03 Executive Summary 06 Paid Search 17 Organic Search & Social 21 Display & Paid Social 25 Amazon Adsexecutive summary Q1 2019 Paid search spending growth slowed for the fifth straight quarter, as Google spend growth decelerated to 16% Y/Y and spend across Bing and Yahoo declined 3% Y/Y. Googles spend growth deceleration has coincided with slowing growth in cost per click (CPC), but an acceleration in click growth since Q2 2018 has helped keep spend growth strong. Google Shopping was once again the primary driver of that click growth, as spend for the format increased more than 40% Y/Y for the second straight quarter after growth had recently slipped to as low as 31% in Q2 2018. Shoppings renewed growth has seemingly come from Google efforts to place the format in more auctions as Shopping ad impression growth has exploded, especially on phones. But while Google Shopping click and spend growth has surged, text ads are headed in the opposite direction, with a 12% decline in ad spend Y/Y in Q1 2019. For industries where Shopping ads are not relevant, text ad spending growth was stronger, but still primarily driven by CPC increases. Taken together, the Shopping and text ad trends seem to indicate Google is prioritizing Google Shopping ads in some situations that would have previously featured text ads. Furthermore, Shopping units are cannibalizing traffic that might have previously gone to those text ads. Part of the expansion of Shopping can be attributed to the growth in variations of the ad format, such as Showcase Shopping Ads and Local Inventory Ads, which are aimed at providing relevant Shopping ads for users across a wider variety of searches. Showcase Shopping Ads grew from 3% of Shopping clicks in Q1 2018 to 8% in Q1 2019, for participating advertisers, with Showcase ad units showing for queries that were, on average, 19% shorter than those queries triggering traditional Shopping ads. One update that had the potential to slow Google Shopping growth was the January announcement that Yahoo would no longer show ads from its Gemini platform or Google Ads in its results and would instead draw solely from Bing Ads inventory. However, the transition over to Bing Ads didnt begin until mid-March, limiting the impact to this quarters numbers. The Search Network, through which Google was serving ads on Y ahoo, accounted for only 6% of Google Shopping traffic, with Y ahoos share an unknown fraction of that, indicating the full impact will be relatively minor for Google. Bing Ads should see a boost in ad click growth in Q2 2019 from the new inventory.Another recent announcement that stands to impact Googles ad business is the release of Apple ITP 2.1 in March, which further restricted the use of cookie tracking for Safari browser users. While the extent of the impact to Googles audience targeting is difficult to precisely quantify, the share of Google ad traffic attributed to cookie-based remarketing lists for search ads (RLSAs) has declined in the two quarters since Apple released ITP 2.0. Similar and Seasonal Audience lists have grown in traffic share over the same time frame. On the organic side, Google continues to dominate visit share, particularly on mobile devices. However, DuckDuckGo has seen the strongest growth of late, and in Q1 2019 saw visits increase 54% overall and 78% on mobile devices. This is especially impressive given how difficult its been for other search engines to gain mobile share with Googles position as the default search provider on most mobile devices. Outside of traditional search, Amazon advertisers saw sales attributed to both Sponsored Products and Sponsored Brands more than double Y/Y, as spend grew 19% and 77% for those formats respectively. Sponsored Products accounted for 85% of all Amazon spend, with over half of spend on the format coming from placements other than the top-of-search results. While Sponsored Brands (formerly Headline Search Ads) are featured in more placements than last year, spend share for the format has held roughly steady. Facebook spend growth excluding Instagram dipped into negative territory for the first time in the history of this report, declining by 2% Y/Y. Facebook continues to derive meaningful growth from Instagram, which saw a 44% increase in ad spend Y/Y for the quarter and now accounts for 19% as much spend as Facebook for advertisers active on both platforms. Paid social spend growth continues to outpace that of traditional display advertising, growing 24% Y/Y compared to 12% for display advertising. Instagram and Facebook command the vast majority of paid social investment with a much larger roster of advertisers, but brands active on smaller platforms like Pinterest are spending meaningful budgets relative to their Facebook investment. paid search· Total paid search spending growth continued to decelerate for the fifth straight quarter, weighed down by ad spend declines on Bing and Yahoo, as well as spend growth deceleration on Google. However, click growth was the strongest its been since Q3 2017.