A decline in the average cost-per-click reported by Google for the fourth quarter of 2011 has many questioning what role the growth in lower-priced mobile advertising might have played in its unexpected drop.

Google said it had another record quarter for mobile advertising as mobile search continue to grow across all platforms and the number of clients using mobile within their campaigns escalates. However, the company also reported an 8 percent drop in the average cost-per-click, which could have been driven, in part, by clients shifting their budgets from higher-priced desktop paid search to lower-priced mobile search ads.

?With mobile advertising still in a growth phase, we should actually expect prices to continue to come down as advertisers learn what the media is worth and more competitors enter the market,? said Dave Martin, senior vice president at agency Ignited, El Segundo, CA.

?Businesses that have relied on the hype of mobile advertising to earn large margins from inexperienced advertisers can?t survive,? he said.

?We saw the same thing happen with display ad networks a few years ago.?

Price pressure
Google reported its financial results for the fourth quarter of 2011, which were strong overall, including a 25 percent increase in revenues for a total of $10.58 billion.

The paid search business saw a 34 percent increase in aggregate paid clicks.

The 8 percent decline in CPC was significantly different than what was expected, with analysts looking for a slight increase for the fourth quarter.

In a conference call with analysts to discuss the results, Google executives said the biggest reasons for the decrease in the cost-per-clicks were changes made to ad quality and formats as well as foreign exchange issues.

However, Google executives also stated ?mix effects with mobile and emerging markets? had an effect. This suggests that as marketers increase their budgets for mobile paid search strategies this could be coming at the expense of desktop paid search, which is typically more expensive than mobile.

As mobile advertising continues to grow, ad networks are likely to feel an effect on their bottom lines.

?The price pressure is going to force the networks to distinguish themselves from their competitors through better performance, better service, more offerings or more reach in order to survive,? Mr. Martin said.

?We?re starting to see some of the mobile ad networks expand their businesses into other areas like big data, multi-screen video and e-commerce,? he said.

?We?re expecting to see the line between display ad networks and mobile ad networks blur as tracking technology and audience targeting become more ubiquitous across more screens.?

One step Google could take to further monetize its mobile strategy is by enhancing the customization and segmentation offered to advertisers.

?Google best bets are to continue to build the infrastructure to handle the enormous increase in demand on mobile advertising, and to start gathering and mining the data in their Android network,? Mr. Martin said.

?Mobile advertising overall is still only a small portion of Google?s revenue,? he said. ?And the growth of their Android footprint, Google?s mobile opportunity - gathering valuable data from every Android owner - and revenue stream are only going to grow.?

Better advertising
Google executives said the company is seeing mobile usage continue to grow significantly as Android devices proliferate and as consumers user their devices for more activities.

The company is in early stages of monetization for Android but executives say there is a lot of potential to make money on the operating system. Some of the ways that Google currently makes money off Android includes search on apps and in-app purchases.

Mobile advertising companies can drive more revenue by focusing on creating advertising solutions that are not a one-off proposition.

?Mobile advertising is a rapidly growing and important part of Hipcricket?s business,? said Eric Haber, chief operating officer at Hipcricket, Kirkland, WA. ?Key to our offering is our post-click engagement platform.

?Rather than looking at mobile advertising as a one-off, an increasing number of Hipcricket clients use our mobile advertising solutions as a means to move product and build awareness, but also to re-engage the user,? he said.

?Several have employed our advertising solutions to grow their opt-in databases. An opted-in consumer is extremely important to our customers and commands higher premiums.?

Overall, spending on digital marketing overall is growing as marketers increase their spend on both mobile and online inventory.

However, mobile inventory is currently growing at faster pace than mobile advertising budgets.

?My sense is that the low pricing of mobile inventory reflects the current embryonic nature of that market, where advertisers are still only dipping a toe in the water while mobile ad capacity is surging,? said Nitesh Patel, London-based senior analyst for wireless media strategies, Strategy Analytics. ?This also indicates to me that the low pricing of mobile ad inventory is having a minimal impact on the overall picture.?

Final Take
Chantal Tode is associate editor on Mobile Marketer, New York