Advertising Experts: Ignore Google’s Earnings, It’s Doing Just Fine

From my Forbes.com blog The New Persuaders:

After reporting disappointing third-quarter earnings, and giving investors a few extra hours to sell their shares to boot, Google saw its shares hammered before trading was halted. But while Motorola Mobility, which Google acquired for $12.5 billion in May, clearly is a big drag on the company, ad folks say its core business is just fine.

Bryan Wiener, CEO of the digital marketing agency 360i, a specialist in search advertising in particular, says Google’s core business still appears healthy. The only hitch, he says, is that mobile ad prices per click are still 30% to 50% lower than desktop clicks, but he says that gap is narrowing as mobile cost-per-click continues to rise.

The main issue is not so much that advertisers view mobile ads as less effective. There are actually two other issues.

First, there’s still less competition for mobile ad space. And since Google ads are sold by auction, less competition means lower prices.

Why is competition less? That brings up the second issue: It’s not yet clear precisely what impact mobile ads have. They don’t work exactly the same as desktop ads, where people customarily conduct a search, click on an ad, and then a certain percentage buy the product. That’s easy to track.

On their mobile phones, however, people are more often searching for a store, rather than looking to complete a transaction online. They may well end up buying in that store–some companies are starting to provide ways to track that connection, and marketers anecdotally know it’s happening–but separate databases for online and store activity still means it’s tough to close the measurement loop.

Wiener thinks that will get solved eventually. Even in the short term, mobile search ads that are still Google’s bread and butter are better positioned to show their value than mobile display ads, which may appear in hard-to-track apps and still aren’t standardized enough for marketers to spend big bucks to reach broad scale. That means Google for now is likely to fare better in consumers’ rush to mobile than, say, Facebook and Yahoo. “Everybody is still bullish on mobile search,” says Wiener. “But it’s still very early in the game.”

Looking ahead to the fourth quarter and beyond, says Wiener, “our clients are cautiously optimistic” about search ads in particular despite the uncertainty of the economy and the election. …

Read the complete post at The New Persuaders.

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3 Reasons Google Missed Q3 Earnings Estimates

From my Forbes.com blog The New Persuaders:

Google’s shares plunged this morning by 9% after the search giant’s third-quarter earnings came in considerably lower than expected. The results were accidentally released hours earlier than expected, leading to a halt in the shares’ trading for a time.

Google earned a $9.03 per share profit before certain expenses, far below the $10.63 Wall Street consensus estimate, and down 20% from a year ago. GAAP profit was $6.53. Net revenues after paying partners for traffic were $11.53 billion, up 19% from a year ago. That also missed the Street’s estimate of $11.9 billion. Paid clicks, a key indicator, rose 33% from a year ago, and cost per click, another key measure but one whose meaning is murky, fell 15%.

So what happened? Here’s a quick assessment, which will be supplemented in a new post following the 1:30 p.m. Pacific earnings call:

* Costs jumped. They were up 71%, to $11.4 billion. It appears much of that increase came from Motorola Mobility, which Google acquired for $12.5 billion in May. After all, the acquisition added more than 20,000 employees. As Citi analyst Mark Mahaney said in a note to investors: “Bottom line divergence partly due to Amortization expenses, which came in at $317MM vs. our $197MM estimate. That contributed perhaps $0.40 of the EPS shortfall.” Update after the earnings call: But not just that. CFO Patrick Pichette specifically mentioned costs of selling the likely near-zero-margin Nexus 7 tablet Google released during the quarter–a single product line, so the company’s is clearly pushing it hard.

* Motorola losses were huge. The unit posted a $527 million loss on a GAAP operating basis. Mahaney again:  “Another major delta was Motorola, which generated $151MM Op Loss vs. our $28MM estimate.”

* Ad revenue didn’t set records. It was up 16% from a year ago. Although lower cost per click isn’t always an indicator of a problem, in this case, the fourth consecutive decline has investors wondering anew if it’s due to the lower prices mobile ads get or even competition from the likes of Facebook. …

Read the complete post at The New Persuaders.

Mobile Ad Spending Doubles in 2012’s First Half

From my Forbes.com blog The New Persuaders:

Mobile ads drove a 14% rise in online advertising revenues, to $17 billion, in the first half of 2012, according to a report out this morning from the Interactive Advertising Bureau and PricewaterhouseCoopers.

