Q2 2014

04 PAID SEARCH

03 ExECutIvE SummARy

15 ORGANIC SEARCH & SOCIAL

20 COmPARISON SHOPPING ENGINES

23 DISPLAy ADvERtISING

26 ABOut RKG & mEtHODOLOGy

tABLE OF CONtENtS

ExECutIvE SummARy

PAID SEARCH

• Googlepaidsearchspendinggrowthacceleratedto24%Y/YinQ2.Paidclicksrose13%,whileCPCsrose10%asadvertisersrespondedtoimprovingconversionperformance.

• BingAdssearchspendinggrew19%Y/YacrossBing,Yahooandtheirsearchpartners.Paidclicksrose22%,butCPCsfell3%duetoamixshifttomobile.

• AdvertiserspendingonGoogleProductListingAds(PLAs)andBingProductAdsrose72%Y/Y.Forretailers,PLAsproduced26%ofGooglesearchclicksoverall.

• Smartphonesgenerated19%ofpaidsearchclicksand9%ofsearchspend,whiletabletsproduced18%ofclicksand19%ofspend.Smartphoneclicksrose47%Y/Y,comparedtoa43%increasefortabletsanda2%declinefordesktop.

• Googleconversiontrackingdataandestimatesshowthatcross-devicetrackingsurfaces7%moreconversionsoveralland14%moresmartphoneconversionsthatwouldotherwisenotbeattributedtosearch.

ORGANIC SEARCH & SOCIAL

• Organicsearchproduced31%ofallsitevisitsinQ22014,whichwasdownfrom36%inthefirsthalfof2013.Asthemajorsearchengineswork tobettermonetize their listingswith largerandmoreappealingads,organicsearchvolumewillcontinuetogetsqueezedinfavorofpaid.

• Smartphonesandtabletsproducedacombined34%oforganicsearchvisits inQ2,upfrom31%inQ1.BothiPhoneandAndroidpickedupshare,whileiPadtrafficsharewasflat.

• Socialmediasitesproduced1.6%ofallsitesvisitsinQ2.Facebookcontinuestoleadthewaywith51%ofvisitsproducedbysocialmediasites,butitscontributionhasslippedasPinteresthasbecomealargertrafficsourceforretailsites.

• Mobiledevicesaccountedfor42%ofvisitsproducedbysocialmediainQ2.ThatwasuptwopercentagepointsfromQ1and17pointsfromayearearlier.

COmPARISON SHOPPING ENGINES

• TheeBayCommerceNetworkandPriceGrabberbothmadelargegainsinCSEspendsharecomparedtoayearearlierasallothermajorenginessawlosses.

• Among advertisers running both Amazon Product Ads and Google PLAs, revenue volume from Amazon’sprogramwasjust7%thatofPLAsinQ2,downfrom9%inQ1.

DISPLAy ADvERtISING

• ForadvertisersactivelyadvertisingontheGoogleDisplayNetwork(GDN)andrunningAdWordspaidsearchads,GDNaccountedfor6%oftotalGooglespending,thesamerateasthepreviousquarter.

PAID SEARCH

PAID SEARCH 5

total Paid Search Spending Growth Accelerates to 23% y/yAfter a slow start to the calendaryear, paid search spending growthaccelerated at the end of Q1 andremained elevated through Q2.Advertisers responded to improvingconversion performance by pushingCPCsup8%Y/Ytocaptureadditionalvolume. Paid search click growthimproved to 14% Y/Y from an 11%growthrateinthepriorquarter.

Overall U.S. Paid Search TrendsRelativetoQ22013

+45%

+30%

+15%

2013-Q2

–15%

BASELINE

ClicksAdSpend CPC

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

+8%

+14%

+23%

Google Paid Search Clicks up 13% y/y, CPC Growth Continues to RiseWhile advertisers are payingconsiderablylowerCPCsfortheirownbrand termsdue toGoogleAdRankchanges in2013, totalGooglesearchCPCs rose 10% Y/Y on the strengthofnon-brandtextadsandPLAs.Clickvolume improved 13% Y/Y resultingin 24%growth in ad spend.Thiswasanappreciableincreasefrom17%Y/YspendinggrowthinQ1.

Google Overall U.S. Paid Search TrendsRelativetoQ22013

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

+10%+13%

+24%

ClicksAdSpend CPC

+45%

+30%

+15%

2013-Q2

–15%

BASELINE

Bing Ads Delivers Big Increase in Click volume, But CPCs Slip y/yWhile Bing Ads was able to deliveran impressive 22% Y/Y increase inclicks, that additional volume mayhave come at the expense of trafficquality.Responding toa slightdip inconversion performance, advertisersbrought their CPCs down 3% fromayearearlier.Wemaybe seeing theeffectsofarelativeshifttomobile,aswedidseeBingAdsappeartomakestridesinthatarea.

