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While it's hard to criticize a business that consistently record
double-digit growth, Wall Street isn't wild about Google's latest
quarterly numbers and sent the company's stock down by more than 3%
in after-hours trading.
What gives? Google's isn't making as much money off each ad it
runs as the company previously had, even though it notched 23% more
paid ad clicks in the second quarter compared with last year. The
last quarter that Google recorded a year-over-year increase the
average cost advertisers pay for people to click on their ads was
the third quarter of 2011.
The declines have ebbed over the past three quarters -- down 15%
year-over-year in Q3 2012, 6% in Q4 and 4% in Q1 of this year --
but the trend remained negative and dropped by 6% year-over-year in
the second quarter. But questions hang over how soon Google can
stem mobile's negative impact on ad prices.
'Enhanced' campaigns
In February the company announced that it would change the way
advertisers purchase AdWords ads that primarily run on desktop and
mobile search results pages but can also show up within mobile apps
through Google's mobile ad network AdMob. Rather than setting separate
prices for desktop and mobile campaigns, Google has conjoined the
two through a program called Enhanced Campaigns that forces
advertisers to place the desktop price bid and what percentage more
or less they'd be willing to pay to run those ads on mobile.
The aim is for the higher desktop ad prices to buoy the smaller
mobile rates, and during the company's earnings call on Thursday,
Google CEO Larry Page described Enhanced Campaigns "the biggest
ever change to AdWords."
Google's chief business officer Nikesh Arora said during the
company's first-quarter earnings call that the transition to
Enhanced Campaigns would be complete by the end of the second
quarter. That didn't happen, and on Thursday Mr. Arora revised the
estimate to the end of this month.
"Advertisers have upgraded 6 millions campaigns" to Enhanced
Campaigns, Mr. Page said, adding that the figure translates that
figure into 75% of all active campaigns.
Nonetheless "the Enhanced Campaigns impact will be more broadly
felt in the next quarter," said Jared Belsky, EVP at search and
display specialist digital agency 360i, which specializes in search and display
advertising. Mr. Belsky pointed to the transition's original
completion date of July 22 as the point at which "the masses switch
on" and that to date primarily "premier marketers" have converted
with many 360i clients only doing so in June and July.
Asked repeatedly during the earnings call to what extent
Enhanced Campaigns has and will impact Google's revenue, Google
execs maintained that the program is "still in the very early
stages," per Mr. Page, and "too early to detail," per Mr. Arora.
"Over the long term [Enhanced Campaigns] should have a positive
impact on conversions," he said.
Moto X gets launch date
Enhanced Campaigns dominated the discussion, leading to little talk
about Google's other businesses like YouTube or its push to become
a consumer hardware manufacturer. Mr. Arora said YouTube mobile ad
sales in June had increased by 300% from their January figures but
didn't provide specifics.
As for Google-owned Motorola Mobility's upcoming Moto X
smartphone that the company
began advertising earlier this month, Mr. Page only
tangentially touched on the product. "Having been a tester for a
while, I'm very excited," he said referring to "what Motorola is
launching soon" but not explicitly invoking Moto X. He later
bristled when asked about the marketing investment in the product
by responding that "too much has been made over those things."
Google CFO Patrick Pichette may have let slip the Moto X's
release timing toward the end of Thursday's earnings call. "I'll
leave it to the coming quarters to kind of really demonstrate the
kind of new Motorola that's showing up, and you'll see that in the
coming weeks actually."
