tablets produced 10%. For Google, the two
devices generated 56% of organic search visits, up from 54% in Q4, but below the 62% of paid
Google clicks produced by mobile devices.
· Social media sites produced 3.3% of all site visits and 3.8% of mobile site visits in Q1, as mobile
accounted for 66% of site visits produced by the social channel. Facebook accounted for over 70%
of social site visit volume.

DISPLAY & PAID SOCIAL

· Facebook ad spend increased 71% Y/Y, while CPC declined 4% and CPM increased 13%. Phones and
tablets accounted for 76% of all Facebook spend in Q1.
· Paid social spend was 39% less than that of traditional display advertising in Q1 2017, compared to
68% less a year earlier.

COMPARISON SHOPPING ENGINES & FEEDS

· The eBay Commerce Network accounted for 68% of all CSE spend in Q1, with 28% of spend going
to Connexity.
· Amazon Sponsored Products spend fell 25% Q/Q, which was similar to the 29% Q/Q decline observed
with Google Shopping spend.
PAID
SEARCH
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 6

Total Paid Search Spending Growth Increases to 15% Y/Y

Overall US Paid Search Y/Y Growth Overall spending on paid search ads grew
Ad Spend Clicks CPC
15% Y/Y in Q1 2017, up from 14% growth in Q4
2016. While click growth slowed from 15% Y/Y
30%
in Q4 to 14% in Q1, CPCs rose for the first time
since Q3 2015. An influx of Google mobile
20% search ad traffic in late 2015 depressed Y/Y
15% CPC growth throughout 2016.
14%
10%

1%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2015 2016 2017

–10%

Google Search Ad Spending Growth Improves to 21%

Google Overall US Paid Search Y/Y Growth Spending on Google search ads was up 21%
Ad Spend Clicks CPC
Y/Y in Q1, a point higher than Q4 growth.
Click growth was steady at just under 20%
40%
Y/Y, while CPCs rose 1% in Q1, up from a slight
decline. Although it is facing stronger comps
30%
from its expansion of mobile inventory in late
21% 2015, several Google initiatives in the last
20%
20% year have helped it maintain robust growth,
10%
including: a fourth mobile text unit, Google
Maps ads, PLAs on image search, and the
1% decoupling of desktop and tablet bidding.
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2015 2016 2017
–10%

PLAs Continue to Grow Nearly Three Times Faster than Text Ads
Google Spending Y/Y Growth by Ad Format PLA spending grew 32% in Q1 2017, up
50% from 30% growth in Q4. Text ad spending
Google Shopping (PLAs) Text Ads
growth was solid, but far behind at 12% Y/Y.
PLA growth continued to benefit from the
expansion of PLAs on image search in May
32%
2016, as well as from the ongoing shift in
25% traffic to mobile devices, where PLAs enjoy a
relatively high share of search ad clicks. Text
ads are seeing more modest benefits from
12% the launch of the fourth mobile ad unit and
from Google Maps listings.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2015 2016 2017
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 7

Non-Brand Ads Outpacing Overall Google Growth

Google Non-Brand US Paid Search Y/Y Growth Spending on AdWords non-brand keywords
Ad Spend Clicks CPC
and PLAs rose 24% in Q1 2017, up from
45%
21% growth in Q4. Non-brand click growth
decelerated just slightly to 33% Y/Y, while
the CPC decline improved from a 9% drop
33%
30% in Q4 to a 7% decline in Q1. PLAs have been
24% the primary driver of Google non-brand
15%
search ad strength, but non-brand text ad
spending rose a solid 16% Y/Y in Q1.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2015 2016 –7%

–15%

Brand Keyword Spending Growth Falls to Just 1%

Google Brand US Paid Search Y/Y Growth Trends for brand keywords on Google
Ad Spend Clicks CPC
have been unusually turbulent in the past
two years, a result tied to a sharp increase
45%
in CPCs that advertisers saw in early 2015.
This led to pullbacks and a slowing of click
30% growth at that time. A year later, in early
2016, click growth snapped back. Results
for the last couple of quarters may finally
15%
be providing a truer view of the natural
underlying growth trends for brand keyword
2%
1% volume and pricing.
–1%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2015 2016 2017

–15%

UK Google Spending Growth Slips to 10% Y/Y

UK - Google Overall Paid Search Y/Y Growth While UK Google search ad trends
Ad Spend Clicks CPC
have largely echoed those in the US in
recent years, with click growth picking
30%
up sharply in late 2015 at the expense of
CPC growth, Q1 2017 saw UK spending
growth fall fairly sharply to 10% Y/Y.
15% Although CPCs rose 3% in Q1, compared
10% to a 2% decline in Q4, click growth
7%
3% slipped from 17% Y/Y in Q4 to 7% in Q1.
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2015 2016 2017

–15%
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 8

Financial Services, Retail Increase Google Spend the Most

Google Overall Paid Search Growth by Industry Financial services brands increased
Y/Y Q1 2017 their Google search spending by 26%
35% Y/Y in Q1, the fastest rate among six
26%
major industries surveyed for this report.
25% 24%
22%
19% 20% 20%
Retail and consumer goods brands were
35%
close behind with 22% growth. While all
13%
industries saw strong click growth, B2B and
2% 2%
insurance brands coupled that with large
2%
0%
CPC declines, resulting in lower spending
–6%
–5% growth than other industries.

