Google’s Falling Earnings
Earlier in October Google preemptively released its Q# 2012 earnings, which showed that its profits fell a whopping 20%, falling short of Wall Street expectations. Google’s stock price took a nosedive that day, and much of the decline can be attributed to rising costs and decreasing advertising prices, which is how Google earns the vast majority of its revenue. The article notes specifically that the cost per click is falling, which is the pricing model that Google uses to collect money from advertisers. This stems largely from an unrelentless shift towards mobile devices like smartphones and tablets from more traditional PC’s.
The obvious connection here to Networks is to sponsored search markets. Google is the quintessential example of a company using an ad-based revenue model. Since it uses a pay per click pricing model for its ads, it is heavily dependent on clickthrough rates to maintain solid revenue numbers. However, the fact is that mobile devices experience markedly lower clickthrough rates than non-mobile devices. This is easily explained through the fact that space for the ads is limited. Technically, the actual number of slots on the web page remains the same no matter, but screen sizes on mobile devices are much lower, making the effective number of slots much lower since users are not going to click on ads that are off the screen. Not only is this bad for Google, but it poses a challenge to the advertisers as well, since if the clickthrough rates are lower, the advertising slots become less attractive to the buyers as well. If the rates become too low, the valuation that the buyers have for the slots may not be enough to justify buying the slots in the first place. Unfortunately, the shift towards ever-increasing mobility in our technological devices seems to be here to stay, so Google’s ability to expand may rest on seeking additional revenue sources besides ads.
http://blogs.wsj.com/digits/2012/10/18/google-q3-2012-earnings/
– Max 1993