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Google?s mobile problem: Monetization issues persist despite corrective measures

Initial results are disappointing from Google?s recent massive push to derive more money from mobile paid search, with CPC rates dropping 4 percent in the third quarter compared to the previous quarter. However, with brands such as Discover and American Apparel increasing their mobile spend on Google, the situation could still turnaround.

CPC rates also dropped 8 percent compared with the same period a year ago, pointing to the ongoing issues Google faces as search use continues to move mobile but advertisers? budgets are not transitioning as quickly. Marketers are still familiarizing themselves with Google?s many new initiatives, including Enhanced Campaigns, a bigger focus on voice search, decreased keyword visibility and total conversion metrics.

?It has been a few months since our advertisers moved over to Enhanced Campaigns on Adwords,? said Nikesh Arora, senior vice president and chief business officer at Google, Mountain View, CA, during a conference call with analysts to discuss the third quarter results. ?Clients are telling us they like the new system. Many are telling us they are still adjusting their campaigns and keywords and developing their multi-screen strategies.

?For example, we are seeing advertisers bidding more frequently on mobile keywords because Enhanced Campaigns makes it so much easier to do so,? he said. ?They are discovering how they can use the native capabilities of mobile in their ads, like location and click to call.

?An example is Discover, which has just increased their mobile spend and used it to promote their It card. Talking about mobile, they?ve also launched cross-device measurement tools and analytics.?

Mobile drives online conversions
Google has been dealing with declining CPCs for some time now as consumer use of the Internet and search increasingly migrates away from desktop to mobile, where CPCs have traditionally been lower because marketers? budgets are not keeping up with consumer use.

Despite the decrease in CPC rates during the third quarter, Google still saw an increase in revenues, which were up 12 percent year-over-year for a total of $14.89 billion. The company?s net income totaled $2.97 billion, compared to $2.18 billion in the third quarter of 2012.

Helping to drive revenue growth was a 26 percent increase in the aggregate number of paid clicks compared with the third-quarter of 2012 and up approximately 8 percent over the second-quarter of 2013.

Mr. Arora also reported that mobile is driving higher online conversions, with American Apparel finding that mobile drives 16 percent more conversions that the brand initially thought, and the company is therefore increasing its investment in mobile.

Additionally, Mr. Arora reported that Google mobile ads are driving on average more than 40 million calls per month, twice the volume compared to a year ago. Mobile is also driving new store traffic.

Enhanced Campaigns impact
Since advertising is where Google makes its money, the company?s ability to drive revenue from mobile is seen as key to its ongoing strength.

Enhanced Campaigns officially rolled out in July as an attempt to address low CPC rates in mobile by lumping paid search campaigns for smartphones and tablets in with desktop.

So far the impact of Enhanced Campaigns on CPC rates has been variable.

The good news is that tablet CPC rates are converging with desktop PPCs.

However, on smartphones the rates are pretty much flat except for some direct response marketers.

?Tablet PPCs are converging with desktop PPCs and now everyone has opted into tablets, which is a good thing for marketers and a good thing for users and a great thing for Google, because that is monetization that is hard to argue with,? said Jeremy Hull, associate director of paid search at iProspect, Boston. ?It keeps the users happy and it generates more revenue for Google.

?Interestingly, we have not seen a drastic CPC spike for smartphone clicks across any vertical, pretty much any client,? he said.

A promising future
Mr. Hull also reports that a lot of advertisers were more conservative with their search budgets in the third quarter because they were not quite sure what was going to happen with Enhanced Campaigns.

However, looking further ahead, many expect CPC rates on smartphones to begin to increase based not only on Enhanced Campaigns but on a number of other steps Google has been taking recently.

While the big news in the third quarter was the introduction of Enhanced Campaigns, Google has also introduced a number of other new strategies over the past few months and many of them have been focused on helping the search giant address the issue of monetization on mobile.

For example, in September, Google introduced a new algorithm intended to deliver better results for mobile users asking a question out loud.

Google also removed keyword visibility for marketers and started tying organic search rankings and Google Maps visibility to a Google + profile and how much that profile is being shared.

?Based on the fact that Google has 90 percent of the mobile search market share, what you are seeing Google do is they are playing all of their cards and they are playing all of their cards really to solve this PPC rate problem,? said Brian Klais, CEO/founder of Pure Oxygen Labs, Madison, WI .

?There has been a lot of those types of changes that may not seem like they have anything to do with solving their PPC rate erosion but they really do because it makes Google and all of their tools relevant and sort of driving consumers back towards the mobile experience and using that information to drive the mobile search results, whether or organic search, paid search or maps and local search,? he said.

?To speculate a little bit, perhaps some of these things that have come unannounced over the last couple of months, perhaps internally that is them seeing that Enhanced Campaigns is going to take a while to reverse the PPC trend and therefore they need to get a little more aggressive and turn up the heat.?

Total conversion metric
Another change Google recently made was to introduce a total conversion metric.

The feature is another way Google is trying to bridge the gap between online and offline media by estimating total conversions across devices using tracking metrics.

?What really makes me feel good about Google?s future plans is they direction they have been going with their total conversion metrics that they just launched that shows cross device conversion and the fact that they are also planning to include phone call conversion and offline in store conversions to this total conversion number,? iProspect?s Mr. Hull said.

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