Retail & Metrics: Ad Spend Clicks CPC

–18% –18% Financial Health & Consumer
B2B Insurance Services Pharma Goods Travel

Google Phone Spend Share Highest Among Health and Pharma Brands

Google Phone & Tablet Click Share by Industry Health and pharma brands saw phones
command 52% of Google search spending
Q1 2017
in Q1, the highest rate among major
56%
52%
54% industries. While retail brands see the
50% 50%
46% 46%
second highest share of Google search ad
42% 42% clicks produced by phones, they also see
37%
a higher gap between phone and desktop
CPCs than other industries, resulting in a
21%
19%
lower-than-average share of spend from
mobile. Phones produced the lowest share
10%10% 10% 9%
6% 5% 6% 7%
9%
7% 7% 8% of spend for B2B advertisers at 19%.

B2B Insurance Financial Health & Retail & Travel Click Share: Phone Tablet
Services Pharma Consumer Spend Share: Phone Tablet
Goods

Google Maps Search Ad Traffic Continues to Rise

Get Location Details Share of Brand Text Ad Traffic The Get Location Details click type in
Brick-and-Mortar Advertisers AdWords accounted for 5% of brand
6% keyword clicks on phones in Q1 for brick-
Phone Tablet Desktop
and-mortar advertisers. This was up from an
5%
average of just under 4% in Q4 2016. Google
4% does not provide direct reporting on ads
from its Maps property, but this click type
primarily reflects ads appearing on Google
2% Maps. Get Location Details generated a
lower share of clicks on other devices and
1%
for non-brand keywords.
0.4%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2016 2017
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 9

Legacy Google Text Ads Still Generating Over 40% of Impressions

Share of Google Text Ad Impressions from For high-traffic ad groups with both
100% Expanded Text Ads Expanded and standard text ads active, the
Ad Groups with Both ETAs and Standard Text Ads Active older format is still accounting for over 40%
of text ad impressions, well after advertisers
75%
lost the ability to add or edit the standard
59% 57% format at the end of January. While Google
50%
51%
46% 48% search partners lean more heavily on
36%
39% the legacy format, standard text ads still
25%
29% produce a large share of Google.com
25%
impressions as well.
9%

Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar
2016 2016

No Clear Click-Through Rate Advantage for Google Expanded Text Ads

Google Expanded Text Ad CTR vs. Standard Text Ads After accounting for device, keyword
Google.com Traffic Median Ad Group type, and ad location, there is still no clear
evidence that Expanded Text Ads are
Desktop producing consistently higher click-through
Phone +4% rates than the legacy Google text ad format.
Tablet
For high-traffic ad groups with both formats
active in Q1, Expanded Text Ads produced
a slightly lower CTR across devices for ads
at the top of the organic search results.
–0.5%
Results were mixed for ads at the bottom
–3% of the page, which produce a low share of
–4% –4% –4% total clicks.
Top of Page Bottom of Page

New Google Ad Slots Produce 4% of Phone Clicks

Share of Google Phone Text Ad Clicks Ads in position three and four at the top of
4% Top-of-Page Ads the page produced 4% of Google phone
search ad clicks in Q1 2017. That was down
Position 3 Position 4
slightly from Q4 2016, but nearly double
3% the rate that position three ads produced
by themselves a year ago, before the
2% introduction of the fourth top-of-page unit
in mid-2016. These lower-position ads are
having a much greater impact on non-
1% brand keyword auctions where there is
greater competition.

Q3 Q4 Q1 Q2 Q3 Q4 Q1
2016 2017
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 10

PLA Click Growth Boost from Partners Set to Fade in Q2

Google Shopping Search Partner Click Share Google search partners, including Google’s
Desktop Phone Tablet
own image search property, produced 11% of
desktop PLA clicks in Q1 2017, in line with Q4
14%
2016 results, but nearly four times partners’
11% share at the start of 2016. Most of those gains
occurred between March and June last year
as Yahoo and image search both ramped up
7% their use of the format. Without a new source
of partner traffic, the benefit of partners to
4%
Y/Y PLA click gains will fade in the coming
months.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1
2015 2016 2017

Despite Recent PLA Jump, History Points to Partner Decline

Google Search Partner Click Share by Ad Format While Google search partners are still
12% Google Shopping (PLAs) Text Ads
providing a boost to Y/Y PLA growth, thanks
largely to the semantics of Google classifying
image search as a partner, the larger historical
trend is one of partners having a gradually
8%
declining impact to search ad volume. This
7%
is evident with text ads where partners
produced 10% of clicks in Q1 2015, but
4% under 7% in Q1 2017. The shift to mobile and
Google’s success at better monetizing its own
properties are two key factors here.