· Google Shopping continued to drive Google advertising growth, as spend on the format increased 41% Y/Y, compared to a 12% decline for text ads.· Google search spend on desktop and tablet devices grew just 2% Y/Y, while phone growth accelerated to 46% from 42% in Q4 2018.· Google brand keyword CPCs finally started to level out after five straight quarters of double digit increases. Brand CPCs increased by just 6% Y/Y in Q1 2019.· Phones and tablets combined to account for 65% of all paid search clicks for the quarter, but just 44% of ad spend, as lower conversion rates on mobile devices continue to weigh on mobile CPC relative to desktop. MERKLE digital.MARKETING.REPORT Q1 2019 4 EXECUTIVE SUMMARY · Organic search produced 26% of all visits and 24% of mobile website visits in Q1 2019, nearly identical figures to what was observed in Q4.· DuckDuckGo organic search visit growth continues to outpace other search engines but is still a relatively small part of the search engine ecosystem. It accounted for 0.5% of organic search visits in Q1 2019, up from 0.3% last year.· Website visits attributed to social media accounted for over 4% of all site traffic in Q1 and 5% of all mobile visits, both new highs for this report. Instagram saw the largest visit growth at 114%. amazon ads· Amazon Sponsored Products spend grew 19% Y/Y, while Sponsored Brands (formerly known as Headline Search Ads) grew 77%. Sponsored Products accounted for 85% of all Amazon ad spend in Q1 2019.· Ad placements on product details pages accounted for 41% of all Sponsored Products clicks, while the top-of-search results accounted for just 33%.· Brand keywords accounted for about a quarter of all Sponsored Brands and Sponsored Products clicks and about half of sales, with spend share roughly in line with click share. display & paid social· Facebook spend declined 2% Y/Y and ads in the Newsfeed saw a decline in CTR for the first time since a January 2018 update limited the exposure of unsponsored posts from brands and publishers.· Instagram spend grew 44% Y/Y, with increases in both pricing and ad impressions. The median advertiser on both Facebook and Instagram spent 19% as much on the latter as on the former.· Pinterest remains a small platform relative to Facebook and Instagram, but in Q1 2019 Pinterest advertisers spent more on the platform than on Facebook proper. MERKLE digital.MARKETING.REPORT Q1 2019 5 EXECUTIVE SUMMARY organic search & socialMERKLE digital.MARKETING.REPORT Q1 2019 6 PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS Total paid search spending growth continued to decelerate for the fifth straight quarter, weighed down by ad spend declines on Bing and Yahoo, as well as spend growth deceleration on Google. However, click growth was the strongest its been since Q3 2017. Google Shopping continued to drive Google advertising growth, as spend on the format increased 41% Y/Y, compared to a 12% decline for text ads. Google search spend on desktop and tablet devices grew just 2% Y/Y, while phone growth accelerated to 46% from 42% in Q4 2018. Google brand keyword CPCs finally started to level out after five straight quarters of double digit increases. Brand CPCs increased by just 6% Y/Y in Q1 2019. Phones and tablets combined to account for 65% of all paid search clicks for the quarter, but just 44% of ad spend, as lower conversion rates on mobile devices continue to weigh on mobile CPC relative to desktop. paid searchMERKLE digital.MARKETING.REPORT Q1 2019 7 PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS +10% +20% Paid Search Spending Growth Decelerates to 14% as CPC Increases Slow Total paid search spending increased 14% Y/Y in Q1 2019, down from 16% growth a quarter earlier. Bing and Y ahoo continued to be a drag on search spending growth, as Google once again grew faster than the overall average. Click growth for search ads accelerated to 10% Y/Y, but CPC growth slowed from 7% in Q4 2018 to 4% in Q1 2019, primarily due to the mix shift to mobile where CPCs remain lower than average. Google Text Ads Cede Spending Growth to Shopping Ads Google text ad spending declines increased to 12% Y/Y in Q1 2019, while Google Shopping spending growth remained robust at 41% Y/Y. For industries like retail, Shopping ads appear to be cannibalizing text ad inventory at higher rates in recent quarters, particularly on mobile. Shopping spending has now grown over 40% Y/Y for two straight quarters for the first time since early 2016. Phone Shopping spend was up 77% Y/Y in Q1, a ten-quarter high. Google Search Spending Up 16% on Stronger Mobile Click Growth Google search spending rose 16% Y/Y in Q1 2019, down from a little under 18% in Q4 2018. While Google click growth has accelerated for each of the