Google Ad Spend Outpaces Traffic

Google’s advertising spend experienced a 9% rise in the first quarter of 2025, according to a recent report by digital marketing agency Tinuiti. However, Microsoft Ads outperformed this with a more robust growth of 17%, while Google’s PMax campaigns appeared to be losing effectiveness.

The report highlights that the increase in Google Search ad spend was primarily driven by higher costs rather than a surge in traffic. This suggests that advertisers are paying more per click, rather than benefiting from a significant increase in user engagement.

During the first quarter of 2025, Google Search ad spending rose by 9% compared to the same period last year. This marks a slight decline from the 10% growth seen in the previous quarter, Q4 2024.

Click volume growth remained steady, with a year-on-year increase of 4%. This indicates that while user interest held firm, it didn’t significantly accelerate.

Meanwhile, the average cost-per-click (CPC) increased by 5% compared to the same time last year. This rise in CPC contributed notably to the overall growth in ad spending.

Despite the increased investment, the return on ad spend appears to be under pressure, particularly with PMax campaigns showing signs of underperformance. This could raise concerns for advertisers focusing on efficiency and value.

The combination of steady click volume and rising costs suggests that brands are having to pay more to maintain visibility and reach on Google’s platforms.

As competition for ad placements intensifies, marketers may need to reassess their strategies, especially given that performance improvements are not matching the increased spend.

These findings underscore a broader trend in the digital advertising landscape—costs are climbing while traffic growth remains relatively flat.

Tinuiti’s report offers valuable insights into the shifting dynamics of paid search and the challenges facing advertisers looking to balance cost and performance in a competitive market.

Google Shopping Ads

Spending on Google Shopping Ads rose by 8% year-on-year in the first quarter of 2025, although this marked a slight slowdown from the 10% growth recorded in the previous quarter. Encouragingly, click volume saw a significant boost, increasing by 9% compared to the same period last year — a notable jump from the modest 1% growth seen in Q4 2024. Meanwhile, the average cost-per-click (CPC) remained steady, with a slight decline of 1% year-on-year.

Competitive Landscape

Amazon continued to dominate the Google Shopping auction landscape, holding a 60% impression share against the average retailer — consistent with its performance in Q1 2024. Target maintained a relatively stable position, with a 24% share, only slightly down from 25% last year. Walmart held firm with a 22% impression share on a year-over-year basis. However, Temu made a surprising retreat from Google Shopping, dramatically cutting its presence in early April. By mid-April, its impression share had dropped to zero, reportedly in response to recent changes in U.S. tariff policy.

Performance Max Campaigns

Performance Max (PMax) campaigns remained widely adopted, with 93% of retailers using them for Google Shopping. However, its overall share of Google Shopping ad spend fell to 53%, down from 69% in Q4 2024. While widely used, PMax appears to be underperforming in key areas. Conversion rates for PMax campaigns are 10% lower compared to standard Shopping ads, while CPCs are 13% higher. This has resulted in a 7% lower return on ad spend (ROAS) for advertisers relying on the format.

Microsoft Search Ads

On the Microsoft front, search advertising saw a notable uptick, with spending increasing by 17% year-on-year — more than double the 7% growth seen in the previous quarter. Click growth also rebounded, rising 5% compared to a 3% decline in Q4 2024. However, this resurgence came with a trade-off, as CPC rose by 11% year-on-year.

Brand Keywords and Rising CPCs

Brand-related keywords have experienced a sharp increase in cost-per-click (CPC). Text ads that include an advertiser’s own brand name saw CPCs rise by 19%, significantly outpacing the 3% increase seen for non-branded keywords. This suggests that bidding for visibility on branded terms is becoming increasingly competitive and costly.

Why This Matters

The data highlights an ongoing trend where search platforms, particularly Google and Microsoft, are generating more revenue per click. This places additional strain on advertisers’ profit margins. Notably, Microsoft is showing faster growth in ad spend, with a 17% year-on-year increase compared to Google’s 9%, positioning it as a growing force in the digital marketing space.

Political Influence and Market Shifts

Political developments have also influenced the digital ad landscape. Temu, for instance, has withdrawn from Google Shopping ads due to changes in U.S. trade policy. This sudden exit may lead to further fluctuations in Shopping ad traffic and costs as the market adjusts during the second quarter of 2025.

Performance Max Under the Microscope

While Performance Max (PMax) campaigns continue to see widespread use—being adopted by 93% of retailers running Google Shopping ads—their share of overall spending has declined. In Q1 2025, PMax accounted for 53% of ad spend, down from 69% in Q4 2024. This shift reflects a return to standard Shopping campaigns by some advertisers, who seek more control over their campaigns amid concerns about PMax performance.

Key Insights

Google Shopping remains a strong channel despite market uncertainty and shifting political factors.
PMax still enjoys high adoption, though its effectiveness is being re-evaluated as advertisers seek better results.
Leading retailers continue to dominate Shopping ad impressions, maintaining a competitive edge.
Microsoft’s steady growth in ad spend suggests that more advertisers may consider including it in their marketing mix.