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1
2015 2016 2017

Desktop Remains Key Beneficiary of Image Search PLA Traffic

Google Search Partner Contribution to Click Growth Desktop PLA growth on Google.com was
Overall Growth w/ Partners Google.com Growth
a strong 19% in Q1 2017, but with partner
40% traffic added, total desktop PLA growth was
39% 30%. Traffic from Google image search is
the primary driver of this trend, but Yahoo
34% 30% has also provided meaningful volume since
20% March 2016. With text ads, Google search
partners have been a drag on total click
19% growth as Google.com text ad clicks rose
10%
10% in Q1, compared to 9% with partners
9% included.

Text Ads PLAs Desktop PLAs

MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 11

Bing and Yahoo Search Ad Spending Continues to Decline

Bing Ads & Yahoo Gemini Spending on the Bing Ads and Yahoo
Overall US Paid Search Y/Y Growth Gemini search ad platforms fell a combined
14% Y/Y in Q1 2017, down slightly from a 13%
Ad Spend Clicks CPC
40% decline in Q4 2016. While Bing and Yahoo
growth significantly outpaced that of Google
in early 2015, two key drivers of that growth
20% have since faded — the influx of traffic that
Yahoo received when it became the default
search provider for Firefox in December
4%
2014, and the rapid initial growth of Bing
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Product Ads.
2015 2016 2017
–14%
–17%
–20%

After Holiday Spike, Bing Product Ad Spending Again Declines

Bing Ads & Yahoo Gemini Spending Growth Bing Product Ad spend growth fell into
by Ad Format negative growth territory in mid-2016 after
Yahoo began serving the rival Google PLA
100% Bing Product Ads Text Ads
format, but it rebounded to 16% Y/Y in Q4
80% 2016. That holiday spike proved short-
lived though, as Product Ad spending fell
60% slightly Y/Y in Q1 2017. Bing and Yahoo text
ad trends have been more consistent, but
40%
spending growth remains in double-digit
20%
decline.

0%
Q4-2015 Q1-2016 Q2-2016 Q3-2016 Q4-2016 Q1-2017
–16%
–20%

Bing and Yahoo Non-Brand Click Growth Declines 23%

Bing Ads & Yahoo Gemini Non-Brand Bing and Yahoo non-brand keyword and
60% US Paid Search Y/Y Growth Product Ad clicks fell 23% Y/Y in Q1 2017,
down from an 18% decline in Q4 2016.
Ad Spend Clicks CPC
Spending fell 18% in Q1, while CPCs rose
30%
6%. In addition to some of the factors noted
above, Bing and Yahoo have also faced
challenges from the world moving mobile,
6% where Google holds a particularly strong
position as the default search provider for
Android and iOS devices.
–18%
–23%
–30%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2015 2016 2017
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 12

AdWords Local Inventory Ads Becoming Increasingly

Important for Brick-and-Mortar Advertisers

Local Inventory Ads (LIA) are a variation of Google Shopping ads (PLAs) which include information on when
a product can be picked up at a nearby store. To run these ads, advertisers must provide Google with local
product feeds, as well as local product inventory feeds for every location intended for inclusion in LIA targeting.
Google follows up with in-store quality checks to ensure the information provided in local feeds is accurate.

These ad units are quickly growing and in Q1 2017 accounted for 19% of all phone Google Shopping traffic
for the median brand deploying them. Desktop and tablet traffic share were smaller at 3%, as searchers are
usually more likely to head to local stores when using phones.

LIA Google Shopping Click Share LIA Performance vs. PLA

Median Brick-and-Mortar Advertiser Conversion Rate CTR

+18% +18%
19%
+0%

–27%

–42%
3% 3% –48%
Desktop Phone Tablet Desktop Phone Tablet

Some brands see much higher shares of Google Shopping traffic coming from LIAs, particularly brands that sell
items that are expensive to ship and/or are more likely to require in-store interaction for purchase. One such
advertiser finds that LIAs account for 68% of all Google Shopping phone traffic and 25% of desktop traffic.

Primarily shown to users searching for queries that indicate intent to head to a physical store location, the CTR
for these ad units is 19% higher than traditional PLAs on desktop and phones, with no difference on tablets.

Since these searchers are more likely to go to a store for a purchase, online conversion rate is much lower
across all three device types. This highlights the importance of incorporating offline sales data into paid search
campaign management, as bidding strictly to the online cost per order or return on ad spend of LIAs results
in lower bids than the value of these ads warrants.