Bing Ads Overall U.S. Paid Search TrendsRelativetoQ22013

–3%

+22%+19%

+40%

+20%

+10%

2013-Q2

–20%

BASELINE

–10%

+30%

–30%

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

ClicksAdSpend CPC

PAID SEARCH 6

PLA CPC Growth Helps Drive Google Non-Brand Spending up 29%WhileGooglenon-brandtextadCPCsrose 12% Y/Y, CPCs for PLAs rosenearly35%andhelpedpushtotalnon-brand spending up 29% Y/Y in Q2.GoogleadvertisershavebeenabletopushthegasonPLAsbecausetheROItherestillremainshigherthanthatfornon-brandtextads.

Google Non-Brand U.S. Paid Search TrendsRelativetoQ22013

+18%

+9%

+29%

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

+50%

+25%

2013-Q2BASELINE

–25% ClicksAdSpend CPC

Product Ads Still Producing Huge Growth with Spend up 72% y/yIncluding Google’s PLA format andthe Product Ad format that BingAds introduced in late 2013, searchadvertiser spending on image-basedproduct ads rose 72% Y/Y in Q2 ona28% increase inclick volumeanda35%increaseinCPC.Textadspendinggrowthtickedupfrom6%Y/YinQ1to11%inQ2.

Overall U.S. Paid Search Growth by FormatQ2 2014

AdSpend Clicks CPC

TextAdsPLAs/ProductAds60%

40%

20%

80%

0%

Bing Ads Non-Brand Spending Growth at 19%Although we didn’t see Bing Adsachievethesameyear-over-yearnon-brandspendinggrowthasGoogle inQ2, Bing Ads spend nearly reacheditsQ4levels.Non-brandclickvolumerose26%Y/Y,whileCPCs fell 6%.Asnoted above, this is indicative of agreatercontributionfrommobile.

Bing Non-Brand U.S. Paid Search TrendsRelativetoQ22013+40%

+20%

2013-Q2BASELINE

–20%

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

–6%

+26%+19%

ClicksAdSpend CPC–40%

72%

11%4%

28%

7%

35%

PAID SEARCH 7

PLA Click Share Flat from Quarter to QuarterFollowing a decent jump from Q4to Q1 as Google gave PLAs moreprominence by serving them abovethe organic listings more frequently,PLAclicksharewasflatfromQ1toQ2.ForretailersrunningbothtextadsandPLAs,PLAsgenerated26%ofGooglepaid search clicksoverall and50%ofnon-brandclicks.

PLA Share of Google Paid Search ClicksAggregateResults-U.S.Retail60%

40%

20%

0%2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

26%

50%Non-Brand

Overall

30%

50%

10%

Despite Large CPC Rise, PLA ROI Remains 13% Better than Comparable text AdsEven with CPCs running 35% higherthan a year earlier, advertiser ROIfrom PLAs was still 13% above thatfor comparablenon-brand textads inQ2.Although it is not a pure apples-to-apples comparison because ofdifferences in query mix, PLAs alsogeneratedclick-throughratesthatwere2.5X that for non-brand text ads andconversionratesthatwere37%higher.

PLA Performance vs Text AdsMedianSiteResults-U.S.Retail

CPC CTR ROI Conv.Rate AOV

+150%

+50%

TextAds

–100%

+100%

–50%

BASELINE

43%

1% 13%

149%

–65%

13%–26%

37%

–18% –15%

PLAsvsNon-BrandTextAdsPLAsvsOverallTextAds

PLA CPCs Slip Again Compared to text Ads, But Have Come a Long WayBeforeGooglecompleteditstransitiontothepaidGoogleShoppingmodel,wefoundPLACPCstorun23%lowerthan comparable text ads. That gapquickly narrowed and PLA CPCseventually overtook text ads in late2013. While PLA CPCs have slippedversus text ads following the Q4holiday season, that trend will likelyreverselaterthisyear.

Google PLA CPC vs Non-Brand Text AdsMedianSiteResults-U.S.Retail+10%

Non-BrandTextAds

-25%

BASELINE

+5%

-5%

-10%

-15%

-20%

1%

Q1 Q22013

Q3 Q4Q22012

Q3 Q4 Q12014

Q2

PAID SEARCH 8

PLA Click Share varies by 36% Across Retail Sub-IndustriesInQ2,weonceagain found that thecontribution of PLAs to click volumewasgreatestforConsumerElectronicsretailers where PLAs provided 65%of non-brand Google clicks. At thelow end, PLAs were 29% of non-brandHealth&Beautyclicks.Apparelretailersgenerated37%of theirnon-brandclicksfromPLAs.

PLA Share of Non-Brand Google Paid Search ClicksQ2 2014

MedianSiteResults-U.S.Retail

Flowers&Gifts

Cars&Auto

Health&Beauty

Apparel SportingGoods

Books Home&Garden

ConsumerElectronics

60%

40%

20%

0%

30%

50%

10%

70%

Bing Product Ads Edge up in volume and Spend ShareAmongsitesparticipatingintheBingProductAdsprogram,thenewformatproduced8%ofBingAdsnon-brandsearchclicksandspend.Thatwasjusta modest uptick from Q1 where thesame metrics were 7%. The revenuecontributionofProductAdsfellslightlyfromquartertoquarter.

