Google's Latest Ad Price Declines Are Because of YouTube, Not Mobile

Despite Price Issue, Company's Ad Revenue Grew 11% to $15.5 Billion

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Another three months. Another quarter in which Google has increased its advertising revenue despite making less money per ad.

In the first quarter of 2015, the average amount of money Google makes from clicking on one of its ads declined 7% year-over-year. Meanwhile the number of clicks on Google's ads increased by 13%, compared to last year. This trend has been going on since the fourth quarter of 2011.

The pricing-versus-supply trend is a problem the company has tried to fix. In the third quarter of 2013, Google migrated its advertisers to a new way of buying its basic search-and-display ads called Enhanced Campaigns, which prices mobile ad placements in relation to traditionally higher desktop rates in order to get advertisers to pay more for those smaller-screen slots.

However, during the company's earnings call on Thursday, Google's outgoing CFO Patrick Pichette dismissed mobile as the reason for the company's cost-per-click declines. Instead it is YouTube's fault. YouTube's skippable TrueView ads "currently monetize at lower rates than ad clicks on," Mr. Pichette said. He added that excluding TrueView ads -- which Google counts as ad clicks when people don't skip them -- the number of ad clicks on Google's own sites wouldn't have grown as much in the quarter but the average cost-per-click "would be healthy and growing year-over-year."

"We are experiencing strength in mobile search, and the [prices per ad click] in our core search business are continuing to grow year-over-year," Mr. Pichette said.

A deeper dive into Google's pricing and volume trends shows that the ads running on Google's own sites appear to be driving down pricing. In the first quarter, ads that Google syndicates across a network of third-party sites fetched 2% higher prices per ad than a year ago, but people clicked on 12% fewer of those ads.

When it comes to ads that ran on Google's own sites, the opposite happened.

Google doesn't say what the actual ad prices are or how many ads were run on its own or others' sites, so it's difficult to compare the two businesses on a like-for-like basis. For example, it's unclear whether the network ads have historically been a lot cheaper than the ones on Google's own sites, like its search results pages, and are beginning to catch up. It's also unclear whether people are clicking on exponentially more ads on Google's own sites than on third-party sites. But it's easy to see that more and more of Google's money comes from its own sites.

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