Google's Mobile Search Revenue Grows, and Suggests Higher Mobile Ad Rates Ahead

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The Google Alphabet Technology Corporation building in seattle.
The Google Alphabet Technology Corporation building in seattle. Credit: iStock
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Google parent Alphabet saw its advertising revenue surge thanks to mobile search, YouTube and its programmatic ad business, it said Thursday during its fourth quarter earnings call.

The company saw overall revenue of $26.1 billion for the quarter ending Dec. 31, up 22% from the same time last year. Ad revenue generated about $22.4 billion, up 17% year-over-year, Google said. Net income was $5.33 billion, up from $4.92 billion.

Mobile ads currently cost significantly less than desktop ads, but the strength of mobile ad sales for Google might signal an increase in prices there for marketers in the year ahead. Digital marketing firm Merkle said Google received 96% of all search-ad clicks on mobile devices in the fourth quarter.

Google is also seeing tremendous growth with its Product Listing Ads, which feature items from retailers when consumers search for things like electronics or clothes. Ad spend on Product Listing Ads grew 30% year-over-year, more than double the growth rate of text ads, which saw 12% growth, Merkle said.

Since last June, retailers have been able to take their customers' email addresses and match them to PLA campaigns. The update significantly expanded the reach of Google's Customer Match targeting, as PLAs account for nearly one-third of all retailers' Google paid search clicks.

Google also expanded the reach of PLAs through its search partner network by rolling the format out to image search and YouTube, and beginning to serve the ads in meaningful volume for Yahoo. The share of PLA traffic coming from search partners as opposed to Google itself increased to 10% from from 6% in the equivalent period last year, Merkle said.

Google might capture even more ad dollars thanks to its PLAs, as Amazon -- for the first time -- began advertising through the format last year. Should the ecommerce giant increase its ad spend with Google, competition for inventory for popular products might get fierce.

The company does not break down how much it generates from YouTube or its other properties, but according to eMarketer, YouTube ad revenue will hit $7.05 billion in 2017, an increase of 21%.

Last week, Google said advertisers could target YouTube ads based on a consumer's search history, a first for the company. "YouTube targeting is part of Google's broader effort to spend advertiser search budgets on its owned and operated properties, instead of high-quality search partner properties," said Adam Epstein, COO of AdMarketplace. "This move juices Google's earnings at the expense of advertisers and search partners."

Meanwhile, Google said sales for its Nest line of products more than doubled in the quarter. The company coupled a new slogan with a new campaign earlier this year, and sales for its products were also boosted by the holiday season. The company debuted its Pixel smartphone and AI assistant, Google Home, in 2016 as well.

At least by Google standards, hardware didn't contribute much to Google's bottom line, said Sundar Pichai, CEO at Google. Google Home, however, performed well during the holidays, he said.