past three quarters, CPC growth has decelerated for each of past five. Mobile, with its less expensive clicks, has been gaining ground on desktop at renewed speed in the last two quarters, while CPC growth for advertiser brand keywords fell from 18% in Q4 2018 to just 6% in Q1 2019. +30% +10% +14% +4% Overall US Paid Search Y/Y Growth Google Overall US Paid Search Y/Y Growth +16% +5% +11% 12% +41% Clicks Ad Spend CPC Google Shopping (PLAs) Text Ads Google Spending by Ad Format Y/Y Growth Clicks Ad Spend CPC +10% +20% +30% Q3 Q2 Q1 Q1 Q4 2018 Q4 Q3 2019 Q3 Q2 Q1 Q1 Q4 2018 Q4 Q3 2019 Q3 Q2 Q1 Q1 Q4 2018 Q4 Q3 2019 +45% +15% 15% +30%MERKLE digital.MARKETING.REPORT Q1 2019 8 PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS Google Phone Search Spending Growth Benefits from Shopping Ads Google search ad spending on phones grew 46% Y/Y in Q1 2019, up from 42% growth in Q4 2018. Phone volume and spending growth has been driven by renewed strength for the Shopping segment in recent quarters. Phone Shopping impressions rose 127% in Q1 compared to 60% growth in Q3 2018. Elsewhere, desktop spending growth continued to slow, coming in at just 2% Y/Y. Shopping ad spending growth on desktop has been decelerating even as it has picked up on phones. Brand Keyword CPCs on Google Return to More Typical Growth Rates Spending on advertiser brand keywords on Google grew 10% Y/Y in Q1 2019, a sharp deceleration from 23% growth in Q4 2018. Brand keyword click growth was nearly unchanged at 4%, but CPC growth fell from 18% Y/Y in Q4 2018 to just 6% in Q1 2019. Brand keyword CPCs had shot up in Q4 2017 in an apparent correction to a surprise drop in brand CPCs that occurred shortly after Google made adjustments to its Ad Rank calculations in May 2017. Non-Brand Google Search Spending Higher on Improving Click Growth Advertiser spending on non-brand Google text and Shopping ads increased 16% Y/Y in Q1 2019, a slight acceleration compared to Q4 2018. Non-brand click growth improved to 13%, a six-quarter high, while non-brand CPC growth slowed to 3%. Non-brand CPCs rose 13% on desktop and 12% on phones in Q1, but as traffic has shifted to mobile, where clicks remain less expensive than average, overall non-brand CPC growth has slowed. +30% 30% +60% Google Search Spending by Device Type Y/Y Growth +46% +2% Phone Tablet Desktop +30% +20% +10% +3% Google Non-Brand US Paid Search Y/Y Growth +16% +13% Clicks Ad Spend CPC Google Brand US Paid Search Y/Y Growth +40% +20% 10% +30% +10% Clicks Ad Spend CPC +4% Q3 Q2 Q1 Q1 Q4 2018 Q4 Q3 2019 Q3 Q2 Q1 Q1 Q4 2018 Q4 Q3 2019 Q3 Q2 Q1 Q1 Q4 2018 Q4 Q3 2019 +6% +10%MERKLE digital.MARKETING.REPORT Q1 2019 9 PAID SEARCH ORGANIC SEARCH & SOCIAL DISPLAY & PAID SOCIAL AMAZON ADS +5% +10% Desktop T ext Ads Mobile T ext Ads Mobile Google Shopping Desktop Google Shopping +15% Non-Brand Y/Y Revenue-Per-Click Growth Google Shopping & Text Ads by Device Shopping Nearing Two-Thirds of Retailers Google Search Ad Clicks Google Shopping ads produced 65% of retailers total Google search ad clicks in Q1 2019, up from 63% in Q4 2018. Within the non-brand traffic segment, Shopping ads produced 89% of all Google search ad clicks for retailers in Q1 2019, a nearly eight-point increase from a year earlier. Newer Shopping formats like Showcase Shopping ads and Local Inventory Ads have helped Shopping achieve greater relevance for a broader range of user queries in recent years. Revenue Per Click for Google Ads Rising Fastest on Mobile For the median Google search advertiser, the revenue per click generated by mobile Google Shopping ads rose 12% Y/Y in Q1 2019, similar to results for the prior two quarters. On desktop, Shopping revenue- per-click gains have been more modest, but improved slightly from Q4 2018 to Q1 2019. For the non-brand text ad segment, revenue per click also grew faster on mobile devices, with an improvement of 7% Y/Y in Q1. Google Shopping Revenue Per Click Holding Up Compared to Text Ads Among retailers, Google Shopping ads produced an 18% higher revenue per click than non-brand text ads on desktop in Q1 2019. On phones, Shopping revenue per click was slightly higher than non-brand text ad revenue per click. Across both device segments, the relative performance of Shopping ads has trended in a fairly narrow range, even as Shopping has continued to gain click share and appear for a broader range of queries. 40% 60% 100% 20% Non-Brand Overall 80% Google Shopping Share of Google Paid Search Clicks Aggregate Results - US Retail +30% +10% Google Shopping vs. Non-Brand Text Ads Revenue Per Click Phone Desktop 10% +20% +14% +5% +7% +1% +14% +4% +3% +11% 2017 2015 2016 2018 Q2 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q4 Q1 Q2 Q3 Q1 2019 Q1 2014 89% 65% Q3 Q2 Q1 Q1 Q4 2018 Q4 Q3 2019 +18% +1% +5% Q4 2018 Q3 2018 Q1 2019 +12% +6% 1% +0.5%MERKLE digital.MARKETING.REPORT Q1 2019 10 PAID SEARCH ORGANIC SEARC