Google's announcement of its Q1, 2014 earning report caught the Wall Street by surprise. The search behemoth missed the analyst estimates, something that has been unexpected from this company so far.
Google scooped up $15.42B in Revenue, representing a 19% increase. But what triggered the anxiety was its key revenue metrics – Cost per Click (CPC- or the amount a user pays to Google when the person clicks on the URL in the paid search) dropped by 9%.
While the overall Click Volume went up by 26% (more users clicking more), the combined effect was a net revenue increase of 19% only. In itself, this drop in CPC would not be giving the company (and the investors) sleepless nights, what got this exacerbated is the fact that CPC has been dropping now straight for 8 quarters!
The general take of the market has been that clicks are rising on smartphones (thanks to their explosive growth- Benedict Evans
Developing and emerging markets are driving the smartphone growth.
However, advertisers are not as convinced about advertising on your mobile phones. The level of competition has dropped therefore, depressing average prices. Google took some steps to address this issue three-four quarters ago (remember Enhanced Campaigns). Apparently those have not been enough to shore up flagging prices.
World Going Online
One other fact, that has not caught much attention, is that the share of International Revenue has been rising steadily in Google’s total revenue. It crossed 57% in this latest report. Google revealed its income from UK, which has been at 10%.
The Internet Trend Report 2013 from KPCB illustrates the larger share of global visitors to the Top Internet properties
These observations lead to the following two inferences:
1. The rise in click Volume is mostly coming from regions outside US (and developed world) driven by mobile traffic. Generally the CPC rates have been lower in developing and emerging countries than in US/UK/EU (ask any SEM vendor or a webmasters running Google Adsense program worldwide)
2. Paid Search Click Volumes in the developed markets are probably reaching saturation levels, and advertisers are searching for alternate channels like Facebook or Twitter or...
Interestingly Adobe releasedits Q1 Social Intelligence Report and found that the CPC on Facebook has gone down 11% quarter-over-quarter while its impression and click volumes have grown!
These are early indications that the days of windfall revenue growth from paid search are numbered, whether from desktop or mobile visitors.
And it is the time to kick off the search for the next Holy Grail in digital marketing!