Bing Ads — Product Ads Share of Non-BrandMedianSiteResults

AdSpend Clicks Revenue

2014-Q22014-Q12013-Q4

0%

5%

10%

15%

Bing Product Ads Produce 48% Higher Revenue Per Click than text AdsWhile Bing Product Ad CPCs ranslightly below those for non-brandtext ads, revenue per click was 48%higherinQ2.Forcomparison,GooglePLA revenue per click was just 17%higher than that for non-brand textads, suggesting that Bing Ads has abigopportunitytoexpandtheservingofProductAdstoabroaderrangeofqueries.

Bing Ads — Product Ads vs Non-Brand Text AdsQ2 2014

MedianSiteResults

CPC

RPC CTR

48%

-8%

19%+20%

+50%

TextAdsBASELINE

Non-Brand

+30%

+40%

+10%

8.3%

7.1%6.5%

5.9%7.1% 7.6%

8.3%

12.2%

10.3%

29% 30%33%

37%

44%48% 49%

65%

PAID SEARCH 9

Google Gains Spend Share, Bing Ads Gains on ClicksWefindGooglegainingroughlyhalfa percentage point of paid searchspend share from year to year inQ2. At the same time, Bing Adshasgainedalittleoveronepointofpaid search click share. As GooglePLA CPCs have caught up to andsurpassedtextadCPCs,Googlehasexhibited relative strength on thespendside.

Google Share of U.S. Paid Search2014-Q22013-Q2

81%

82%

83%

AdSpend Clicks

Google Commanding Higher Non-Brand CPCs Due to Advantage in Conversion RateIn Q2, the conversion rate for non-brand Google search ads was 52%higherthanthesamemetricforBingAds.Withaverageordervalueroughlyequal for the two engines, Googlecommanded 48% higher non-brandCPCsthanBing.ThecontributionofGoogle PLAs is a large factor hereas PLAs produced a 37% higherconversionratethantextads.

Non-Brand: Google Metrics vs Bing AdsQ2 2014

MedianSiteResults

+20%

+40%

+60%

+10%

+30%

+50%

CPC CTR ROI Conv.Rate AOVNon-Brand

BASELINE

BingAds

48%

8% 9%

52%

0.4%

Brand Ads Still Considerably Less Expensive on GoogleAlthough search ads formost sites’own brand terms are much lessexpensive than non-brand ads forboth engines, brand ads cost 34%lessperclickonGoogle inQ2 thanBing Ads. Google brand ads alsoproducedmuchhigherclick-throughrates, suggesting advertisers facegreatercompetitivepressurefortheirbrandonBingcomparedtoGoogle.

Brand: Google Metrics vs Bing AdsQ2 2014

MedianSiteResults

Non-BrandBASELINE

BingAds

+50%

+100%

+200%

+150%

—50%

CPC CTR ROI Conv.Rate AOV–34%

183%

93%

14% 4%

82.2%

82.8%82.6%

81.5%

PAID SEARCH 10

Google Search Partner Contribution On the DeclineWithitsQ2earningsreport,Googleis set to provide CPC and clickgrowth broken out by property forthe first time. Our results suggestthat Google’s search partnernetwork has slipped more on theCPCsidecomparedtoGoogle.comas its share of ad spend has fallennearly5%inthepastyear,while itsshareofclicksfelljust2%.

Google Search Partner ShareMedianSiteResults

2014-Q22013-Q2

AdSpendShareClickShare0%

5%

10%

15%

20%

18%17% 17%

12%

PLAs Not Well-monetized on Google Search Partner SitesWhile PLAs produced 26% of totalGoogle search clicks this pastquarter, they only produced 7% ofGoogle search partner clicks. Thatis up from providing nearly 0% ofpartnerclicksayearearlier,buttherelativelyslowmonetizationofPLAsonthepartnernetworkmayexplainalargepartofthedeclineinsearchpartnersharethatwesee.

PLA Share of Google Paid Search Clicks

22%

0%

10%

20%

30% 2014-Q22013-Q2

SearchPartners GoogleOverall

26%

7%

0.1%

Search Partner Conversion Rates About Half that of Google.comAlthough we’ve seen someimprovement in the conversionrates produced by Google searchpartners in the past year, partnerconversion rate still ran47%belowthatofGoogle.comtraffic,accordingtoGoogleconversiontrackingdata.Advertisers have limited abilityto account for this performancedifference beyond turning partnertrafficcompletelyoff.

Google Search Partner Conversion Ratevs Google.com

MedianSiteResults

2014-Q22013-Q2Google.com

–20%

–10%

BASELINE

–52%–47%–40%

–30%

–60%

–50%

PAID SEARCH 11

Smartphones and tablets Combine for 37% of Paid Search ClicksAt 37%, mobile traffic share wasup one percentage point from Q1.Smartphonesprovidedthebulkofthatliftastablettrafficsharewasessentiallyflatat18%.WhilewesawlargermobilegainsforBingAds,thosewerewashedoutbyGoogle’smuchgreatervolume.