In some auctions, Google shows nothing but LIAs, making it more important that brands with brick-and-mortar
locations take advantage of the format in order to maintain visibility. Aside from the traditional PLA carousel,
LIAs can also show in the Local Pack, which are business listings beneath Google Maps displays on the
Google SERP.

Between LIAs and ads on Maps, Google is clearly trying to better monetize searches with local intent, both in
search and on its other properties. The offline value these ads drive is often harder for advertisers to measure,
but critical to understanding the impact of online ads, as Google moves to make ad units more location
focused, particularly for mobile searches.
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 13

Google PLA Click Growth Outpaces Other Formats

Overall US Paid Search Growth by Format Q1 2017 Google PLA click volume grew 39% Y/Y
in Q1, four times the rate of Google text
Text Ads Product Ads
ad click growth. Bing and Yahoo Gemini
Bing/Gemini Google Bing Google PLAs
text ad clicks fell 19%, while Bing Product
+39%
Ad clicks fell 4%. Average CPC rose for
+32%
all formats except Google PLAs, where
partner and mobile traffic growth are
having a particularly large impact and
+12% holding down CPC growth.
+9%
+3% +3% 0% +4%
–4% Metrics:
–5%
Ad Spend Clicks CPC

–16%
–19%

PLAs Now Over Half of Retailers’ Google Search Ad Clicks

PLA Share of Google Paid Search Clicks In aggregate, PLAs produced 52% of
Aggregate Results - US Retail retailers’ Google search ad clicks in Q1
80%
Non-Brand Overall
2017, up from 48% in Q4 2016. PLA click
75%
share has doubled in the past three years.
60%
Larger advertisers have historically seen a
52%
higher share of Google clicks from PLAs,
so the median PLA program generates a
40% slightly smaller share of total Google clicks.
Across non-brand Google search ads, PLAs
produced 75% of clicks in aggregate in Q1.
20%

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2014 2015 2016 2017

Bing Product Ad Click Share Rises to 19%

Bing Product Ad Share of Bing Paid Search Clicks Although Bing Product Ad clicks were
40% Aggregate Results - US Retail down 4% Y/Y in Q1, the format still saw its
share of total Bing search ad clicks rise
Non-Brand Overall
34% from 17% in Q4 2016 to 19% in Q1 2017 as
30%
Bing text ad clicks fell at a faster rate. For
the non-brand segment, PLAs produced
20%
34% of Bing search ad clicks in Q1 2017,
19%
roughly double the rate of a year earlier,
but still below where Google PLAs were
10% over four years ago.

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2014 2015 2016 2017
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 14

PLA Click Share Rises Across All Retail Categories

PLA Share of Non-Brand Google Paid Search Clicks PLA click share rose from Q4 2016 to Q1
90% Median Site Results - US Retail 2017 across each of seven major product
Q4-2015 Q1-2016 Q2-2016 categories surveyed. The fourth quarter
Q3-2016 Q4-2016 Q1-2017 has tended to be a relatively strong quarter
for text ads due to how shopper search
60%
and conversion behavior changes during
the peak of the holiday shopping season.
Consequently, Q1 tends to produce gains
30% for PLAs in comparison.

Health & Apparel Home & Flowers & Cars & Sporting Consumer
Beauty Garden Gifts Auto Goods Electronics

PLA CPCs Gaining Back Ground on Text Ads

Google PLA CPC vs. Non-Brand Text Ads Google PLA CPCs ran 13% lower than non-
Median Site Results - US Retail brand text ad CPCs in Q1 2017, up from a
10% 16% deficit a quarter earlier. PLA CPCs had
taken a hit as the format grew mobile and
partner traffic more quickly than text ads
over the last two years. Looking at desktop
Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 traffic only, PLA CPCs run higher than
2013 2014 2015 2016 2017
Google non-brand text ad CPCs.
–10%

–13%

–20%

Desktop PLA Spend Growth Rises as Advertisers Push Bids

Google PLA Growth by Device Type Spending on desktop PLAs rose 35% Y/Y in
Aggregate Results - US Retail Q1, up from 30% in Q4. Desktop clicks rose
30% as advertisers pushed up CPCs 4%.
53% 51% Desktop
Conversely, advertisers have pulled back on
Phone
Tablet tablet bids since gaining back the ability to
35% segment tablet and desktop bids in Q3 2016.
30%
Phone PLA growth continued to outpace
other devices with spend up 53% in Q1 and
10% 4%
1% clicks up 51%.

