Google's Ad-Price Declines Continue for 12th Straight Quarter

But Ad Revenue Rose by 17% to $14.7 Billion in Q3

By Published on .

The big question heading into Google's quarterly earnings reports for the past couple years has been whether the company has finally gotten advertisers to pay more for each ad they buy.

As of Thursday, the answer was: Still no.

Overall, Google's advertising revenue is healthy. In fact, it rose by 17% year-over-year to $14.7 billion. That helped to push the company's overall revenue by 20% to $16.5 billion for the quarter, which fell short of analysts' estimates which factor in the money Google spends on driving traffic to its properties. And the company recorded a $2.81 billion profit.

But the average price advertisers pay Google for people to click on their ads fell by 2% in the third quarter, while the number of clicks on those ads rose by 17%. This continues a years-long trend driven by more people being exposed to Google's ads on their smartphones and tablets and advertisers' unwillingness to pay as much for those smaller-screen ads as they do for desktop ones. Google has tried to reverse this pattern, but been so far has been unable to.

Including the third quarter, it has been 12 straight quarters since Google has recorded more dollars on average for each ad a person clicks compared to the prior year. It has been seven consecutive periods since Google has notched a quarter-over-quarter increase in the average cost-per-click.

Problematically it has been four full quarters since Google transitioned its advertisers to a program called Enhanced Campaigns that was designed to buoy typically tiny mobile ad prices by tying them to the higher desktop rates.

Coinciding with Google's ad pricing struggles, the company is beginning to look more like a traditional media company with each passing quarter. Google still operates a large business of selling ads on others' sites, but that business's significance is shrinking when compared to Google's ballooning owned-and-operated business.

Not only is ad revenue from Google's own sites accounting for a larger chunk of the company's overall ad revenue, but ad revenue from its network sites isn't growing as much as it was even two years ago, though it's still trending upward.

A more detailed look behind the numbers shows that the ads Google is serving on others' sites just aren't as valuable as they once were. The per-click price of each ad served outside of Google had been falling at a faster rate than those served on Google's sites, though both prices fell at equal rates in the third quarter. And the ads Google serves on third-party sites aren't performing as well as those run on Google's properties, based on how the number of clicks on those ads has grown in recent quarters.

It's hard to say whether Google is actively pushing this change. As more people access Google's and others' sites on their mobile devices, the ads on Google's properties, particularly search, may just be more click-worthy than a mobile banner on someone's site. Whatever is driving the divide, the shift seems to be to Google's benefit, at least for now. If Facebook is able to apply its own mobile ad success to others' sites and apps, Google's secondary ad-revenue stream may eventually be in danger.

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