6 Reasons Why Google’s CPCs Were Down Year Over Year by 12 Percent: Google Q1 2012 Earnings Highlights

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6 Reasons Why Google’s CPCs Were Down Year Over Year by 12 Percent – Google Q1 2012 Earnings Highlights:

Google CPCs were also down from previous quarter.  This spells trouble.

Google announced its earnings today and analysts were not impressed by the numbers mainly because it shows some chinks in the armor.  Google’s last quarter earnings were below estimates and the company reported a bad quarter with Larry Page as the new CEO. This quarter, Google beat earnings and made $10.08 per share as opposed to the $9.65 Wall Street was expecting.

Revenues for the quarter came in at $8.1 billion although the street was expecting $8.15 billion.  Google increased the number of paid clicks at 37 percent but cost per clicks (CPCs) were down last quarter and year over year.  The decrease in cost per clicks has search marketing analysts concerned that the company is losing power in the sector where it makes the majority of its revenue.  Costs per click were down from last quarter and fell year over year by a whopping 12 percent.

Here are 6 reasons Google’s CPCs went down:

Mobile – smartphone and tablet users tend to click on ads less.  Google hasn’t found a way to monetize clicks via tablets and smartphones.  It may need to change its ads to have a larger mobile ready component or make ads that recognize the device the user searched from and optimize ad serving to major mobile electronics.  The Adsense platform lacks a diversity of options for mobile devices.

Google+ risk.  We have argued for months now that Google is taking the risk of making its own search results less relevant by urging users to adopt Google+.  The impact of replacing broad searches with Google+ shares skews search results in favor of items that have been posted or commented on- by people in one’s “circle”.  This makes Google’s algorithm(s) less useful and website search optimization less valuable.

Facebook is taking share from search.  Facebook is another reason Google’s CPC’s are lower.  Facebook targets ads based on user information it has already obtained such as interests, friends, college graduated from and music.  Google currently doesn’t have the technology to serve ads in this capacity and Google+ won’t do at the moment.

Panda needs tweaking.  Google’s Panda update isn’t configured to look critically at content and determine how to rank it based on uniqueness, expertise and related keywords.  Recently, Google took away the ability for websites to see which keywords are bringing in traffic if users are logged into Google+ or Gmail by changing Google Analytics.  This creates a reproachable circle whereas website owners actually have less information to optimize their sites and ads served in the search engine results pages right column could be less relevant to organic results.

Supply and demand.  When Google was the only game in town, advertisers lined up and were willing to pay higher CPCs for the non-targeted ads because they were able to get views from lots of users.  Facebook ads, Twitter’s small business platform and other social media sites like Pandora or LinkedIn are now viable options.  Advertisers we work with routinely ask about getting more from social media and they like the ability to specify exactly what types of users they want ads served to – this invariably hurts Google.

No network effects.  Clicking on an ad from Google doesn’t help advertisers reach more people.  It helps them reach that individual.  Facebook for example allows users to click ads, or “Like Pages” which gives the advertiser positive network effects because friends get to see the activity.  Google may be changing this sometime soon by implementing some components of social media in its ads, but it may be too late for it to have an impact if Facebook grabs more market share.

The lower CPCs are a problem for Google long term if the company can’t transition to mobile, doesn’t go back to it’s search roots (Google bombing still occurs in 2012) or fails to implement Google+ in a way that is friendly towards search.  Although paid clicks increased in the quarter, the trend in CPCs has been confirmed and this a critical rate of growth issue that Google will face.  With little real competition from other search engines, Google should be able to raise CPCs in an environment where people are searching more.  These last 2 quarters could be the most memorable ones that turn Google from a growth story to a safe play.

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