Mobile Share of Paid Search Clicks

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q22012-Q4

Tablet Smartphone

10%

13%14%

16%16%

18% 18%

9%12%

14% 14%16%

18% 19%

0%

10%

20%

40%

30%

mobile’s Share of Bing Ads Clicks Jumps 8% from Quarter to QuarterWhilemobile’sshareofGoogletrafficwas roughly flat from Q1 to Q2 at38%,wesawasurprisinglylargejumpin mobile’s contribution to Bing Adstraffic. In Q1 we found that mobileproduced 25% of Bing Ads clicks,butthatfigureroseto33%inQ2.Wecannot conclusively explain the rapidincrease, but itmay reflect increasedbroad matching on mobile andgreater adoption of Bing’s EnhancedCampaignsfunctionality.

Mobile Click Share by Engine

0%

10%

20%

40%

30%

Google BingAds

Combined Smartphone Tablet

mobile Share of Paid Search Spend Reaches 28%Althoughtheygeneratedahighershareof clicks than tablets, smartphonesproducedlessthanhalfthespendthattabletsdid in the secondquarterdueto smartphone’s poorer conversionperformance.InQ2,9%ofpaidsearchspendwenttosmartphonetraffic,while19%ofspendingwenttotablettraffic.

Mobile Share of Paid Search Ad Spend

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q22012-Q40%

10%

20%

30% Tablet Smartphone

10%

5%

37.5%

32.7%

19.1%16.3%

18.4%16.5%

14%

15% 17%18%

20% 19%

7%9%

6% 7% 7%9%

15.5%

21.5%24.1% 23.9%

25.2%26.9% 27.7%

19.5%

25.1%27.9%

29.6%32.5%

35.5% 36.5%

PAID SEARCH 12

Desktop traffic Click volume Down 2%, Despite Aggressive CPC IncreasesReflecting improvement in the valueproducedbydesktoptraffic,advertiserspushed CPCs up 16% Y/Y in Q2.However,desktopclickvolumestill fell2%Y/Y.SmartphoneCPCsweredown12% Y/Y, but click volume rose 47%.SmartphoneCPCgrowthislikelytoturnpositiveinQ3aswepasstheanniversaryoftheEnhancedCampaignstransition,whenmany advertisers opted to raisetheirROItargetsforsmartphonetraffic.

Year-Over-Year Growth by Device Class

AdSpend Clicks CPC

Smartphone

Desktop

Tablet

14%

30%

56%

47%43%

–2%

16%

–12%

9%

20%

0%

–20%

40%

60%

tablet Revenue Per Click Continues to Slide, Now at 77% of Desktop LevelsAlthough tablets are grouped withdesktop under Google’s EnhancedCampaign model, their conversionperformance has not been as strongfor a number of quarters and thatgap has only widened. Bing Adsrecentlyannouncedthattheywillalsogrouptabletswithdesktop,butallowadvertisers tobid tabletsdownbyasmuch as 20%. These results suggestthatthisrangewillnotbesufficientformanysites.

Revenue Per Click vs Desktop120%

60%

40%

20%

80%

100%

0%

77%

34%

Desktop

TabletSmartphone

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

Smartphone CPCs Reverse Declines Compared to DesktopFollowing three quarters of declinesrelativetodesktop,smartphoneCPCsedged back up in Q2 coming in at41% of desktop levels. Smartphonerevenueperclickhasbeenimprovingand more advertisers have beenincorporating Google’s cross-devicetracking insights into theirROI targetconsiderations.

Google Mobile CPC vs Desktop120%

60%

40%

20%

80%

100%

0%

93%

41%

Desktop

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

TabletSmartphone

PAID SEARCH 13

Old Browser versions yield Poor PerformanceWhile Google will take into account thetypeofbrowserasearcheruses insomeof the automated bidding adjustmentsadvertisers can allow Google to makefor them, Google has not provided amechanism for advertisers to do thisthemselves. That is unfortunate sincebrowserversioncanbehighlypredictiveofconversionperformance,withSafari7usersproducing a 96% higher than averagerevenueperclickandusersofoldversionsof Firefox producing a 60% lower thanaverageRPC.

Revenue Per Click by Desktop Browservs Overall Average

OtherChrome

Chrome34

Chrome35

OtherFire

fox

Firefox28

Firefox29

OtherM

SIE

MSIE9

MSIE10

OtherSafari

Safari6

Safari7

OtherBrowsers

15% 4% –60% 14% 18%–39% –11% –6%0.6% 0.5%

22%

82%

96%

–75%

+100%

+50%

–25%

+25%

+75%

AverageBASELINE

Overall

–50%

iPad tablet traffic Share at 79%, Windows tablets Reach 7%We find the iPad losing about sixpercentage points of tablet trafficshare over the past year, with mostof those losses going to touch-compatible Windows computers.The latter group of devices includesMicrosoft’sSurface,butalsoanumberof computers that may be bettergrouped with traditional laptops intheirformandfunction.

