Google Search engine Results Display Battle With Mobile
SAN FRANCISCO — For more than a year, Google has been struggling to solve this riddle: Even though people are using Google on their mobile devices more than ever, how does Google make more money on mobile ads?
Despite a range of efforts by Google, the riddle remains unsolved, its financial report Thursday revealed.
Google reported second-quarter results that missed analysts’ expectations for revenue and profit. They showed that its desktop search business continues to slow and ad prices continue to fall as it struggles to make as much money on mobile devices.
The report was particularly incongruous given how Google’s share price climbed 27 percent this year.
It is a vexing problem for every company that has generated revenue through advertising, be it a century-old magazine with a mobile app or a new Web site aggregating the news. Mobile ads do not command the premium that Web advertising does (and Web ads do not make as much as print ads).
Colin W. Gillis, a technology analyst at BGC Partners, wrote a haiku before the earnings announcement: “The results should be/ pretty as a picture to/ justify the stock.”
They were not. Shares, which fell 1 percent ahead of the report on Thursday, fell another 4 percent in after-hours trading.
“One of the reasons why people like Google is you can look forward and see what they’re doing with Glass and laying fiber and driverless cars and Chrome, chasing after new revenue streams,” Mr. Gillis said. “But those are still pretty far away. Google’s core business is all about advertising and clicks, and the core business is absolutely maturing.”
Mobile ads, he added, are inexpensive yet “overpriced because the conversion rates are so low.”
“It’s still too hard to transact on a phone,” Mr. Gillis said.
Google had seemed to have finally found a solution to the riddle, by making the biggest-ever change to its AdWords advertising product. The new program, called enhanced campaigns, which was introduced in February and will be mandatory for all advertisers on Monday, gives advertisers less choice about advertising on mobile devices by automatically including desktop, tablet and cellphone ads for all campaigns. Advertisers can choose not to buy cellphone ads but are required to buy tablet ads.
Google says that this simplifies the process for advertisers and makes it easier to reach customers who use devices indiscriminately. More important than the type of device, the company says, is whether someone is at a desk or on the sofa, in the mood to shop or eat.
But it also means that the price of mobile ads, which has been about half that of desktop ads, will most likely increase. Google’s ads are sold at auction, and one reason mobile prices have been low is that there has been less demand. Enhanced campaigns should change that.
For example, the cost per ad click, known as C.P.C., for clients of the Search Agency, a search ad firm, rose 22 percent in the quarter, largely because of Google’s ad-buying changes. It was the first time that tablet ads cost more than those on desktops, and advertisers increased spending on smartphones 25 percent, the most of any device category.
“There used to be a discount you would get for going after traffic on tablets instead of desktops,” said Keith Wilson, vice president for agency products at the Search Agency. “Now that is disappearing. That is what is going to drive up C.P.C.’s in the mobile space. This has been a catalyst for prioritizing mobile.”
But it was too early for the results of the new ad program to show up in Google’s financial report, company executives said Thursday. The price that advertisers pay when Google users click on their ads decreased 6 percent from last year and 2 percent from the previous quarter, declining for the seventh quarter in a row and at a steeper annual rate than in the previous quarter.
Mobile ad pricing is “one of the many factors at work” affecting click prices, said Nikesh Arora, Google’s chief business officer. Google is in the early stages of enhanced campaigns and it will most likely take a year for the results to become apparent, he said. He added that another important metric at Google, the number of clicks on ads, is up 23 percent over last year, partly because of increased mobile use.
Larry Page, Google’s chief executive, said that six million advertisers had already switched to enhanced campaigns. American Apparel, according to Google, doubled its mobile conversion rate with the new ads, and M&Ms, the Mars candy brand, increased it by 41 percent.
In addition to enhanced campaigns, Google is doing other things to improve its mobile offerings and its profits from mobile ads. It has been encouraging Web sites to improve their mobile versions, and last month it said Web sites without easy-to-use mobile versions could fall in search rankings. And it introduced its product listing ads, for shopping, to mobile devices.
Google reported second-quarter revenue of $14.11 billion, up 19 percent from $11.8 billion a year ago. Net revenue, which excludes payments to ad partners, was $11.1 billion, up from $9.2 billion. Net income rose to $3.23 billion, or $9.54 a share, from $2.79 billion, or $8.42 a share. Excluding the cost of stock options, Google’s second-quarter profit was $9.56 a share.
Analysts had expected net revenue of $11.33 billion and earnings, excluding the cost of stock options, of $10.78 a share.
Adding to the disappointing results was a $342 million operating loss at Motorola Mobility, which is expected to introduce a new phone, the Moto X, this summer.
As shareholders and analysts wait for Google to find the next product to reignite revenue growth as the core search business slows, Mr. Page acknowledged the challenges of building new products that reach people on the same scale as search.
“It’s pretty easy to come up with ideas,” he said. “It’s pretty hard to make them real and get them to billions of people. And that’s to me what’s so exciting.”
Source: Ny Times
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