November 24, 2013 8:01 pm

Google criticised as product listing adverts push up prices

The name Google picked for its first foray into online shopping spoke volumes about its intentions: Froogle.

Users could look at a selection of items based on price or other factors. The search company made a virtue of the fact that, unlike rival comparison shopping engines, merchants couldn’t pay to have their products featured more prominently. Google’s algorithm was the ultimate shopper’s friend.

More

On this story

On this topic

IN Technology

Until now. These days, the Google algorithm that chooses which items to showcase when it thinks a searcher might be in a buying mood has a vested interest in the result.

Merchants bid in an auction to have their products showcased, competing to be among the five items at the top of search results, or eight in the case of some popular categories. The result, according to the company’s critics, means merchants who have paid the most to be put in front of customers in the Google Product Listing Ads have every incentive to try to make up for it by charging higher prices.

“The PLAs do a great job at pushing people to things that aren’t the cheapest,” said Ben Edelman, an associate professor at Harvard University and frequent Google critic. Based on an Financial Times analysis, shoppers who buy from the listings pay more than they need to about 85 per cent of the time.

To rub salt into the wound, shoppers who overpay could have found the same items for less on Google itself, simply by going to Google Shopping, a comparison product listing, and searching there. A link to Google Shopping appears at the top of the PLA panel. However, critics claim that most users do not know enough about Google’s services to understand this, and that the popularity of PLAs among merchants proves how effective they are at generating sales.

Google’s latest venture into shopping has also been hailed on Wall Street, where it is seen as a money-spinner and an important weapon in the company’s efforts to get consumers to buy things, not just use its services for product research.

“Google worries about sites like Amazon,” said Mark Mahaney, internet analyst at RBC Capital Markets.

Amazon also offers some merchants an edge over rivals, even in some cases when they aren’t offering the lowest prices. The box on Amazon.com that users go to when they are ready to buy often features a single “preferred” merchant, greatly raising the odds for that seller of closing a sale.

But there is a crucial difference to Google: Amazon says it selects the merchant based on factors such as price and availability, and sellers don’t pay to get the privileged position.

Whether the Google practice is unfair or not is a hotly debated topic, particularly as Europe closes in on a settlement of a four-year-old investigation into the company over practices like this that critics say harm consumers and squash competition.

According to Google, many issues other than price are at work as its algorithm selects the items to highlight at the top of its search pages. The availability of free shipping or a buyer’s preference for a particular merchant may also influence the results, along with the merchant’s quality ratings and how often other shoppers have clicked on the adverts or gone on to buy the products.

Yet critics argue that many shoppers don’t realise they are clicking on an advert that is designed, ultimately, to benefit the merchant rather than the shopper. The higher the price that merchants can recover, the more they are likely to bid to appear in the PLAs – and the higher the profits for Google.

A second frequent complaint is that Google has deliberately pushed rival shopping services out of its top search results so that consumers are less likely to see better prices that compete with its own adverts.

This has been part of the investigation in Brussels. Google maintains that its algorithms select what to show searchers based on their relevance and that it does not deliberately penalise rival services. A similar complaint was dismissed by the US Federal Trading Commission.

European regulators have persuaded Google to accept a compromise. Under the settlement being considered, rival shopping services would be able to bid for text ads that appear inside its product listing panels, giving them the chance to draw off buyers if they can show lower prices.

But critics claim this will do little to restore competition – or help consumers find better prices. Rivals’ services will have to pay to reach buyers and will have less attractive ways to show off their products or their best prices compared with Google advertisers, according to Gary Reback, a lawyer representing a number of Google rivals. As a result, Google has assured that the higher-priced goods will still win the lion’s share of the business, he said.

The deadline for comments on the European settlement is due on Monday.

Related Topics

Copyright The Financial Times Limited 2014. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in