Share of Tablet Paid Search ClicksOtherTablets

75%

50%

25%

0%

100%

iPad OtherTablets

4%

3%

2%

0%

5%

1%

WindowsTablet

OtherAndroid

Kindle GalaxyTablet

NexusTablet

6%

7% 2014-Q22014-Q1

2013-Q32013-Q22013-Q1

2013-Q4

Android tablets Weighing Down tablet Revenue Per ClickWhileiPadtrafficgeneratesarevenueper click that is about 10% lowerthan that from desktop and laptopcomputers, the best performingAndroid tablet produces a revenueper click that is only half that seenfromthedesktopgroup.Theseresultsdemonstratethatusercontextbeyondthe threemaindevicecategoriescangreatlyshiftperformance.

Revenue Per Click by Device vs DesktopQ2 2014

100%

80%

60%

20%

0%

40%

120%

Desktop

WindowsTablet

Desktop iPad NexusTablet

OtherAndroidTablets

OtherTablets

iPhoneKindleFire

AndroidPhone

WindowsPhone

116%

100%92%

50%45% 42% 41%

31% 28%

6%

PAID SEARCH 14

Smartphones Produce 25% of Cross-Device Conversions, 12% of traditionally tracked ConversionsAccording to Google conversiontracking and estimates, smartphonescontributed 12% of the conversionsthat took place on the same deviceas the ad clicks that led to them.Among thepoolof additionalorderssurfaced from cross-device tracking,smartphones contributed nearly 25%oforders.

Share of Cross-Device Conversions

Share of Single-Device Conversions

Desktop

72%

Tablet

15%

Smartphone

12%

Desktop

59%Tablet

16%

Smartphone

25%

Cross-Device tracking Surfaces 7% more Orders Overall, 14% more Smartphone OrdersIn anticipating the impact Google’scross-deviceestimatesmayultimatelyhave on advertiser spending,we seethatcross-devicetrackingsurfaces7%more orders overall, but 14% moresmartphone orders. That will not benearlyenoughtocompletelyclosethegap in CPCs between smartphonesanddesktop,butmoreadvertisersaretaking these figures into account insettingsmartphoneROItargets.

Lift in Conversions from Including Cross-Device16%

4%

8%

12%

0%Total Desktop Tablet Smartphone

7%6%

7%

14%

Not Provided Stable at Nearly 80% of AdWords ClicksThe day after Google announced itwouldstoppassingsearchqueriestoadvertisers via referrer, Not ProvidedshareofGooglepaidsearchjumpedto45%.WesawanotherlargeincreaseinNotProvidedsharealittleoveraweeklater and it has remained at a littlebelow80%sincethen.AdvertiserscanstillgaininsightsintouserqueriesviaGoogle’ssearchtermsreport.

Not Provided Share of Google AdWordsPaid Search Traffic100%

50%

75%

0%

78%

April

25%

May June July2014 2014 2014 2014

ORGANIC SEARCH & SOCIAL

ORGANIC SEARCH & SOCIAL 16

Organic traffic Share Down as more Clicks Become PaidAlthough the share of all site visitsgeneratedbyorganicsearchhasheldsteadyat31%forthreequarters,thatisdownappreciably fromanaverageof36%forthefirsthalfof2013.Asthemajor search engines work to bettermonetizetheirlistingswithlargerandmore appealing ads, organic searchvolumewillcontinuetogetsqueezedinfavorofpaid.

Organic SearchShare of All U.S. Site Visits

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

31%30%

20%

10%

40%

50%

0%

Bing Slowly Gaining Search Share at the Expense of Smaller EnginesOverthepastyear,wehaveseenBing’sshareoforganicsearchvisitsincreasefrom8% inQ22013 tonearly10% inQ2 2014. These gains have come atthe expense of second-tier searchengines, as well as Google. Notethatthesefiguresrepresentsitevisits,so any shifts in SERP monetizationmay exaggerate or understate theunderlyingtrendsinrawsearchqueryvolume.

U.S. Organic Search Visit Share by EngineOtherEngines

Google OtherEngines

Bing Yahoo Other

10%

8%

6%

12%

0%

4%

2%

60%

40%

20%

80%

100%

0%

2014-Q22014-Q1

2013-Q32013-Q22013-Q1

2013-Q4

Google Owns u.S. mobile Search with 88% Share, But yahoo Edging upIn Q2 2014, 88% of mobile organicsearch visits were produced byGoogle, compared to 81% across alldevices. Yahoo has seen its share ofmobile organic tick up though, from7% in Q2 last year to nearly 8% thisyear.Binghasmadesmallergainsoverthe same time period and remainsa distant third, producing just 4% ofmobileorganicsearchvisits.