–16%
–24%

Ad Spend Clicks CPC

MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 15

Phone Paid Search Click Share Nearing 50% Across Platforms

Phone and Tablet Share of Paid Search Clicks Across all search ad platforms, phones
Phone Tablet Combined produced 48% of clicks in Q1 2017, up slightly
30%
from a quarter earlier, but more than double
58%
their share two years ago. Tablet traffic share
48% was steady from quarter to quarter after falling
20%
four points from Q2 to Q4 2016. Already on
the decline, tablet traffic share took a hit in
late 2016 as advertisers began pulling back
on tablets in favor of desktop once Google
10%
began allowing separate bids for the two.
10%

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2013 2014 2015 2016 2017

Phone and Tablet Share of Search Spend Hits New High

Phone and Tablet Share of Paid Search Ad Spend After dipping in Q4 2016 as advertisers pulled
Phone Tablet Combined back on Google tablet bids, combined phone
45%
and tablet search spend share increased to
41% a new high of 41% in Q1 2017. Tablet share
slid slightly from Q4 to Q1, but this was offset
by an over two point gain for phone spend
30% 30%
share, which hit 30% for the quarter. Tablet
spend share is now roughly half of its all-time
high in Q1 2015 and it was only a year ago that
15%

11%
phone spending first surpassed that of tablets.

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2013 2014 2015 2016 2017

Phone Search Ad CPCs Continue Strong Growth

Year-Over-Year Growth by Device Class Phone search ad CPCs rose 15% Y/Y in Q1
2017, in line with growth for the previous
51%
Desktop quarter. Phone CPC growth had been
Phone depressed by Google’s increase of mobile
Tablet inventory beginning in late 2015, but current
31%
trending better reflects the increasing value
of phone search ad clicks. Desktop CPCs
15%
12% rose 6% Y/Y in Q1, while tablet CPCs were
6% 6% reduced 13%.
–11%
–13%

–23%

Ad Spend Clicks CPC

MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 16

Phone CPCs Increase Relative to Desktop, Tablet Down

Non-Brand Mobile CPC vs. Desktop Although advertisers have pushed desktop
Phone Tablet bids since Google allowed the uncoupling of
Desktop
CPC tablet and desktop bids in Q3 2016, phone
CPCs still gained ground on desktop in Q1
2017. For non-brand paid search, phone CPCs
–25% –25% were 43% lower than desktop CPCs in Q1,
compared to 51% lower in Q4. Tablet CPCs
were 25% lower than desktop in Q1, down
–43%
–50%
from near parity in early 2016.

–75%
Q4 Q1 Q2 Q3 Q4 Q1
2016 2017

Phone Revenue Per Click Improving Compared to Desktop

Non-Brand Revenue Per Click vs. Desktop Phone revenue per click from paid search
Phone Tablet
ads was 57% lower than desktop revenue
Desktop per click in Q1 2017, an improvement from
RPC
a 62% gap in Q4. These figures do not
take into account cross-device or offline
–23%
–25%
conversions, which provide a larger boost to
phones than other devices. Tablet revenue
–50% per click has also improved in recent quarters
–57% as advertisers have been able to bid tablets
separately in AdWords.
–75%

–100%
Q4 Q1 Q2 Q3 Q4 Q1
2016 2017

Bing Twice as Reliant on Desktop Traffic as Google

Device Click Share by Search Ad Platform The desktop segment produced 77% of Bing
Google Yahoo Gemini Bing Ads
search ad clicks in Q1 2017, over twice the
share of Google search ad clicks produced
77% by desktop in the same quarter. While the
three major search platforms generated
63%
roughly equal shares of their traffic from
52%
tablets, Google produced 52% of its search
38% ad clicks from phones in Q1, compared to
25% for Yahoo Gemini and just 13% for Bing.
25%

13% 10% 13% 10%

Desktop Phone Tablet

MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 17

Google Share of Phone Search Ad Clicks Up to 97%

Share of US Paid Search Clicks by Device Google’s share of phone search ad clicks
Google Yahoo Gemini Bing Ads rose to an astounding 97% in Q1 2017. That
97% left just 2% share of phone clicks for Bing
89% 90% and 1% for the Yahoo Gemini platform.
81%
Google’s share of all paid search clicks rose
to 90%, with Bing taking 9% and Yahoo
Gemini producing 2%. Bing showed relative
strength on desktop, where it accounted for
16% of paid search clicks.

16%
8% 9%
3% 1% 2% 2% 2%

Desktop Phone Tablet Overall

iOS Sees Share of Mobile Search Ad Clicks Rise

Share of Phone and Tablet Paid Search Clicks by OS iOS share of mobile search ad clicks rose
80% iOS Android Other a point from Q4 2016 to Q1 2017, coming in
at just over 64%. iOS share had declined
steadily beginning in late 2013, and in recent
60%
64% years that largely reflected the decrease in
click share for the tablet segment, where
40%
Apple’s iPad was the dominant player. The
iOS gains of the past couple of quarters may
34%
be related to Samsung’s recent woes with its
20% mobile devices.

