Google’s efforts to increase mobile ad prices
As we can expect, much of Google’s revenue comes from ad clicks. Google made more than $15 billion during the first quarter this year, with their ad revenue reaching $10.5 billion according to their earnings report. This however, fell short of expectations. This could be due to the fact that the advertising industry is shifting to the less expensive mobile industry. Even though the amount of paid clicks were up 26 percent from a year earlier, Google still did not meet expectations, while still having a 19 percent increase in revenue from the previous year. Although, the cost-per-click decreased by 9 percent over the year, Google expects that prices will increase for mobile ads and wants to prove that mobile clicks are in fact more valuable than people believe they are right now.
We have discussed in class that ads are sold using a second price auction such that the winner pays the price-per-click. Since mobile ads are currently less valuable than desktop ads, their click-through rates must not be high enough for advertisers to value each click very highly. Therefore, advertisers in general bid lower for mobile ads and the overall price of mobile ads is lower than that of desktop ads. Advertisers clearly still want to be featured by Google on search pages because the number of clicks has increased substantially. In order to increase its revenue, Google hopes to use tools to increase the prices of mobile ad clicks, including systems that would monitor consumer behavior from the first click to them purchasing an advertiser’s product. This could show advertisers how valuable mobile ad clicks are, and increase the value of each click to the advertisers so that they increase their price-per-click and increase the value of Google’s ad slots.