Share of U.S. Mobile Organic Search by EngineQ2 2014

Google

Yahoo

Bing

88%

8%

4%

ORGANIC SEARCH & SOCIAL 17

2014-Q12013-Q2 2013-Q3 2013-Q4 2014-Q2

tablets and Smartphones Account for 34% of Organic Search in Q2OnthegrowthofiPhoneandAndroidtraffic,mobileshareoforganicsearchrose from 31% in Q1 to nearly 34%in Q2. Both device groups saw theirsharerise1.3percentagepointsfromQ1toQ2withtheiPhoneaccountingfor 12% of visits in Q2 and Androiddevices accounting for 10%. iPadtrafficsharewasflatatalittleover11%inQ1andQ2.

Mobile Share of U.S. Organic Search VisitsAndroid iPhoneiPad Other35%

20%

10%

0%

30%

25%

15%

5%

12%

11%

10%

Organic Search visits Fall year-Over-year Despite mobile GrowthMobile search visits were up 18%year-over-yearinQ2,butthatwasnotenough to offset desktop declines,andtotalorganicsearchvisitsfell7%.The overall decline is indicative ofa shift from organic to paid search,where growth has been robust andevenaccelerating.

Y/Y Growth in Organic Search VisitsQ2 2014

Mobile Overall

5%

0%

–5%

10%

–10%

15%

20%

18%

–7%

Bing Not Keeping Pace in Organic mobile visitsGoogle and Yahoo were neck andneck in the sharemobilecontributedtoeachengine’sorganic searchvisitsin Q2, while Bing remained wellbehind both. In Q2, 37% of Yahooorganic search visits were mobile,up 10percentagepoints froma yearearlier. For Google, 36% of organicsearch visits were mobile, which wasup7points.Bingsaw17%ofitsvisitsfrommobileinQ22014,whichwasjusta4pointincreasefromayearearlier.

Share of Each Engine’s Traffic from MobileGoogle Yahoo Bing

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

30%

20%

10%

40%

0%

28%29%

31% 31%33%

36%

23%

27%

31% 30%

37% 37%

8%

13%

16%14%

16%17%

ORGANIC SEARCH & SOCIAL 18

Not Provided visit Share Reaches 90%TheshareofGoogleorganicsearchesthatdidnotpassqueriestositeownersshot up from 40% to 80% over just a10 week period last year. Since then,tracking the subsequent rise in NotProvided share has been more of acuriosity than anything, but we finallysawitreach90%attheendofQ2.Aswe’venotedbefore,queriesstillbeingpassedareskewedtowardscertainwebbrowsers and likely do not representtotalGooglequeriesverywell.

Not Provided Share ofGoogle Organic Search Traffic

90%

Q1Q2

2013Q3 Q4

Q1 Q2

2012Q3 Q4

Q1

2014Q2

75%

50%

25%

0%

100%

yahoo Not Provided Share Hovering Just Above 40%Speakingofcuriosities,itisinterestingtoseethatYahoo’sNotProvidedshare,asrecordedbyGoogleAnalytics,hasstayedonly justabove40%since theenginemovedtosecuresearchearlierthis year. Given that all searches onYahoo.comshouldbesecureandnotpass queries, we would expect thefiguretorunmuchhigher.

Not Provided Share ofYahoo Organic Search Traffic

30%

0%

50%

41%40%

20%

10%

2014

Mar30

Apr6

Apr13

Apr20

Apr27

May4

May11

May18

May25

Jun1

Jun8

Jun15

Jun22

ORGANIC SEARCH & SOCIAL 19

mobile Devices Produce 42% of Social media visitsOutpacing the trends we see forsearch,mobile accounted for 42%ofsite visits produced by social media.That is up two percentage pointsfrom the previous quarter and 17percentagepointsfromayearearlier.

Mobile Share of Social Media Visits

42%

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

30%

0%

50%

40%

20%

10%

Social media Sites Produce 1.6% of Site visits on AverageIn what may be a reflection of thedecline in organic Facebook reachmany site owners are witnessing,averagevisit share fromsocialmediasites,includingearnedandpaidtraffic,roseonlyslightlyinQ22014comparedtoayearearlierandfellfromQ1toQ2.Althoughasmallcontributortotrafficonaverage,socialmedia’simportanceisvariablefromsitetosite,withsomeseeingnearlyaquarterof their trafficfromthechannel.

Social Media Share of All Site Visits

1.5%

1.0%

0.5%

0%

2.0%

2014-Q12013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q2

1.4%1.5%

1.6% 1.6%

1.8%

1.6%

Facebook Share of Social media visits Slips to 51%With Pinterest referrals growingrapidly, particularly for retailers,and among reports of decliningorganic reach, Facebook is a smallercontributor to social media referralsthisyearthanlastfortheaveragesite.InQ2 2013 Facebook produced 57%of visits from social media sites. InQ22014thatratehasslippedto51%.Pinterestaccounted for21%ofsocialvisits on average, but its share wasmuchsmallerformanysites.