According to the IAB’s latest half-year report (full pdf here), mobile ad revenue jumped 95%, to $1.2 billion, or or 7% of total online ad revenues. That’s up from 4% a year ago. The reason is fairly obvious, and something every company from Facebook to Google is struggling with: People are increasingly accessing online service through smartphones and tablets, thanks to the popularity of the iPhone, the iPad, and Android devices, and advertisers are following them there.

The 14% rise pales next to a 23% rise a year ago, though the IAB attributes last year’s jump to a recovery from the recession. Online ad spending continues to far outpace overall advertising spending, which rose less than 1%, according to both Nielsen and Kantar Media. Television remains the one relatively bright spot in traditional media, though its growth also remains far behind digital. Cable saw a 4% increase, to $10.9 billion, and broadcast rose 3.3%, to $11.1 billion.

Performance-based ads, those seeking to elicit an immediate purchase or other action, remain dominant, and even gained ground over more brand-oriented ads. Chief among these ads are search ads, which despite their 48% share of overall online ad revenues continued to gain as a category in the first half, rising 19% to reach $8.1 billion. That means search giant Google, which reports its third-quarter earnings a week from today, still reigns supreme in online ads.

Display ads rose only 4%, to $5.6 billion, reducing its share of overall online ads from 36% to 33%. Although the IAB didn’t mention it, no doubt part of the relatively slow growth is due to the rise of more efficient (that is, lower-priced) banner ads placed via real-time bidding through ad exchanges.

“Brand dollars are moving online, but at a slightly slower pace than the last two half-year reports,” Sherrill Mane, the IAB’s senior VP research analytics and measurement, said in a conference call this morning. That’s a problem, indeed perhaps evidence of a problem, for companies such as Facebook that are depending on brand marketers moving television and magazine ads online. …

Read the complete post at The New Persuaders.

Yahoo Pitches New Ad Network To Battle Google’s AdSense

From my Forbes.com blog The New Persuaders:

Search ad giant Google grossed about $10 billion last year from AdSense, the program that syndicates text and display ads to thousands of websites from the New York Times to the tiniest niche publishers. So it’s no wonder that more than two years after shutting down its own AdSense competitor, a struggling Yahoo is taking another crack at it.

Today, it’s announcing a partnership with Media.net, an under-the-radar provider of contextual advertising like AdSense’s that runs ads on websites matched to the site audience’s interests. The program, called Yahoo! Bing Network Contextual Ads, will allow websites to run text ads (like those pictured on the top right) from the Yahoo! Bing Network, the recently renamed search alliance between Yahoo and Microsoft.

The awkwardly named program has the potential to be a badly needed boost in revenues for Yahoo, which have been stagnant for a long time. Despite Yahoo’s weakened state, it still has a valuable brand, worldwide audience of a half a billion, and search ad deal with Microsoft. Those factors will lend the venture instant credibility in an online ad industry that’s an increasingly crowded, competitive morass of ad networks (perhaps including a likely new one from Facebook), ad exchanges, an alphabet soup of ad tech providers, and, of course, Google’s AdSense.

Talks have been underway between Yahoo and Media.net since 2010, even before the Yahoo Publishing Network was shut down, according to Divyank Turakhia, founder and CEO of Media.net. And Turakhia’s other related ad companies had worked with Yahoo for a couple of years before that. So don’t get the idea that this is a big new idea from Marissa Mayer, Yahoo’s relatively new CEO. …

Read the rest of the post at The New Persuaders.

Google Research: No Mobile Site = Lost Customers

From my Forbes.com blog The New Persuaders:

Google has increasingly pushed its advertising customers to create special mobile websites because, as we know all too well, most conventional websites look awful on a smartphone. Now, Google’s providing more research to back up its advice.

The search ad giant is hoping, of course, that the better mobile experience people have, the more they will use Google search to find sites and products. A poor mobile experience reflects badly not only on the sites but on Google searches that sent them there. That’s especially worrisome today as Facebook, to name one rival, and Twitter, to name another, double down on mobile advertising. And it happens that Google has some relatively new mobile ads to hawk as well.

