January 22, 2010, 12:00 AM

Google reports a 13% increase in ad clicks in the fourth quarter

Google Inc. reported a 17% increase in year-over-year revenue and a 13% year-over-year increase on clicks from ads on Google.com and affiliated sites. The average cost per click increased 5% over Q4 2008.

Google Inc., which earns much of its revenue from online retailers’ paid search ads, reported a 17% increase in year-over-year revenue and a 13% year-over-year increase on clicks from ads on Google.com and affiliated sites. The average cost per click increased 5% over Q4 2008.

"Given that the global economy is still in the early days of recovery, this was an extraordinary end to the year,” says Google CEO Eric Schmidt.

The results reflect a 13% increase in ad spending, to $298 million in the fourth quarter of 2009 from $264 million in the same period a year ago, for the top 80 U.S. retailers on Google, according to a report this week from AdGooroo, which tracks online advertising. The site ranks the retailers based on Google ad spends. That spending increase came despite an approximately 5% decline in active advertisers on Google, as the search engine banned some 30,000 advertisers in what AdGooroo CEO Rich Stokes called a quality purge.

“While this typically signals a negative impact on revenues, AdGooroo also tracked increased competition for ad placement, resulting in higher ad prices for Google and unusually high click-through rates,” he says. “Google seems to be taking advantage of a strong Q4 to make some quality improvements.”

The pruning includes advertisers that Google thinks are trying to “scam” consumers, said Nikesh Arora, Google’s president for global sales operations and business development, during a conference call with analysts Thursday. “We went through one of our regular processes of looking at advertisers and seeing which ones we thought weren’t adding quality or adding value to our users,” he said. “In those cases we chose to suspend them permanently.”

Google attracted more ads by changing its policy this year to allow advertisers to bid on keyword terms that are trademarked by other companies, says Kevin Lee, CEO of search marketing firm Didit.com LLC. For instance, while Apple Inc. owns the trademark on the term iPod, Google now allows other advertisers to bid on that term and phrases that include it. “The change broadens the number of merchants who can bid on trademarked items to those who stock the items,” he says. More bidders translates into higher ad prices, he says.

“One thing Internet marketers need to be aware of is that click prices are still rising,” Lee says. “Internet marketers need to do everything they can to offset prices.” This means finding ways to convert more ad clicks into sales, he says.

In its Q4 release, Google reported:

  • Revenue of $6.67 billion for the fourth quarter, up 17% from $5.7 billion for the fourth quarter of 2008.
  • Google’s own sites, including its search engine results pages, generated $4.42 billion, or 66% of revenue, in the fourth quarter. That revenue was up 16% from $3.81 billion in the fourth quarter of 2008.
  • Google’s AdSense network, which places ads on non-Google sites, accounted for $2.04 billion, or 31%, of revenue; AdSense revenue was up 21% from $1.69 billion in the fourth quarter of 2008.
  • Aggregate paid clicks on Google sites and through AdSense increased 13% over the fourth quarter of 2008 and increased 9% over the third quarter of 2009.
  • 53% of revenue came from outside the United States, the same as the third quarter of 2009 and up from 50% from the fourth quarter of 2008.

For all of 2009, Google reported:

  • Revenue of $23.65 billion, up 9% from $21.79 billion for 2008.
  • Google web sites brought in $15.72 billion in revenue, up 9% from $14.41 billion in 2008.
  • Google network web sites brought in $7.16 billion in revenue, up 7% from $6.71 billion in 2008.

Google will focus more on video advertising in the first quarter of 2010, Lee says, echoing comments from Google executives.

“If you think about the YouTube space and the online video space I think we have seen that sort of becoming a relevant part of the media mix as far as online advertising is concerned,” Google’s Arora said during the conference call. “We are going to see more and more people get excited about advertising video, which I think is going to be another big leg for the whole industry, not just for us.”

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