Share of Social Media Visits

Facebook Pinterest Reddit Twitter YouTube Google+ LinkedIn Other

40%

20%

0%

60%

2014-Q22013-Q257%

51%

13%

21%23%

19%

2% 3% 2% 3% 1.5% 1% 1% 1% 0.5% 0.1%

COMPARISON SHOPPING ENGINES

COMPARISON SHOPPING ENGINES 21

eBay Commerce Network up Big year-Over-yearSame site revenue on the eBayCommerceNetworkwasup69%year-over-year,faroutpacingallotherCSEs.Nextag and Shopzilla continue tostruggletobringreturnsforadvertisersas same site revenuedecreased 62%and35%,respectively.

Same Site Revenue GrowthY/Y Q280%

40%

0%

–80%

–40%

AmazonProductAds

NexTag eBayCommerceNetwork

Shopzilla-Bizrate

PriceGrabber

22%

–62%

15%

69%

–35%

Amazon Spend Share Down as Advertisers Pushed OutShare of total CSE spend going toAmazondropped from17% inQ2oflastyearto9%inQ2of2014aslargeadvertisersweremovedoutofAmazonProduct Ads by Amazon, ostensiblyto move them into the AmazonMarketplace.WithNextagalsodownsignificantly inspendshareyear-over-year as a result of poor returns foradvertisers, eBay and PriceGrabberhaveseenhugegains inspendshareyear-over-year.

Ad Spend Share by Engine

15%

0%

35%

20%

10%

5%

25%

30%

AmazonProductAds

NexTag Other PriceGrabber eBayCommerceNetwork

Shopzilla-Bizrate

2014-Q22013-Q2

17%15%

5%

15%

21%

28%

9%

2%4%

33%31%

20%

Amazon Product Ad CPC up 34% year-Over-yearAverage CPC for Amazon ProductAds was up significantly year-over-year in Q2, marking the largest Y/YquarterlyincreaseinCPCamongCSEsfor the second straight quarter. eBayCommerceNetworkCPCcontinuestohold steady as their flexible biddingoptionsallowadvertisersmoreabilitytocontrolCPC.

CPC by Engine

AmazonProductAds

NexTag Other PriceGrabber eBayCommerceNetwork

Shopzilla-Bizrate

$0.30

$0.00

$0.70

$0.40

$0.20

$0.10

$0.50

$0.60

2014-Q22013-Q2

$0.47

$0.63

$0.40

$0.49

$0.35 $0.36$0.32

$0.39 $0.39 $0.40

$0.48$0.53

COMPARISON SHOPPING ENGINES 22

Google&BingProductAd

CSEs Offer Advertisers Great ReturnsAcross all Comparison ShoppingEngines, ROI was 26% higher thanthatofGoogleandBingproductadsinQ2. This is partly the result of theinefficienciesinherentintheratecardsystem of some CSEs, under whichpoorly performing products must befiltered out of the product feed asopposed to simply being bid downlikesearchengineproductadtargets.

CSE vs Search Engine Product Ad ROI

60%

0%

140%

80%

40%

20%

100%

120%

Google&BingProductAd

CSE

+26%

GooglePLA

Q2 PLA CPCs Once Again Higher than Amazon Product AdsAverage CPC for Amazon ProductAds was 20% lower than that ofGoogle Product Listing Ads in Q2after being 31% higher in Q1, whenadvertisersbidPLAsdownasaresultof decreasing demand following theholidays while Amazon’s rate cardremainedunchanged.IntermsofCPCcomparison,Q2 wasmuchmore likeQ4, when CPCs for Amazon ProductAdswere18%lowerthanthatofPLAs.

Amazon Product Ads vs Google PLA CPC

60%

0%

80%

40%

20%

100%

120%

GooglePLA

AmazonProductAd

–20%

Google PLAs Continue to Grow Relative to Amazon Product AdsAmong those participating in bothprograms,advertisershaveconsistentlyproduced much more revenue fromGoogle PLAs than Amazon ProductAds, and the difference continues togrow.AmazonProductAdsaccountedfor7%asmuchrevenueasGooglePLAsinQ2of2014,downfrom9%inQ1and11%inQ4of2013.

Amazon Product Ads vs Google PLA Revenue

2014-Q12013-Q4 2014-Q2

+6%

+8%

+4%

+2%

+10%

+12%

11%

9%

7%

GooglePLABASELINE

DISPLAY ADVERTISING

DISPLAY ADVERTISING 24

2014-Q1

FBx Ad Spend and CPC up Significantly in Q2Advertisers increased their total FBXinvestment 72% Q/Q following aslowerQ1inwhichadvertisersscaledbackfollowingtheholidayseason.Theincreased investment has been usedto increase visibility for ad formatsalready in use as well as to try outformats new to the advertisers. WemaycontinuetoseeCPCincreaseasthe larger righthandrailadsrecentlyrolled out for FBX result in less realestateandmorecompetition.

Facebook Exchange Ad Spend & CPC Q/Q2014-Q1 2014-Q2

AdSpend CPC

200%

100%

150%

0%

50%

+72%

+20%

FBx CPC up Q/Q Relative to Other Display AdvertisingWhileFBXCPCremainslowerthanthatfor other display ads, the differenceis shrinking, as FBX clicks were just24%cheaperinQ2comparedto33%cheaper in Q1. Revenue per clickremainsnearlyequalbetweenthetwo,though FBX measured a hair higherthan other display in Q2 after beingslightlylowerinQ1.

