Is Google's Core Business Actually In Trouble?

Chris CrumSearch

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Google released its earnings report for the third quarter on Thursday, and while the company managed to post a revenue increase of 20% year-over-year, analysts are concerned by slowing growth in its core ad business, which is how it makes the bulk of its money.

"We continue to be excited about the growth in our advertising and emerging businesses," said CFO Patrick Pichette.

Others aren't so excited. Paid clicks were up 17% year-over-year, but only up 2% quarter-over-quarter, and the previous quarter saw 25% year-over-year growth, which makes that 17% look worse. On top of that, Google has seen twelve straight quarters of ad price decline.

Does Google actually has call for concern here, or do you believe that this is not an indication of significant trouble for Google's future? Share your thoughts in the comments.

Google's average cost-per-click decreased 2% year-over-year and remained consistent from the second quarter. As Tim Peterson at Ad Age notes, the big question heading into Google's reports for a while now, is whether the company has gotten advertisers to pay more for ads, and "as of Thursday, the answer was: Still no."

"This continues a years-long trend driven by more people being exposed to Google's ads on their smartphones and tablets and advertisers' unwillingness to pay as much for those smaller-screen ads as they do for desktop ones," he writes. "Google has tried to reverse this pattern, but been so far has been unable to."

Google doesn't break out mobile ad numbers separately from desktop, which would obviously give people a better picture of what's actually happening. The fact that they don't do this would seem to suggest that mobile isn't doing as well as the company would like, but Google tried to paint a more optimistic picture during its conference call.

Pichette told analysts, " I mean, look, it's very clear that mobile is still a big part of our growth. And we're very pleased about it. I mean, it's -- but when we talk about mobile, I think there's a couple things. One is you have to continue to look at both the growth in volume and the growth in pricing. So these are long-term trends that we're seeing. The CPCs and the clicks, they can fluctuate from quarter-to-quarter. It just happens that we've made some changes this quarter that improved the mobile pricing while impacting the lower quality clicks and that's what you see a bit reflected in our numbers."

Interim Chief Business Officer and special advisor to the CEO, Omid Kordestani, later said, "The way we're focusing this is that users really are using their screens interchangeably simultaneously throughout the day and that we really are not at this point doing this like-by-like comparisons or comment on it because we think it's still early and we're really focused on just again delivering the results. And it took many years, for example, for the desktop ecosystem to develop the right ad formats and really take advantage of the platform. So I think we just need to continue innovating here, experimenting here to get it right."

Seeking Alpha has a full transcript of the call here.

The New York Times has a report out about Google's woes suggesting that Google's search business is "showing signs of age."

In response to that, Stephen Arnold, a tech and financial analyst with over 30 years of experience, writes, "The innovations are mostly wrapper code and tweaks that generate more money for Google. Keep in mind that the vaunted business model is pretty much what GoTo/Overture/Yahoo had and did not leverage. We have, therefore, a bit of Clever, some voting, and the PageRank method disclosed in a patent held by Stanford University. The innovation engine at Google has been to graft GoTo/Overture/Yahoo with a bit of Oingo (Applied Semantics) and ignite the race to be number one on a page of Google results. Ta da. A business model that works. Keep in mind that Google is, as Steve Ballmer said, before he bought a basketball team, a “one trick pony.” A monoculture of money with an aging DNA."

As his article implies, there's also the distinct possibility that Google actually knows what it's doing, and that analysts' blabbings are basically noise from those that don't really see the big picture.

Interestingly, CEO Larry Page hasn't had anything to say about any of this. He's been staying away from the quarterly conference calls for a while now, but he didn't even contribute a statement to the earnings report this time.

What do you think? Is there real concern here? Is Google's core business really in trouble? Share your thoughts in the comments.

Image via YouTube

Chris Crum

Chris Crum has been a part of the WebProNews team and the iEntry Network of B2B Publications since 2003. Follow Chris on Twitter, on StumbleUpon, on Pinterest and/or on Google: +Chris Crum.