Google Change on Trademarks is Bound to Drive CPC in Europe

Google has relaxed its rules on trademarked brands and terms in Europe in mid-September. Despite protests from international advertisers, we believe the move is bound to boost the amount spent on Google's paid search service in the short term. The long term effect may not be that strong, judging by UK precedents.

Since September 14, Google has stopped prohibiting bidding on keywords associated with third-party brands in continental Europe. Third-party bidding has already been allowed since 2008 in the UK and Ireland, and since 2004 in the US. In the British Isles, Google goes one step further in relaxing its trademark policy than in continental Europe: it now allows the use of trademarked terms in the ad copy. This was already possible in the US since 2009.

Google claims the move will make its search experience more efficient for users but advertisers and brand owners are publicly opposing the move. The World Federation of Advertisers (WFA), the British Association of Advertisers (ISBA) and the French 'Union des Annonceurs' (UDA) have all described the change as 'unilateral' and 'unhelpful'. UDA said Google is breaking a 'good practice' agreement, made with French advertisers in 2005.

Analysis
The frustration of many big advertisers will have little effect on Google's decision to align European trademark practices with North America.

One reason is that Google's near monopoly in paid search almost everywhere in Europe makes the service indispensable to marketing directors, whether they like it or not. Yahoo and Bing are still some way from providing the scale big brands seek when it comes to Search Engine Marketing (SEM) strategies. Google holds a market share that is between 85 and 98 per cent in almost every market (Russia being the only major exception). There is thus little risk that even a controversial decision from Google would trigger any significant SEM market share switch for the time being.

The second reason - which probably triggered the change in the first place - is the decision from the European Court of Justice (ECJ) earlier this year. In March 2010, the ECJ ruled against LVMH, the French luxury group, who was suing Google for letting online sellers of counterfeit goods use some of their trademarked brands such as Louis Vuitton as keywords. The court ruled that Google could not be held responsible for trademark infringement in such cases. Google is now confident that it is legally safe to stop monitoring bidding of third-party trademarks in Europe.

In the short term the move is therefore likely to increase the amount spent on Google AdWords in Europe. Big advertisers will feel more compelled to bid on their own brands to - sometimes pre-emptively - outbid competitive brands or retailers willing to make aggressive or opportunistic use of their brands. This is bound to generate inflation in cost-per-clicks (CPC) for brand names. Brand names, however, account for a relatively small proportion of paid search spending as big advertisers normally concentrate their bidding on generic terms, as natural search results normally guarantee high visibility.

Over time, however, search buyers believe the inflation will remain under control as the quality score (relevance index) will benefit genuine brand owners and help them keep prominent rankings at an acceptable cost. When third-party brand bidding was allowed by Google in the UK and Ireland in 2008, the change did not trigger a bidding war. After some initial rise, the volume of aggressive bidding went down to a relatively low noise level as big brands seem to apply tacit non-aggression. However we believe the mere possibility of aggressive bidding, possibly from outside the club of big mainstream brands, will permanently remain as a factor driving major advertisers to bid on their own brands, and bid more that would otherwise need to.

With this latest move, Google is making itself yet again more useful to users and indispensable for marketers, increasing its attractiveness and, potentially, its market share over competitors. Once again it comes at the risk of increasing big brand owners' exasperation. However, Google does not need to worry too much about big brands as the long tail of small and medium businesses at national and local levels is now far bigger than the spending of major international advertisers.