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GOOGLE’s NEW “product listing ads” – seen by most as Google Shopping – appear to be a hit according to numbers generated in Q4 2012.

The ads may explain in part why Google pulled off yet another blockbuster Q4 increase in ad sales; the search giant added $1.3 billion in ad revenues alone in the quarter.

Last September, Google began making retailers pay to list products for sale in its shopping section. Previously those listings had been free. The move bumped a bunch of spammy, misleading ads from the section and replaced them with products that top retailers wielding big budgets want to promote.

It also hurt Amazon — the new ads appear above organic, non-sponsored search results. Amazon has not participated in product listing ads and thus its results only show up in organic search. In other words, Google Shopping has bumped Amazon’s results down the page.

That seems like a technicality, but in the pixel-by-pixel war for search results, it’s a huge challenge to Amazon.

Amazon CEO Jeff Bezos (AP Photo)

Google CEO Larry Page didn't give any specific details of the results of that shift on his recent earnings call, other than to say "we’ve seen tremendous uptake from merchants and from users." But observers believe the move was a huge success. Up to 28 per cent of certain search clicks were on product listing ads in Q4, according to research firm RKG.

The highlights, first from MediaPost:

Retail marketers spent 16 per cent more on paid-search campaigns in in 2012, compared with the prior year. Google took about 86.5 per cent market share in Q4 2012, up from 85.9 per cent in the prior quarter. Sid Shah, director of business analytics at Adobe, attributes the growth to strong mobile traffic and the transition of Google Shopping from a free to a paid model supported by product listing ads.

And now RKG:

Product listing ads drove 28 per cent of Google’s non-brand paid search clicks in Q4 according to a new report from RKG.

Here's what Google's management said about product listing ads on their call. Clearly, they're very happy with it:

Nikesh Arora - Senior Vice President, Chief Business Officer: I don't know if you've had a chance to look at it, but there are some interesting things like 360 degree toy imagery and integrating retailers' promotions and discounts into our shopping product.

Ben Schachter - Macquarie: ... Google Shopping, the PLAs and the interface changes, I think significantly improve the user experience, but the consumer still needs to leave the site to transact. Do you anticipate a mechanism whereas users can actually transact on Google Shopping without having to leave? You know, as you said sort of no extra work needed? Thanks.

Larry Page - Chief Executive Officer, Director: Google Shopping, I guess you are asking about Product Listing Ads I think that we are also in the early stages of that. We just rolled out Google Shopping. We’ve seen tremendous uptake from merchants and from users and I expect that quality of the site, the ease of buying things will improve over time and I am really excited about that. I am not going to comment on details about that, but we’re always focused on making our user experience better. So, can we have our next question please?