1%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2013 2014 2015 2016 2017

Chrome-Only Desktop Browser to Maintain Search Click Share

US Paid Search Click Share by Browser/OS In the last year, Chrome has been the only
40% 37% desktop browser to maintain its share of
Q4-2015 Q1-2016 Q2-2016 search ad clicks as more and more traffic
Q3-2016 Q4-2016 Q1-2017 moves mobile. Desktop Chrome accounted
30%
for 21% of paid search clicks in Q1 2017, the
21% highest share of any desktop browser. iOS
20%
20% devices continued to generate the largest
share of clicks, accounting for 37% in Q1 2017.
11%

10%
5% 5%

1%

iOS Chrome Android Edge/IE Safari Firefox Other

Desktop Desktop
ORGANIC SEARCH
& SOCIAL
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 19

Phone Organic Search Visits Pick Up, But Desktop Holds Back Total Growth
Y/Y Growth in Organic Search Visits by Device Site visits produced by organic search on
30% Median Site phones grew 15% Y/Y in Q1 2017, up from 13%
Q3-2015 Q3-2016 growth in Q4 2016 and a 1% decline in growth
15%
Q4-2015 Q4-2016 a year earlier. Phone organic search growth
Q1-2016 Q1-2017
15%
Q2-2016 took a major hit beginning in late 2015 as
Google rolled out more paid ads and other
changes that drew attention away from the
organic listings. In the last couple of quarters,
–4%
desktop has been a bigger drag on organic
–15%
–13%
search, as advertisers are producing more
–18% growth from paid desktop listings.
–30%
Desktop Phone Tablet Overall

Google Organic Search Returns to Growth

Y/Y Growth in Organic Search Visits by Engine For the first time since the third quarter of
30% 2015, the median brand saw Google organic
Q3-2015 Q3-2016 search visits grow in Q1 2017. Growth was
Q4-2015 Q4-2016
Q1-2016 Q1-2017
less than 1%, but after over a year of declines
15%
Q2-2016 brought about primarily by increased
0.3%
ad loads, it is a welcome development.
Elsewhere, Yahoo organic search continues
to exhibit large Y/Y declines of near 30%,
–4%
while Bing organic search visits have fallen
–15% single digits for the past five quarters.

–30%
Google Yahoo –28%
Bing

Despite Ad Ramp, Google Still Outpacing Rivals in Mobile Organic Search

US Organic Search Visit Share by Engine Even after it significantly ramped up the
monetization of its mobile results in the last
Overall Mobile two years, Google still produces a relatively
93%
87% 88%
91% high share of mobile organic search visits
2016-Q1
to brands’ sites. Google accounted for
2017-Q1
93% of mobile organic search visits in Q1
2017 and 88% of all organic search visits.
For comparison, on the paid side, Google
accounted for 95% of phone and tablet
clicks in Q1 and 90% of total clicks.

6% 5% 6% 6% 6% 5% 3% 2%

Google Yahoo Bing Google Yahoo Bing

MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 20

Organic Search Visit Share Inches Up, Direct Visits Steady

Organic Search Share of All US Site Visits On average, brands saw organic search
produce a slightly higher share of all site
Organic Search Direct
40%
visits in Q1 2017. Organic search accounted
for 29% of visits, up a point from the previous
30% 29%
quarter. Direct site visits, which often include
misattributed or “dark” organic search visits,
have accounted for a steady 18% of all site
20%
18% visits for the past four quarters.

10%

Q3 Q4 Q1 Q2 Q3 Q4 Q1
2016 2017

Organic Gains Back Ground in Mobile Site Visit Share

Organic Search Share of Mobile US Site Visits Organic search made bigger site visit share
gains on mobile, where organic accounted
Organic Search Direct
40%
for 29% of mobile visits in Q1 2017. That was
up from 27% in Q4 2016, but still down nearly
30% five points from a share of 34% in Q3 2015,
29%
when Google began to significantly ramp up
mobile ad inventory. Direct site visit share has
20%
also run lower recently on mobile, but email,
15% display, and social have made gains.
10%

Q3 Q4 Q1 Q2 Q3 Q4 Q1
2016 2017

Organic Closing Gap with Paid in Share of Visits from Mobile

Mobile Share of US Organic Search Visits While mobile is still gaining share in the paid
Phones Total Organic Mobile Share search space, it has done so more slowly
Tablets Paid Search Mobile Share in the past few quarters as advertisers have
50%
58% pulled back on tablet ad bids and pushed
53% desktop. As a result, organic has closed the
43%
mobile share gap with paid recently with 53%
of visits from phones and tablets in Q1 2017,
25%
compared to 58% for paid search. In Q3 2016,
mobile’s share of organic ran nearly eight
points lower than its share of paid.
10%

Q3 Q4 Q1 Q2 Q3 Q4 Q1
2016 2017
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 21

Nearly 56% of Google Organic Search Visits from Mobile, Just 18% for Bing
Share of Each Engine’s Traffic from Mobile Phones and tablets combined for nearly 56%
60% Google Yahoo Bing
of Google organic search visits in Q1 2017, up
56% from 54% in Q4 2016. That still trails the 62%
49% of Google paid clicks that mobile produces,
but the gap has narrowed. Bing continues
40%
to lag significantly behind both Google and
Yahoo in mobile volume as phones and
tablets combined to produce just 18% of Bing
20% organic search visits in Q1 2017.
18%

