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Google posts second consecutive quarterly drop in cost-per-click

The average paid cost-per-click by marketers trying to reach consumers via Google search declined for the second quarter in a row as paid search budgets increasingly shift from desktop to less-expensive mobile search ads.

Google said the average cost-per-click dropped approximately 12 percent over the first quarter of 2011 and 6 percent over the fourth quarter of 2011 during the first quarter ended March 31, 2012.  During a conference call with analysts to the discuss its financial results, company executives emphasized that the business overall is healthy and that many different factors go into determining shifts in CPC.

?Our business is healthy,? said Patrick Pichette, senior vice president and chief financial officer at Google, Mountain View, CA. ?We believe that shifts in CPC and paid clicks taken independently really do not reflect the fundamental health of our business, which we believe is very healthy.

?One important signal we have for advertiser demand is bidding behavior and, in fact, our advertiser bids continue to be very strong and are growing,? he said.

?If anything, the recent lower CPCS present a great opportunity for advertisers to get an even better return on their ad spend.?

Multiple variables
Mr. Pichette said there is a complex set of dynamics with multiple variables in play that affect CPC and paid clicks, including shifts in mobile vs. desktop vs. tablet, shifts in emerging markets vs. developed markets and ad quality changes.

The drop in CPC reported by Google for the first quarters follows 8 percent CPC drop posted by Google for the fourth quarter of 2011.

However, while the cost-per-click is declining, the volume of paid clicks continues to increase. Google said the number of aggregate paid clicks increased approximately 39 percent in the first quarter of 2012 compared with a year ago and approximately 7 percent from the fourth quarter of 2011.

During the conference call, Google also pointed to some of the ways that it continues to build its mobile business, including recently introducing a new click-to-download format that helps developers and marketers promote apps.

During the first quarter, Google also scaled its GoMo initiative to help small and mid-size business launch mobile sites.

Other news reported by the company includes that 850,000 Android devices are activated every day, Google Chrome now has over 200 million users and its display business has reached an annualized run rate of $5 billion.

Mobile search grows
Mobile has been growing for Google across platforms and as the number of clients using mobile within their campaigns escalate, with that growth expected to continue.

Marin Software recently forecast that 25 percent of all paid search clicks on Google will come from mobile by the end of the year.

One reason for the expected growth is that, despite significant growth in mobile search last year, ad budgets still lagged behind the click volume from smart mobile devices.

Marin reported that Google?s share of clicks from mobile devices grew 132 percent last year.

At the same time, the share of advertisers? search budgets being funneled into mobile jumped 156 percent to 8.7 percent.

Per Marin, advertisers are going to have to more than double their budgets to catch up to the level at which consumers are searching via mobile.?

While mobile advertising is growing, it is still only a small portion of Google?s revenue and prices could continue to come down as advertisers gain a better understanding of what the media is worth.

Monetizing mobile
One step Google could take to further monetize its mobile strategy is by mining the data from its Android platform to offer additional customization and segmentation to advertisers.

The company continues to expand its mobile footprint via Android as well as the growing mobile-social integration offered by Google +. These offer their own monetization opportunities, including search on apps, in-app purchases, and mobile-social brand integrations.

Google said its overall revenues for the first quarter totaled $10.65 billion, an increase of 24 percent from the first quarter of 2011. Traffic acquisition costs totaled $2.51 billion, or 25 percent of advertising revenues, during the first quarter of 2012.

?Mobile search is absolutely playing a bigger role for Google for a number of reasons including the basic growth in smartphone/tablet market ownership, but also because the search queries here are incremental over and above desktop searches,? said Heather Pidgeon, vice president of services at iProspect, Boston. ?It?s an incremental opportunity to provide value to a user that benefits the user and advertisers alike.

?Mobile searches are proving to be incremental to desktop search ? which underscores the importance for marketers to be present,? she said.