Google Ad Trends Show More Growth at Softer Pace

Revenue for Google-owned sites is outpacing revenue for partner sites. © Promise Media LLC

Google reported fourth quarter 2014 results showing a 15 percent increase in revenue versus the same period the prior year.

For most businesses, a 15 percent growth would be good news. For Google, it was fairly good news. It did reveal that the company’s ability to grow online ad revenue is still running at a decent pace, but that pace is moderating somewhat.

Earnings were not as good. They declined slightly versus the prior year, while the operating income declined from 28 percent to 24 percent of revenue.

A breakdown of the numbers shows that the volume of clicks on ads increased in line with the growth of ad revenue, but earnings per click declined.

“Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our Network members, increased approximately 14% over the fourth quarter of 2013 and increased approximately 11% over the third quarter of 2014,” the company said in its earnings announcement.

“Average cost-per-click, which includes clicks related to ads served on Google sites and the sites of our Network members, decreased approximately 3% over the fourth quarter of 2013 and decreased approximately 3% over the third quarter of 2014.”

The total number of clicks in the fourth quarter of 2014 increased substantially over the prior quarter. That improvement may be the result of more online advertising during the holiday season.

The partner share of total Google ad revenues has declined from 25 percent to 23% year over year. © Promise Media LLC

The decline in the average cost per click is widely believed to be the result of online advertising moving more and more toward the mobile environment, where RPMs (revenue per thousand) are much lower.

One interesting trend lies with partner revenue, otherwise known as AdSense. AdSense is a program in which non-Google Web sites can display ads provided by Google and receive 68 percent of the revenue generated by clicks on those ads. Google receives the other 32 percent.

When partner revenue is broken out into a separate category, the numbers show that the number of clicks declined 11 percent over the fourth quarter of 2013 and 7 percent versus the third quarter of 2014.

Meanwhile, the cost per click increased 6 percent in the fourth quarter versus the same quarter in 2013 and and 10 percent over the third quarter in 2014.

Total partner revenue continues to grow — 6 percent in the fourth quarter versus the same period a year ago.

During the same time frame, Google’s share of total ad revenue climbed 18 percent.

This continues a trend by Google where the revenue growth for company-owned sites far outpaces the growth for partner sites.

The company controls which ads appear on its sites versus the ones that appear on partner sites, so it therefore has a great deal of influence over the results on partner sites.

The numbers indicate that Google continues to value partner contributions, but they also indicate and anecdotal evidence suggests that the company is probably distributing better ads to a smaller proportion of high-quality partners.