As a result, even though Google's ad revenue totaled $14.1
billion in the fourth quarter of 2013, up 17% from the previous
year, that growth seems to have stemmed from people clicking on
more ads, not advertisers paying more for each ad.
The number of ad clicks jumped by 31% year-over-year, while the
average amount of money Google makes per click fell by 11%. This
has been the trend since the last quarter of 2011; the third
quarter of that year was the last period when Google recorded a
year-over-year increase in the average price-per-click.
Google has been trying to turn the price slide around. Since
more people were being exposed to Google's ads on mobile devices
and advertisers weren't willing to pay as much for those mobile
ads, last February Google introduced
a program called Enhanced Campaigns that forced advertisers to
set their mobile prices in proportion to the traditionally higher
desktop rates, in theory pulling mobile upward. A year later, it's
hard to say whether that program is working as intended.
"Enhanced Campaigns accomplished [Google's] primary goal of
opting in more marketers to mobile search," said Jared Belsky,
president at 360i, the digital agency owned by Dentsu. "However their earnings would suggest
that possibly the most sophisticated marketers have found smart
algorithmic workarounds, which has countered the fears of runaway
There are two ways to read this. On the one hand, Google is
getting more advertisers to buy ads (or getting the same
advertisers to buy more ads). So that's good. On the other hand,
those advertisers are finding ways to underpay for those ads.
That's not so good.
But the underlying issue is that Google can't rely on its
longtime advertisers for big-time future revenue growth. That's
seen too with Google Shopping, where Google charges companies to
promote their products with placements now called Product Listing
Ads. Mr. Belsky had expected those ads to result in incremental
spending increases. That would be particularly welcome at Google
because those ads typically cost more than standard search ads and
would receive extra attention during the retail frenzy in the
fourth quarter of each year. Instead "we've seen a significant
level of cost-shifting," he said, meaning the Product Listings Ads
are siphoning budget from traditional search campaigns.
That's far from saying the sky is falling on Google. "We're
still in the very early days of how much advertising [dollars] will
move over to digital media," said Google's chief business officer,
Nikesh Arora, during the company's earnings call on Thursday.
Mr. Belsky suggested that the company is in the middle of a
longer-term game. "I think that the analyst community continues to
hang on every word about [Google's cost-per-click declines]. The
forward-looking story is about the adoption of additional Google
advertising products and a better uptick in brand advertising
dollars," he said, noting new inventory Google has opened up
in areas such as Gmail.
Hunting for brand ads
Google has been trying to attract brand advertisers for a couple
years, though that push has gotten particularly aggressive of late.
begun appending large banner-sized images to some search ads,
for example, in executions that recall the look of a home-page
takeover. These types of more visual ads stand to appeal to
big-spending brand advertisers, like film studios and consumer
packaged-goods companies, that are more concerned with eyeballs
"For Google to grow, it can't just be CPCs. They have to bring
in [advertiser] categories that are slightly unrepresented," Mr.
YouTube is one way to attract those advertisers. Google doesn't
break out YouTube's revenue -- though
eMarketer has pegged the 2013 figure at $5.6 billion -- but Mr.
Arora pointed to YouTube as a primary property for brand
advertisers within Google's portfolio. He indicated that the move
late last year to sell YouTube ads according to Nielsen's Online
Campaign Ratings should spur more brand ad spending. "We are seeing
measurement as table stakes for brand advertisers because they want
to understand what is the return of their brand spend," Mr. Arora
To say it again, Google isn't in any immediate danger. Excluding
the Motorola Mobility hardware business -- which Google excluded
permanently on Wednesday by
selling the division it bought for $12.5 billion to Lenovo for
$2.91 billion -- Google's fourth-quarter revenue grew by 22% to
$15.7 billion. Net income hit $3.4 billion.
And Google's non-advertising business continues its steep rise,
growing by 99% year-over-year to $1.65 billion in revenue. That
fledgling division -- which includes the company's cut from movie
rentals or app purchases through Google Play and the sale of
hardware like Chromebooks and streaming media dongle Chromecast --
only accounts for 10% of Google's core revenue, but was only 6% a
year ago and stands to grow when pricier products like Google Glass
and potentially self-driving cars come to market. That would ease
Google's reliance on advertising dollars and relieve the concerns
about pricing at the forefront today.