What every advertiser must know about Google’s Demand Gen spending discrepancies💡

Placement selection vs. actual ad distribution

Advertisers using Demand Gen campaigns can choose specific ad placements, including:

• In-Stream Ads: Video ads that run before, during, or after YouTube videos.

• In-Feed Ads: Appear within YouTube’s homepage feed, search results, and video recommendations.

• Shorts Ads: Displayed in YouTube Shorts, designed for short-form mobile-friendly content.

This selection process is meant to help advertisers align campaigns with user behavior. For example, a brand targeting mobile-first users may prioritize Shorts, while another focused on long-form content might prefer in-stream ads.

The problem: Budget drift beyond chosen placements

Despite offering placement selection, Google doesn’t always strictly adhere to advertiser choices. Many marketers find that their budgets are reallocated to other placements - even those they didn’t select. This means that an advertiser who opts for Shorts-only ads may still see their budget shifting to in-feed or in-stream placements.

Google’s optimization algorithm appears to be the driving force behind this redistribution. Instead of strictly following advertiser preferences, it prioritizes performance-based metrics like conversions, clicks, and engagement. As a result, budget allocation often leans toward placements where Google expects the best results - regardless of the advertiser’s original intent.

Case study: An advertiser’s experience

Imagine an e-commerce brand running a Demand Gen campaign aimed at engaging younger audiences through YouTube Shorts. The advertiser selects the Shorts placements exclusively, expecting their entire budget to go there.

However, after reviewing the campaign’s performance a few days later, they find:

• Only 28% of the budget actually went to Shorts.

• 37% was allocated to in-feed placements (YouTube homepage and video recommendations).

• 35% went to in-stream ads that played before long-form YouTube videos.

This misalignment disrupts the advertiser’s strategy and can lead to inefficient spending. Shorts tend to generate quick, high-engagement interactions, whereas in-feed ads may have lower engagement, reducing overall effectiveness.

Here you can see how Google distributed the ad spend placement-wise even though the ads are set to be shown on only Shorts placement: 

Why does Google do this?

Google’s AI-driven optimization system redistributes ad spend based on performance rather than adhering to strict placement settings. Several factors contribute to this shift:

• Inventory availability: If Shorts placements are limited at a given time, the algorithm redirects spending elsewhere to ensure ad delivery.

• Bid competition & cost efficiency: Sometimes, in-feed or in-stream ads have lower cost-per-thousand-impressions (CPM), making them more appealing from a cost-efficiency standpoint.

What advertisers can do to regain control

Although Google doesn’t offer complete control over ad placement spending, advertisers can take a few steps to minimize unwanted budget drift:

1. Monitor placement reports: Regularly check ad performance in Google Ads to track budget allocation.

2. Adjust bidding strategies: Experiment with manual bidding to influence how ad spend is distributed. While this won’t offer full control, it can provide some leverage.

3. Split campaigns: Instead of one broad Demand Gen campaign, create separate campaigns for each placement. This approach requires more management but allows for better budget enforcement.

4. Leverage audience signals: Fine-tune targeting by using custom audiences and demographic filters to improve ad performance and placement accuracy.

What we have learned considering the current level of control that Google allows advertisers at this point is that you can ensure to provide to the pixel all video formats length, format-wise, and select each of the formats to be shown on the most appropriate placement type inside one ad group. In practice, it would look like this:

On the ad group level, you would set the following:

• Longer format ad (above 2 min) and select to be shown on in-stream placement only

• Longer format ad with thumbnail added to be shown on in-feed placement only

• Short format ads (1 min or less) to be shown on shorts placement only

As the advertisers don’t have control at the moment to focus the ad spend on the specific placement what we can do is ensure we adjust the ad format to the placement type.

Final thoughts

Google’s Demand Gen campaigns offer new ways to reach audiences across YouTube and Google’s ecosystem. However, the lack of precise placement control requires advertisers to stay vigilant. Until Google provides stricter allocation settings, marketers will need to implement strategic workarounds to ensure their ad budgets are spent where they matter most.

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