Google’s 17 Percent Growth In Click Volume Is Lowest Since 2010

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In Google’s Q3 earnings report, released yesterday, another round of big revenue gains weren’t enough to meet analysts’ expectations.

Google’s revenue grew 20 percent over the previous year in Q3, but that’s the lowest annual growth rate the company has posted since Q2 2013. Year-over-year click volume increased 17 percent over Q3 2013. But, click growth hasn’t been as low as 17 percent since the third quarter of 2010.

With this perspective it’s easy to come to the conclusion that Google’s ad business is under increasing pressure, or becoming victim of its past prodigious pace of growth.

Here’s the rundown of the Q3 numbers that pertain to Google’s advertising business:

  • Google sites revenue: $11.25 billion, 68 percent of total revenue, up 20 y/y
  • Network/partner revenue (ads on other sites): $3.42 billion, up 9 percent y/y
  • Paid clicks: Up 17 percent y/y; up 2 percent from Q2
  • Google sites paid clicks (Google, Youtube, Maps, Gmail etc): Up 24 percent y/y; up 4 percent from Q2
  • Network paid clicks (AdSense, AdMob): Up 2 percent y/y; down 4 percent from Q2
  • CPCs: Down 2 percent y/y; flat from Q2
  • Google sites CPCs: Down 4 percent y/y; down 1 percent from Q2
  • Network CPCs: Down 4 percent y/y; up 2 percent from Q2

“Paid click growth slowed meaningfully”

Analysts at Macquarie Securities said of Google’s Q3 earnings statement, “Paid click growth slowed meaningfully… The bottom line is that GOOG’s core is slowing.”

“Additionally, while there is limited visibility, we remain concerned that the disintermediation of search by app usage is negatively impacting GOOG’s core search. Also, FB’s momentum is likely pulling dollars from GOOG.”

So paid clicks aren’t growing as fast as they were, app usage may be cutting into Google search on mobile and Facebook is coming on strong are the takeaways from Macquarie.

Refreshingly, Macquarie is one of the few analysts and media outlets not to mention cost-per-click prices dropping. The conventional wisdom is that with the advent of mobile, Google’s ad offerings have failed to appeal to advertisers, proof being that the average CPCs keep falling (for 12 consecutive quarters now). If advertisers wanted mobile ads, then enhanced campaigns would have worked to drive overall CPCs higher, the thinking goes. I wrote this summer that the reported CPCs really can’t tell us much about mobile.

Perhaps the data would show mobile CPCs continue to decline and drag down overall performance. Or maybe they’d show that mobile CPCs are rising marginally but mobile click volume is growing, dragging overall CPCs down every quarter. Or it could be US mobile CPCs are rising (as RKG’s Q3 report showed) but low CPCs in other countries make things look more dire than they are. I don’t know. What’s clear though, is that trying to determine what’s happening by looking at that big number isn’t much more than guessing.

The company did recently start to break out CPCs by Google sites and network sites, but those stats are essentially feeding the same story.

I will point out that the 2 percent drop in CPCs year-over-year, if anything, should signal that mobile prices are rising. It’s by far the lowest decline the company has seen in 12 quarters. Additionally, quarter-over-quarter CPC growth has been flat for three straight quarters.

Competition Is Mounting

While Eric Schmidt was in Europe touting all of Google’s competitors a few days earlier, the officers back home on the investor call were drawing an opposite picture of a rosy, relatively friction-free advertising landscape.

While CPCs might be a poor performance indicator, what is clear is that Google faces growing competition on mobile – in apps and on the mobile web. Namely from Facebook, as Macquarie highlighted, though also from a host of in-app, and mobile-only ad platforms.

In part, it’s a question of ad formats. Everyone is trying to figure out what formats will get users to take action on mobile screens. Facebook’s style of in-stream, native ads appear to have an edge.

Google has innovated on search, but was fairly late to the table with ad offerings for app developers. Though they rolled out several ad formats, analytics tools and deep linking this year, it’s not clear how well AdMob is holding its own against the competition.

The other problem for Google is if advertisers decide that search intent is not the golden egg on mobile that it is on desktop. Facebook’s Atlas poses a credible threat to the GDN in part because of its use of the Facebook ID to skirt cookie breakdowns on mobile (though Google has its own capabilities here) but because of what that Facebook ID tells advertisers about users they want to target. The Google Display Network is growing only marginally and clicks were actually down from Q2.

The other very important arms race here is who can better tie the online ad interaction to the in-store purchase. This is the piece Google is still working on as part of its estimated total conversions measurement and what Facebook says Atlas will be able to deliver.

The entire mobile ecosystem, not just Google, is also still hampered by the post-click experience. If advertisers don’t make their landing pages and mobile site experiences easy and appealing to users, they won’t get the conversions they’re expecting. This is where Google’s click-to-call functionality shines, for example, because it bypasses the entire mobile site experience altogether.

Mobile Opportunities

As mobile experiences change and phones get bigger — RKG says early indications are that the iPhone 6 is converting better — we will likely eventually stop differentiating mobile purchases from desktop purchases. Google’s trying to get advertisers to embrace this future, but we aren’t there yet.

Of course, this is not all doom and gloom. After all, revenues still grew 20 percent. Click volumes are still growing. CPCs are actually signalling improvements if we’re going to take anything away from those numbers.

For paid search marketers the added pressure  on mobile is making it an exciting time with what seems like an unprecedented flurry of innovation in ad products, targeting options and measurement capabilities across devices and channels.

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