The Optimist's Take on Google's Shrinking Ad Price Problem

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In its latest quarterly financial results, Google yet again saw a decline in the money it charges advertisers every time someone clicks on an ad, a.k.a cost-per-click. It's the end of Google's ad-sales business, says every tech business pundit, unless you look at it in a slightly different, more optimistic way. Here's the general problem in chart form via Google's earnings report yesterday:

Those maroon bars dipping below the line show that Google is earning less revenue every time a user interacts with an ad. The general narrative is two-fold, neither of the folds looking very good for Google. First, this represents a shift for all digital ad-based businesses where mobile is the fastest growing segment — ahem, Facebook —  but where ad prices are lower. Indeed, advertisers increased spending on smartphone ads 25 percent with Google, but each individual ad cost less, which is the second problem. In addition, this also suggests that Internet ads, in general, keep getting cheaper and cheaper, as they continue to lose value over time. That's the realist's way of looking at it, at least. 

The second fold comes from the optimist, known as Henry Blodget of Business Insider, who posits an additional theory. "The main reason revenue per click dropped, meanwhile, is not that mobile sucks but that much of Google's paid-click growth is coming in emerging markets, in which there is barely any money spent on advertising and revenue-per-click rates are very low," he writes.  Many technology companies are struggling to grow overseas — ahem, Apple — but these markets are less lucrative, especially for advertising, because consumers have less money to spend. Still, Blodget reasons, at least at this point, Google is fine: "Importantly, the growth of mobile is helping to drive rapid growth in overall paid clicks. So even if the average revenue per click on mobile is lower than it is on the desktop, the net result of mobile growth is more revenue, not less," he writes. This quarter, for example, CPC dropped 6 percent from the year before, but total paid click revenue increased 23 percent, "far eclipsing" the CPC problem.

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That, however, might not stay true for too long. It's easy to imagine a scenario where cost per clicks decreases, and even though total paid clicks increase, it doesn't make up for the loss. Google, however, has taken measures to ensure that doesn't happen, attempting to boost mobile ad-rates, reports The New York Times's Claire Cain Miller. Its new "enhance campaigns" program forces companies to include mobile ads, it has also threatened to drop search rankings for websites that haven't optimized for mobile. Perhaps, if you're a glass-half-full type, all these efforts plus that emerging market boom will save Google from the mobile ad problem every other tech company has to contend with these days.  

This article is from the archive of our partner The Wire.