Finally! After all this time I can finally afford to own a little piece of Google equity based Heaven…ok, well, maybe I’m getting a little ahead of myself here. I have to admit, as someone whose professional well being relies primarily on the little text ads shot out by the world’s most powerful search engine, it was difficult to not crack a smile when I heard about the recent dip in Google’s stock price. Google is one of the most innovative companies in the world, but that doesn’t mean they don’t deserve to be challenged once in a while – we do have anti-trust laws in this country for a reason, don’t we?
As many of you already know, Google’s stock price fell more than 9% last Thursday during after hours trading in response to the company’s fourth quarter numbers – numbers that only look sluggish when compared to the outstanding numbers (in terms of growth) published by the company in their last fiscal year. An interesting side effect of the recent drop in stock price is the spotlight that paid search advertising is receiving – PPC may consume our world’s but my day to day interactions with executives across a variety of industries has taught me that the majority of people vaguely understand what SEM is or does. The root cause of the drop in price: the amount of paid clicks rose 34% in the fourth quarter YoY, but the average cost per click on these ads fell by 8% – this was enough for Google to not meet vigorous growth projections set by industry analysts.
Now, this is where I get confused. Analysts everywhere are reportedly “pointing the finger” at the growth in Mobile advertising that has lead to the overall drop in average cost per click… Mobile? Say what? I don’t know if I agree with this, actually yea…I completely disagree. In my experience, Mobile has not been “cheaper” than advertising on Desktop – in fact, it is often more expensive. And this makes sense, doesn’t it? With the boom of Mobile advertising continually “on the horizon” the competition for PPC ads to show on the tiny space available on smartphones has sky-rocketed. Whether this competition is viable or not is really a matter of opinion, conversion rates for Mobile advertising varies substantially from one industry to the next. This via Efficient Frontier:
“Mobile and tablet CTRs are higher than desktop campaigns. CPCs are higher on mobile than tablets at 108% and 85% respectively than Desktop. Conversion rates on mobile and tablets are still lower than desktop conversion rates at 31% and 96% respectively representing the need to continually optimize mobile platforms for higher performance.”
If there’s trouble in paradise, Google is aware of it. As it turns out, Google’s spending in the last quarter actually outgrew revenue – 35% compared to 25%, respectively. And what are they spending all that cash on? Well, turns out it’s the Display Network. Google cannot rely solely upon Search for the majority of its revenue in the long term – Larry Page understands this. Google needs to diversify – and with the Display Network on track to generate $5 billion per year, they are doing just that. The growth in the Display network explains the drop in cost per click (Content being undeniably cheaper than Search,) not the growth in Mobile advertising – my opinion.
As I alluded to earlier, Google finally has some healthy competition – Amazon, Facebook, Apple, these just being a few companies that pose a threat to the search powerhouse. The truth of the matter is, everyday there is a company that releases a product that allows consumers to bypass search engines in general – mobile applications come to mind. I would much rather open my Yelp application on my iPhone and read reviews for local Seattle restaurants than do a search on Google and muddle through organic listings. Think about Apple’s Siri product – how ingenious is that? Take away your consumer’s need for your competition’s product, bring the information directly to them…keep the customer in-house. Amazon is no different, by giving consumers the ability to compare prices against competitors, who needs a search engine? In sum, these are just some examples of more “industry” based threats to the Google money making machine. Does this mean Google is going to go away anytime soon? No…but should Google see these competitive threats sitting outside their window, absolutely. If they don’t, expect the overall cost per click to continue to decline.