Q3 Q4 Q1 Q2 Q3 Q4 Q1
2016 2017

Social Media Site Visit Share Continues to Rise

Social Media Share of Site Visits Social media sites produced 3.3% of all site
Share of All Visits Share of Mobile Visits visits in Q1 2017, up slightly from Q4 2016
3.8%
3.7% and roughly one point from a year earlier.
3.4%
3.1%
3.3% On mobile, social’s impact is a bit larger as
3.1% 3.1%
2.9% 2.9% social media sites produced 3.8% of mobile
2.5% 2.5% 2.5%
2.6% site visits in Q1 2017. Although a great deal
2.2% of Facebook activity stays on Facebook, it is
still by far the largest driver of social visits to
most brands’ sites, accounting for over 70% of
social volume.

Q3 Q4 Q1 Q2 Q3 Q4 Q1
2016 2017

Mobile Devices Produce 66% of Social Media Site Visits

Mobile Share of Social Media Site Visits Mobile devices, including both phones and
67%
tablets, produced 66% of site visits driven
66% by social media in Q1 2017, up slightly from
65%
Q4 2016 and six points from Q1 2016. Mobile
is also commanding a much higher share
63%
of ad budgets for social media platforms
compared to search and traditional display.
61%

59%

57%
Q3 Q4 Q1 Q2 Q3 Q4 Q1
2016 2017
DISPLAY &
PAID SOCIAL
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 23

Facebook Spend Up 71% Y/Y in Q1 as Click and Impression Volume Grow

Facebook Performance Despite a 4% decline in CPC and only a
Y/Y Growth Q1 2017 modest 13% increase in CPM Y/Y, Facebook
+75% spend grew 71% Y/Y as impression and
+71%
click volume grew significantly. This
represents a slight acceleration from
+50% the 65% Y/Y growth observed in Q4, as
advertisers showed no signs of slowing
their expansion on Facebook coming out of
+25% the holiday season.

–4% +13%

Spend CPC CPM

Prospecting Continues to Hold Slight Edge on Remarketing in Spend Share

Display, Paid Social, and Video Spend With identical spend share as in Q4 2016,
Share by Strategy Q1 2017 prospecting efforts slightly outpaced
remarketing in display, paid social, and
Prospecting
video spend share in Q1, 54% to 46%. Both
Retargeting prospecting and remarketing budgets in
these channels are growing over time as
brands increase their total investment in
Retargeting Prospecting digital advertising.
46% 54%

Desktop Down to 55% of All Google Display Network Spend

GDN Spend Share by Device Much like search, Google Display Network
Phone Tablet Desktop spend is steadily shifting toward mobile
77%
devices, with 45% of all GDN spend going
80%
74%
72% 70% to tablets and phones in Q1 2017. While that
67%
pales in comparison to Facebook’s mobile
55% spend share, GDN phone share grew to
33% of all spend for the quarter compared
40%
33%
to just 14% in Q1 2016.
25%
19%
16%
12% 11% 14%
11% 12% 11% 11%
8%

Q4 Q1 Q2 Q3 Q4 Q1
2016 2017
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 24

Desktop Less than One-Fourth of All Facebook Spend in Q1

Facebook Spend Share by Device Q1 2017 Phones and tablets combined for 76%
of all Facebook spend in Q1, while
Phone & Tablet desktop computers accounted for just
Desktop 24%. Facebook’s ad traffic has long
been mobile-heavy relative to other
Desktop
24% digital channels, and in November 2016
the social media giant sunset its limited
desktop-specific FBX platform. This did
Phone & Tablet not hurt Facebook spend growth as
76%
advertisers moved FBX investment into
other Facebook ad formats.

Facebook and YouTube Spend Heavily Dominated by Mobile

Mobile Advertising Spend Share by In Q1 2017, 80% of all YouTube video
Video Platform Q1 2017 spend and 77% of all Facebook video
spend went to phones and tablets.
82%
Both have very popular mobile apps
that generate a great deal of traffic. The
80% mobile spend share of Facebook non-
78%
video ads is roughly the same as mobile
77% share of video spend for the social media
giant, while YouTube’s video advertising
74%
mobile spend share is much higher than
that of GDN display ads.

