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With aggregate CPCs down 9pc, Google’s discovery engine competition thickens

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Google is expanding its mobile ad capabilities

While Google said that a primary driver of revenue in the first quarter was increased use of mobile search by consumers, the results reveal declining cost-per-click numbers, pointing to the growing pressure the company faces to diversify its revenue-generating offerings. 

Google’s overall revenue was up 17 percent year-over-year, with Web sites taking the largest share of segment revenue at 20 percent. However, with aggregate cost-per-click seeing a nine percent decline year-over-year, Google still faces stiff competition from other mobile platforms used to conduct searches – including Facebook and travel applications – suggesting that its continued investment in revenue-growing channels such as YouTube is well-placed.

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“One of Google’s challenges is losing mobile click share as more people start their discovery in new and different ways,” said Jared Belsky, president of 360i. “A large number of users are beginning with in-app searches, which bypass Google altogether – largely called vertical search on apps likes TripAdvisor and Yelp.

“Voice search is another area that continues to evolve and take consumers away from Google as the only search default,” he said. “Facebook is another challenge for Google, which doesn’t have the same level of audience-based targeting and in terms of time spent on mobile.

“Google needs to continue improving its search offering to ensure consumers don’t switch to Facebook for their search needs and also improve targeting capabilities. When you have audience information plus intent, that provides a powerful combination that Facebook doesn’t have, yet.”

Revenue on the rise
Google’s total increase in revenue year-over-year clocked in at 17 percent, five percent higher than indicated in 2015’s first-quarter earnings. Google’s Web sites saw a 20 percent uptick in revenue year-over-year, while Google Network Members’ sites experienced a three percent increase.

The largest gap in percentages came from the search engine’s paid clicks and cost-per-click earnings.

Aggregate paid clicks were up 29 percent year-over-year, while aggregate cost-per-click fell by nine percent, proving consumers’ willingness to interact with material they encounter from their mobile searches while highlighting the need for Google to maximize revenue efficacy elsewhere.

Paid clicks on Google Web sites saw a 38 percent uptick year-over-year, with those on Google Network Members’ sites seeing a two percent increase.

Meanwhile, cost-per-click on Google sites and Network Members’ sites fell by 12 percent and eight percent, respectively.


Mobile and tablet search continues to grow rapidly

While Google claims it continues to see massive growth in mobile search, the plethora of inventory options and platforms that consumers can leverage does put a strain on profit-generating abilities.

“Google experienced a big drop in CPCs this quarter, which is to be expected given the increased real estate and cheaper traffic available on mobile,” said Joseph LaSala, vice president of marketing, international markets at IgnitionOne. “It will be interesting to see how that drop in CPCs plays out in the next several quarters.

“We anticipate that CPCs will start to increase again next quarter, but year-over-year numbers will likely remain lower.”

Google’s attempts to fend off competition in the mobile sector resulted in the company receiving its second antitrust charge from the European Union this week. The EU charged Google with leveraging its Android mobile operating system to overshadow rivals by requiring phone manufacturers to pre-install the Chrome browser and Google Search in order to receive access to the company’s other apps.

As a result, the industry will likely keep a close eye on Google, which first encountered EU charges when it reportedly edged out competition by promoting its own shopping service in Internet searches.

Spotlight on mobile search
Per the earnings call, one of Google’s primary drivers of revenue this past quarter was the increased use of mobile search by individuals. The company also benefited from solid growth in tablet and desktop search, as well as YouTube and programmatic advertising, according to Ruth Porat, chief financial officer of Alphabet Inc. and Google Inc.

This substantial growth in search was partially due to the company’s improvements in ad formats and delivery, as well as the increasing ubiquity of mobile devices’ strong location and contextual signals.

Additionally, Google’s focus on YouTube has helped it reach more millennial consumers than ever, showcasing the lucrative potential of mobile video.

“YouTube still has incredible momentum, and we continue to invest heavily here,” said Sundar Pichai, CEO of Google, during the company's conference call.


Google claims it is pleased with the success of YouTube Red, a paid membership service

Google will continue making 360-degree live streaming more readily available after kicking off the feature with performances from the Coachella music festival.

Virtual reality and artificial intelligence continue to be sought-after mediums for the company as well.

Google’s advancements in these fields – alongside its dedication to raising YouTube and programmatic advertising spend – will likely help offset any revenue bumps stemming from declining aggregate CPCs, which may soon stabilize.

“Many industries aren’t seeing CPCs dropping,” 360i’s Mr. Belsky said. “The demand is there, and as the mobile experience improves (thanks to better UX and larger screens), it is likely that we’ll see conversion rates continue to improve.

“If that happens, CPCs will naturally rise as those clicks become more valuable and, therefore, more competitive.”

Alex Samuely is staff writer on Mobile Marketer, New York. Reach her at alex@mobilemarketer.com.

 
Related content: Search, mobile, mobile marketing, google, cpcs, cpc, cost per click, google earnings, first quarter, q1, ignitionone, 360i

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