So in a survey of about 1,100 U.S. adult smartphone users (not tablets, in this study) conducted by  market research firms Sterling Research and SmithGeiger and released this morning, Google offers advertising folks ammunition to get their laggard information-technology and marketing chiefs moving. A few of the highlights (or, in some cases, low points):

* Two-thirds of smartphone users say a mobile-friendly site makes them more likely to buy a company’s product or service, and 74% say they’re more likely to return to the site later. “Mobile is creating massive opportunity,” says Jason Spero, head of Google’s global mobile sales and strategy.

* 61% says that if they don’t find what they’re looking for (probably within about five seconds), they’ll click away to another site. Half say that even if they like a business, they’ll use its site less often if it doesn’t work well on their smartphone. “This is a wakeup call,” says Spero. “You will lose customers at the moments that matter” without a site specifically made for mobile devices.

* 72% of users say a mobile-friendly site is important to them, but a nearly unanimous 96% have visited sites that aren’t. “When you offer users a desktop experience on mobile,” Spero notes, “it’s kind of crap.”

Google’s advice: Create a fast mobile site with big buttons and text, keep steps to complete tasks to a minimum, and–you knew this was coming–promote the site with Google mobile ads for the two-thirds of people who use search to find a site. That last may be self-serving–though one Google mobile advertiser, online discount perfume merchant FragranceNet.com, told me that the ads were a significant factor in a 48% jump in mobile sales following its creation of a mobile site. But it’s hard to argue with the rest.

Beyond Search: Google Tunes Up Display Ad Machine

Image representing DoubleClick as depicted in ...

Image via CrunchBase

From my Forbes.com blog The New Persuaders:

Just a few months ago, Google sketched out a plan to bring together a wide array of its display ad buying technologies into a more coherent, easier-to-use offering. On Wednesday, it’s announcing that it has put some meat on the bones of what it now calls the DoubleClick Digital Marketing platform.

This is a little inside-ad-tech-baseball, so bear with me. But essentially, Google is gradually refining the pieces of what it hopes will be something of an operating system for online advertising, not just the search ads it dominates but the picture- and video-based ads that support most websites:

* It’s close to integrating key pieces of ad buying and creation systems that it built or acquired in recent years. For one, the ad buying system DoubleClick Bid Manager–the “demand-side platform” formerly known as Invite Media that Google acquired two years ago–will move out of beta test mode and become available to all customers next month. Google says improvements in the underlying technology infrastructure have reduced the time it takes to connect with various ad exchanges, allowing beta customers to access 16% more ad inventory on the thousands of websites that use DoubleClick. …

Read the complete post at The New Persuaders.

Cease Fire! Google Debuts YouTube App For Apple’s iPhone–With Ads

From my Forbes.com blog The New Persuaders:

So much for that thermonuclear war.

When Apple removed its YouTube app from its App Store last month, a lot of folks assumed it was one more battleground in an escalating war between it and Google. That seemed like the wrong narrative at the time, and today, it appears there wasn’t much to the supposed skirmish after all. Google has just introduced its own YouTube app for Apple’s iOS devices, specifically the iPhone and the iPod Touch. It’s available in the App Store this morning.

That means that the YouTube app, the previous version of which was created by Apple, no longer will be a default app on the devices, so people will have to manually install it. But given how popular YouTube is, millions of people no doubt will. And the upside is that the app is faster, has features such as an easier guide to channels, and allows you to share videos more easily on Facebook, Google+, and elsewhere.

Most of all, you can now watch tens of thousands more videos, in particular music videos like Taylor Swift’s above. That’s because the new app, unlike the old one, can run ads. The inability to run ads on the old one was a reason many content providers didn’t let them be viewed on the app.

More to the point for Google, this means it can now earn some serious coin from mobile visitors. That’s crucial as mobile devices become the default way people are reaching content on the Web. Google says a quarter of YouTube views, more than a billion a day, are from mobile devices.

There’s no iPad app yet, which seems like a serious shortcoming. Google says it will have one in “coming months,” but obviously sooner would be better, especially with the iPad Mini due out by next month.

Of course, Google and Apple have plenty else to fight about, from patents to mobile operating systems. So don’t expect to see Larry and Tim hugging onstage or anything. But they won’t be fighting over this particular issue anymore.

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