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Google cofounder Sergey Brin and Larry Page, circa 2000
We have spoken with retailers recently who have noted better performance from Google Product Ads than traditional CPC ads. 

Citigroup analyst Mark Mahaney is hearing the same and says it is causing more and more retailers to spend money on the ads.

Mahaney spoke with Eric Best, CEO of Mercent, which manages marketing spend for 120 of the top 500 online retailers.  Best's clients are very happy with the ProductAds:

"According to Mercent, Google Product Search may surprise the industry.  With new strategies and online ad formats, Mr. Best expects Google to potentially disrupt traditional online retail ad campaigns with Web page real estate allocated to CPA-based Product Listing Ads, free comparison shopping boxes in natural Search results, and CPC-based AdWord Product Extensions.  Key point is that Google is becoming more aggressive with its Product Search offerings."

Our take: Retailers we speak with have seen ROI increase 5% to 10% on Google Product Ads versus traditional CPC ads.  So, it's not surprising that Mercent's clients are happy with the new ads.  We believe the increased spend by retailers could incrementally increase Google revenue by 1% to 3% this year. 

However, if Google is becoming more "aggressive" with these ad formats (which we interpret to mean marketing it harder to potential clients and focusing resources on improving the product) larger agencies like Mercent could begin to use the service more meaningfully, creating a larger opportunity for Google.  In addition larger retailers are in a better position to use the ads most efficiently, which could also lead to larger volumes of spend on the ads.