Google’s Quarter Hurt By Mobile Ad Struggles

Mobile AdvertisingWhen Google announced its Q1 results last week, they were immediately hit with over a 3% drop in its stock price, even though they earned nearly $3.5B on $15.4B in sales. Its revenue growth was greater than 19%, and it remains one of the world’s most profitable companies. So why the stock drop?

Spell its trouble with a capital “T”, as in Trends. The shift from desktops to mobile devices is happening rapidly, and the Google business models are struggling to keep up. Long driven by pay per click advertisers, Google now faces a mobile world where far fewer viewers click, so ads become far less valuable. The results indicate the average cost per click ad fell about 9% in the first quarter. The result, they missed analyst expectations by a wide margin.

In addition to PLA growth (see tomorrow’s thoughts), Google saw growth in its image tie-in business, where searching for the picture of a coffeemaker returns listings of coffeemakers on sale, and growth in clicks related to ads served on Google’s and its network member’s sites.

But long term, as much as Google talks about its great long-term position, the future is mobile, and a changing audience for its ads. Having abandoned its hardware business this quarter via a sale to Lenovo, they should now be able to focus on mobile improvements.

We believe it will take a new form of advertising to succeed, one with the traceability of pay-per-click, but also tied to location. Couponing would seem to be the idea target area, but users are still trying to determine if they like their smartphones becoming unsolicited ad servers.

If you have a better idea, it could probably make the amount Facebook paid for WhatsApp look like pocket change.

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