Don’t relax, Google. Integrate July 18, 2011Posted by David Card in Uncategorized.
Tags: ad networks, Advertising, advertising businesses, advertising networks, Google plus, hot social media, larry page, online advertising, search-quality problems, social product, Susan Wojcicki
Google is on a tear. It just had a great quarter (revenues up 32 percent to a record $9 billion), 550,000 Android devices are activating daily, and with Google+ it finally has a social product generating positive buzz and attracting users (10 million in limited release). CEO Larry Page is pleased with the progress of Google’s reorganization around product-oriented business units. But Page can’t just sit back and let those business units go their merry ways. Google faces key challenges to the growth of its core search and advertising businesses that it could address with better product integration.
For all the talk of search-quality problems and threats from social search, Google still dominates the market with a 65 percent share. But there are worrying signs. U.S search query volume is pretty flat. And while Google’s paid clicks were up 18 percent in the second quarter, that’s slower than revenue growth and actually down from Q1. Google’s average price per click growth was also a little sluggish, at 12 percent.
Sales VP Susan Wojcicki said on the quarterly earnings call this week that the primary growth drivers of paid search are query volume and Google’s ability to deliver better-quality results. But Google conceded that one of its key quality initiatives had actually hurt revenues a bit by featuring sites that weren’t advertisers — its Panda algorithm tweaks, which aimed to diminish the influence of content farms. Over time, improving relevance will pay off in user loyalty and more clicks. Meanwhile more improvements to results formats would get paid click rates up.
Getting deeper into display
Google needs more higher-priced display ads so that it can make better integrated use of the valuable data it gleans from search to create accurate display targeting. Google doesn’t break out display-ad revenues in its financial reporting, and you’ll get different estimates of its size. But the company has two components to its display business: an ad network selling mostly low-cost ads on third-party sites and the advertising it sells on its own properties like YouTube and Gmail.
The real money is in owning the pages that show ads, as Google’s ad networks keep only about 30 percent of the sale. On the call, Google ducked a question on whether it needed more “owned and operated” ad inventory: The answer is that it does. YouTube is getting more aggressive in advertising experiments like its skippable ads (which already compose a third of inventory, according to Wojcicki) and in pushing pricey sponsorships. But Google hasn’t said anything about advertising on Google+, which might be its next big source of page views. It is promising Google+ company pages, but it likely won’t charge for them, because archrival Facebook doesn’t. It needs to integrate Google+ inventory into its ad networks, so it can make money selling ads that drive traffic to company pages, just like Facebook does.
Connecting some more dots
Google has an impressive collection of local assets with Maps, search and Offers. But they’re only lightly integrated so far. And adding a one-page sign-up form is no substitute for having a local sales force that could package search, display, offers and analytics for marketing-challenged small businesses in a way that no other company could match.
While Google brags about Chrome’s 160 million users, it has only 12 percent market share. I’ve been dismissive of browsers as technology platforms, but Chrome could do web-wide what Google is doing with its promotional black toolbar on its own sites. That could be a powerful incentive for +1 and Google+ usage.
Don’t get me wrong. Google’s business is in solid shape. But a little more integration would help ensure growth and defend against would-be usurpers. Page pointed at Google’s visual redesign as a cross-group initiative: He just needs a few more of these.