Getting to the moon is expensive as Google’s finding out with a 30% increase in operating costs to fund its ‘moon shots’.
But while quarterly profits slipped, there’s better news on the digital advertising and marketing front, albeit with concerns still surrounding how to make money from mobile.
Google earned $2.81 billon for the three months ending in September compared to income of $2.97 billion in the same period last year - a fall of 5%.
A lot of that increased operating cost is down to CEO Larry Page's so called ‘moon shots’, projects that are potentially long term winners, but short term drains on resources, for which think Google Glass, internet-beaming balloons, a fleet of drones, and driverless cars.
One positive note was struck. Google's average ad prices in the third quarter dropped by just 2% from last year. That’s the smallest decrease for three years.
Omid Kordestani, Google’s Special Advisor to the CEO and Chief Business Officer, reiterated Google’s mission statement here which is to:
help marketers connect with customers at the right moment to drive measurable results.
To that end, Google’s been making some changes, he explained:
Our partners have driven hundreds of millions of app downloads with AdMob on our click to download formats. But most mobile apps are downloaded, used once and eventually deleted. So we launched new features to help advertisers re-engage with users post download. For example, advertisers can now deep link from their search ads directly into their mobile apps.
To succeed with multi-screen marketing, advertisers also need modern measurement tools so they can understand when their ads drive phone calls from customers resulting conversions on other devices or lead to store visits and purchases. Last October we announced estimated total conversions, our effort to help marketers better measure the value of their multi-screen advertising.
We’ve worked to continue developing this product and launched cost device measurement for display ads. Clients have already found that mobile display campaigns drive 15% more conversions than they had previously measured.
From a brand advertising perspective, the objective is:
to make digital the best possible canvas for creative and effective brand-building campaigns.
To enhance efforts here, Google earlier this year launched Google Preferred to connect brands with premium ad inventory on themost popular YouTube channels. This has been a success, according to Kordestani:
We secured upfront commitments from five top agencies: IPG, OMD, Digitas, Carat, SMG, and some major brands like General Motors and Coca-Cola.
We’ve sold out the majority of our US Google Preferred offering which represents among the top 5% of popular channels inventory on YouTube. And as a result of terrific brand events in Germany, France, UK and Australia, we’re seeing tremendous interest from local agency partners around the world.
There are also signs of more innovative digital thinking from advertisiers, he added:
YouTube is the most visible manifestation of a wider trend, argued Kordestani:
With encouragement from Google and YouTube, ABC executed a digital first marketing plan for their new fall TV line up. Their effort included custom five second-ads for TrueView and collaborations with homegrown YouTube stars.
Users are really accessing Internet on large screens with high broadband speeds. We’re getting great monetization on these screens and advertisers are really paying attention. We have seen a real shift where marketers and agencies who have historically built their brands on TV are really re-orienting this toward investments on digital.
Just again, you may know some of these metrics, but I'll say it again that we have 400 hours of content that are uploaded every minute and partner revenue is up 60% from 2012 to 2013 on YouTube.
Away from advertising and onto what used to be Google Enterprise, now Google for Work, Kordestani cited more than 1,800 signups for Google Drive for Work every week and almost 250 billion active Google Drive users, including consumer, education and business users. He said:
We continue to invest in our growing Cloud platform business, helping developers realize the promise of cloud computing by providing affordable on-demand access to world-class technology. We recently announced Google Cloud Platform for Startups and offer up to $100,000 in credits to enable the best and brightest startups to use Google’s Cloud platform.
What the quarterly numbers reiterate is Google’s continued dominance of digital advertising, argues Jack Narcotta, Analyst with Technology Business Research. But they also hint at ongoing struggles to monetise the mobile platform:
Google remains focused on expanding the breadth and depth of its advertising services, particularly those supporting its YouTube, Maps, AdWords and Performance Display platforms. The company’s results highlight how augmenting these core services are paying off in terms of revenue growth.
However, TBR expects continued margin decline through 2015 even as revenue and absolute profit increase in tandem into 2015, largely due to due to the combination in investments to expand the infrastructure that supports its advertising business and the company's expansion into markets beyond its core advertising business.
While lower margins are not an indication of long-term weakness or gaps in Google’s portfolio, TBR believes they do highlight an area in which Google is struggling to capitalize on the sustained proliferation of mobile devices, and smoothly shift the focus of its business model from desktop search to mobile devices.
This is likely to remain an issue for some time, believes Narcotta:
Recent trends illustrate that mobile devices are generating more than 55% of all internet traffic, and the decline in mobile ad prices – and corresponding decline of CPC – indicate that Google is still grappling with responding to the growth in search volume driven by mobile devices.
Mobile advertising is less lucrative for Google since, as TBR research shows, it is more difficult for users to complete transactions on mobile devices, making the leads generated by mobile ads less profitable compared to PC websites that benefit from larger screens, putting pressure on the price of mobile search ads as users click less on them.
Concern about mobile strategy is valid, adds Angela Eager of Techmarketview:
How it will master mobile remains one of the big questions for Google. eMarketer forecasts Google will account for a 37.7% of US mobile advertising this year, down from 38.6% in 2013 and 47.2% in 2012. Its global mobile ad share is estimated to decline nearly 4% to 44.6%, while Facebook will rise nearly 23% to 20.4%.
The wrestle with mobile is being played out in a very public forum, which is a painful experience for a company the size of Google and one that so many people have so many expectations of.
The digital advertising dominance remains secure on most fronts with the kind of numbers that Yahoo! CEO Marissa Mayer can only dream about. But Google needs to start delivering on mobile monetization.
While it’s early days still in this market, such is Wall Street’s conviction around Google’s role as industry leader that any sign of weakness or uncertainty is punished, as seen by the stock slide yesterday.
With leadership, comes certain burdens. But better to be a leader than a catch-up laggard like Yahoo! any day of the week!