Facebook Exchange vs Other Display

RevenuePerClick

–10%

–25%

–5%

–15%

–20%

+5%

CPCDisplay

BASELINE

Overall +2%

–24%

FBx Continues to Have Higher CR, Lower AOv than Other DisplayWhile FBX ads continue to convertat higher rates with smaller ordervalues than other display ads, thegapbetweenthetwoforbothmetricsseemstobeclosingasthedifferenceineachisameager6%.Thisconvergencemay be a natural result of consumerbehavioronsocialnetworksbecomingmorelikethatonthewebasawhole.

Facebook Exchange vs Other Display

–10%

–5%

+5%

+10%

ConversionRate AOVDisplay

BASELINE

Overall

+6%

–5%

DISPLAY ADVERTISING 25

Retargeting Strategy Far more Common Among Display AdvertisersBetween those advertisers pursuinga mixed strategy of prospectingand retargeting and those who areretargeting only, 94% of displayadvertisersincluderetargetingintheiradstrategy.Theshareofprospectingonly advertisers has dropped to 6%,downfrom10%inQ1and12%inQ4oflastyear,asmoreadvertisersseektotakeadvantageofthetypicallyhigherROI and customer retentionqualitiesofretargeting.

Percentage of RKG Clients’ Display Goals

Prospect&Retargeting

RetargetingOnlyProspectingOnly

67%6%

28%

GDN Remains Small Part of total Google InvestmentGoogle text ad and PLA spendcontinued to dwarf Google DisplayNetwork spend, accounting for 94%oftotalGoogleinvestmentinQ2,thesameasQ1.WhileGoogledoes notreveal the share of ad revenue thatis generated from the GDN, theseresultssuggestthatthepercentageisfairlysmall.

Share of Total Google Spend

GoogleTextAd&PLASpend GDNSpend

100%

50%

75%

0%

25%

94%

6%

Placements&Retargeting

Placements & Retargeting Remain Primary Investment on GDN Advertisers continue to invest moreheavily in Google Display Networkplacementandretargetingcampaignsthan contextual campaigns, as thegap between spend and CPC levelsbetween the two only grew larger inQ2.Contextualspendwas15%thatofplacement and retargeting spend inQ2,comparedto27%inQ1.

GDN Placements & Retargeting vs Contextual

Spend CPC

Placements&Retargeting Contextual

60%

0%

80%

40%

20%

100%

120%

–85%

–60%

Founded in2003,RKG isasearchanddigitalmarketingagency thatcombinessuperiormarketingtalentwithworld-classdigitalmediacapabilities tocreate the industry’smosteffectivedata-drivendigitalmarketingsolutions.RKGdrivesbusinesstoclientsbymaximizingafullrangeofopportunitiesincludingpaid search, SEO, product listing ads, socialmedia, display advertising and comparisonshoppingenginemanagementservices.In2014,RKGbecameapartofMerkle,creatingthelargestindependent search agency. RKG is headquartered inCharlottesville, VAwith offices in Bend,ORandBoston,MA.Formoreinformationvisitwww.rimmkaufman.comorfollowthecompanyonTwitter@rimmkaufman.

ABOut RKG, A mERKLE COmPANy

info@rimmkaufman.com

@rimmkaufman

rimmkaufman.com

rkgblog.com

mEtHODOLOGyFigures are derived from samples of RKG clients who have workedwith RKG for each respectivemarketing channel. Where applicable, these samples are restricted to those clients who 1) havemaintainedactiveprogramswithRKGforatleast19months,2)havenotsignificantlychangedtheirstrategicobjectivesorproductofferings,and3)meetaminimumadspendthreshold.Alltrendedfigurespresentedinthisreportrepresentsame-sitechangesoverthegiventimeperiod.Unlessotherwisespecified,thedatapointsinthisreportarederivedfromtheNorthAmericanmarketregion.

Merkle,atechnologyenabled,datadrivencustomerrelationshipmarketing(CRM)firm,isthenation’slargestprivately-heldagency.Formorethan25years,Fortune1000companiesandleadingnonprofitorganizations have partnered with Merkle to maximize the value of their customer portfolios. Bycombining a complete range of marketing, technical, analytical and creative disciplines, Merkleworkswithclientstodesign,executeandevaluateconnectedCRMprograms.Withmorethan2,100employees, theprivatelyheldcorporation isheadquartered inColumbia,Marylandwithadditionaloffices in Boston; Chicago; Denver; Hagerstown; Little Rock; London;Minneapolis;Montvale, NJ;Nanjing;NewYork;Philadelphia;Pittsburgh;SanFranciscoandShanghai.Formoreinformation,contactMerkleat1-877-9-Merkle,visitwww.merkleinc.comorfollowthecompanyonTwitter@MerkleCRM.

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