If Google has been struggling to find a solution to falling mobile advertising prices, it appears to have found a solution this quarter: sell more ads and sell them quicker. It may seem simple, but it has taken Google a while to come up with it. The result is a spectacular 12 percent rise in revenues to $14.9 billion year-over-year, with profits close to $3 billion -- and a promise of more to come in future quarters.
Even after Google paid off its advertising partners, its revenues were $11.9 billion, about $227 million higher than analysts expected.
Google vs. IBM
There are many lessons that can be taken from these figures, but the obvious one is that despite everything, the market for technology and technology related products is still buoyant, even if yesterday’s figures from IBM suggests otherwise.
For IBM, the lesson must surely be that it’s really missing the boat as it continues to push hardware that is just not resonating at the moment. The smart money is in mobile, which Google has just demonstrated, and cloud computing, which IBM demonstrated despite its hardware woes during the week.
While it is likely we will see some changes in IBM’s hardware strategy in coming quarters, it is still too early to say what shape this will take. But it’s a good bet there will be considerable scaling down in hardware development as more enterprises move to the cloud.
Google Ad Prices
But back to Google. In the past few months Google has been under a lot of pressure from investors to deal with the fall in ad prices. The pressure is being applied as consumers access more ads through smartphones and tablets, where ads are cheaper but also less effective than on desktops.
This is reflected in the fact that for the eighth straight quarter the price advertisers are prepared to pay for click advertising has dropped as consumers are still holding back on buying from small screens.
However, if advertisers are prepared to pay less, consumers are clicking more. As it expands beyond delivering ads beside search results on desktops, Google’s revenues are rising on the growing demand for campaigns and promotions that land on smartphone applications, news clips or web browsers in tablets.
The number of paid clicks jumped by 26 percent, which more than made up for the 8 percent drop in the price of mobile ads. In the course of the next year, Google will consolidate its position as the top mobile ad publisher.
Google’s Market Position
At least that’s what digital marketing reseraher eMarketer has said. In its reaction to the results, it stated that Google will take 53.1 percent of the worldwide mobile ad market this year, representing 33 percent of the revenues from the global digital ad market, up from 31 percent from last year.
Even with Facebook expected to increase its share of that market, it will still only manage 5.4 percent, while Yahoo! will see its cut dropping.
This follows the introduction of Google's enhanced campaign initiatives during the summer, which obliged those taking out desktop ads to buy mobile ads at the same time. If there was some dissatisfaction with this, it certainly has paid off handsomely for Google.
Speaking about the drive to increase volumes, Google CEO Larry Page said in a conference call yesterday it was in keeping with the founding principles of the company:
My goal was to ensure that Google maintains the passion and soul of the startup as we grow…That’s why I worked so hard to increase the velocity and execution."
If there was a fly in the ointment, it has to be Google’s ongoing inability to turn a buck with Motorola. Bought in 2011 for $12.5 billion, it was the biggest buy Google ever made. Despite ongoing efforts to turn it around, it is still bleeding money at an alarming rate.
This time around, revenues dropped by 34 percent to $1.18 billion with no obvious silver lining. However, it continues push for a big market share here and introduced a new smartphone in August called the Moto X, which it hopes will turn things around.
Overall, though, the results sent Google's shares up nearly 8 percent to $959 in after-hours trading in Europe after closing at $888.79 in New York. If this pattern continues, share prices are likely to hit record highs by the end of trading today.
Where the figures go this quarter are anyone’s guess, but based on current performance, it doesn’t look like they will be heading south. More on this as it happens.