70%
Facebook YouTube

Paid Social Spend Catching Up to Traditional Display Advertising

Paid Social Spend Relative to Display Advertising For the median brand taking advantage
of both paid social and traditional display
Q1 2016 Q1 2017 advertising, paid social accounted for
Display
68% less spend than traditional display
last Q1, but that gap shrunk to 39% less
in Q1 2017. While Facebook accounts for
–25%
–39% the lion’s share of paid social investment,
advertisers are also increasingly taking
–50%
advantage of other platforms such as
LinkedIn and Pinterest.
–68%

–75%
COMPARISON
SHOPPING
ENGINES & FEEDS
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 26

eBay Commerce Network Continues to Dominate CSE Spend Share

CSE Spend Share by Engine The eBay Commerce Network (ECN)
accounted for 68% of all CSE spend in
Amazon Product Ads Connexity eBay Commerce Network Other
Q1, nearly identical to its spend share in
75%
68% Q4. Connexity also saw its share of spend
remain stable from Q4 to Q1. That could
change soon, as the ECN is set to stop
50%
showing product ads on eBay.com in May
this year. This move is similar to Amazon
28%
25%
sunsetting its Product Ads in Q4 2015, as
eBay and Amazon both seem focused on
keeping shoppers on their own domains.
3%
0%

Q4 Q1 Q2 Q3 Q4 Q1
2016 2017

ECN Revenue Growth Flat as Connexity Continues Decline

CSE Revenue Growth Y/Y Revenue from Connexity ads fell 29% Y/Y
Q1 2017 in Q1, a slight improvement from a 30%
+10% decline in Q4, but the third straight quarterly
Y/Y revenue decline for advertisers using
+1%
Connexity Connexity. Advertiser revenue from the
eBay Commerce Network eBay Commerce Network grew just 1%
Y/Y in Q1 after growing 30% in Q4, and
–10% revenue growth might further decelerate
in Q2 when eBay.com stops showing ECN
product ads.
–20%

–29%

–30%

Connexity and ECN CPCs Continue to Trail Those of Smaller CSEs

CSE CPC by Engine Average CPC for both the eBay Commerce
Q1 2016 Q1 2017 Network and Connexity declined by over
30% Y/Y in Q1, while the average CPC of all
75¢
smaller comparison shopping engines such
62¢
as Polyvore rose 11%. The two largest CSEs
56¢
have seen CPC remain flat or decline Y/Y
50¢
every quarter going back to Q2 2015. With
the elimination of typically well-performing
30¢
traffic from eBay.com in May, advertisers
25¢ 21¢
17¢ may have to lower ECN bids in Q2 to retain
12¢ the same return on ad spend.

Connexity eBay Commerce Network Other

MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 27

CSEs Continue to Lag Search in Mobile Traffic Share

CSE Traffic Share by Device Phones and tablets accounted for just 9%
of all CSE traffic in Q1, a decline from the
14% share observed in Q4. By comparison,
Phone & Tablet phones and tablets account for over half of
Phone & Tablet Desktop
9% all paid search clicks and an even greater
share of Google Product Listing Ads traffic.
Smaller CSEs have a much higher share
of traffic coming from mobile, with 47% of
all non-Connexity/ECN traffic coming from
Desktop
91% phones and tablets.

Amazon Sponsored Product Ads Spend in Line with Google Shopping Q/Q
Q/Q Change in Spend Q1 2017 The median advertiser spent 25% less on
Median Advertiser Amazon Sponsored Product Ads in Q1
compared to Q4, while Google Shopping
Google Shopping (PLAs) Amazon Sponsored Products
spend declined 29%. This indicates that
seasonal product search trends are similar
for both Amazon and Google. Advertisers
–10%
are increasingly adopting Sponsored
Products ads to garner more attention and
orders in the Amazon marketplace.
–20%
–25%

–29%
–30%

Advertisers Find CSE Spend Share Differs by Product Category

CSE Spend Share by Product Category While the eBay Commerce Network
Q1 2017 accounts for the vast majority of all CSE
spend, Connexity is more competitive in
100% Connexity eBay Commerce Network Other
88%
93% some product categories, such as apparel
and accessories, which has identical spend
75% 76%
share across the two major CSEs. Still, in
59% categories like arts and entertainment and
49% 49% home and garden, the ECN is even more
41%
dominant than its overall spend share.
25% 24%

12%
7%
2% 0% 0% 0% 0% 0%

Apparel & Automotive Home & Health & Consumer Arts &
Accessories Garden Beauty Electronics Entertainment
MERKLE DIGITAL MARKETING REPORT Q1 2017 EXEC SUMMARY PAID SEARCH SEO & SOCIAL DISPLAY & PAID SOCIAL CSE 28

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 25 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. When combined with its strength in performance creative and
media, Merkle creates customer experiences that drive improved marketing results and shareholder
value. M1, Merkle’s end-to-end, people-based insights, planning and activation platform, enables clients
to target known individuals and reach them across media and channels, throughout the customer
life cycle. With more than 4,100 employees, Merkle is headquartered in Columbia, Maryland with 16
additional offices in the US and 8 offices in Europe and Asia. In 2016, the agency joined the Dentsu
Aegis Network. For more information, contact Merkle at 1-877-9-Merkle or visit www.merkleinc.com.

CONNECT WITH US
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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.