How Google Still Makes Billions From Tiny Text Ads
Wall Street wasn’t particularly happy last week when Google failed to meet its expectations, despite recording $10.8 billion in revenue. The tech giant, which makes nearly all of its revenue from online ads, reported that the average cost for its ads was down more than 16 percent for both search and display ads, and the percentage of users clicking through on search ads wasn’t going up.
For that, Google’s stock tumbled from over $750 a share to under $680 as of Wednesday.
But the quarter’s results were actually good news for advertisers and Google itself, according to Larry Kim, the founder and CTO of Wordstream. which helps companies use their search budgets wisely.
Kim notes that despite the negative growth in prices companies pay per click, Google’s ad revenue climbed 16 percent year-over-year, and 5 percent from the previous quarter. That’s because the number of ads it showed went up – 21.6 percent in the case of AdWords and 29.1 percent for its display ads.
After the Google announcement last week, Kim ran what he describes as the biggest study of the AdWords funnel ever, looking at ad budgets and performance of some 2,600 companies, which he used to extrapolate trends for all of Google. The analysis was used to create the infographic above, analyzing the top 10 industries advertising through Google.
“In the end, huge increases in ad impression volumes and clicks more than made up for declines in cost-per-click and click-through rates. This research reveals that the Google economy is evolving,” Kim wrote in his analysis. “An individual click is not as expensive as it used to be, but many more impressions and clicks
resulted in yet another record quarter for Google ad revenues. I believe this is advantageous for both Google and advertisers – it’s a win-win. Advertisers can now get more customers for lower costs, which increases the value of paid search.”
When Wired first talked with Kim in 2011 about how Google makes the big bucks, what stood out were advertisers paying high dollar values for clicks on their ads, including some ads that cost over $30 a click — such as car insurance companies trying to land new customers. That was unsustainable, according to Kim.
“How do you pay $10 per click for domain name registration ads, when the item price is like $8 bucks?” Kim said, noting that even after searchers click through to a site, conversion rates are generally in the single digits.
But can Google sustain its new growth in advertising volume?
Search results pages are now filled with paid ads, pushing the organic search results almost off the page on a small laptop screen.
Kim’s not concerned, pointing to Google’s recent decision to turn its shopping pages into a totally paid inclusion system and the fact that searchers still overwhelming click on organic results.
The company can do the same thing, he suggests, with the top ten industries in the infographic above, or by starting to charge local businesses to be included in its business listings.
“If Google continues to produce interesting product listings that are relevant and engaging and interesting, I think they can make a lot of money,” Kim said.
“There’s a lot of great untapped monetization,” Kim said. “If i were Google, I wouldn’t be worried.”Source: www.wired.com