All told, Google produced over $50bn in 2012, a milestone for the company, and, much to the liking of investors, it appears that the company may be getting a handle on mobile.
More and more consumers are performing searches on mobile and tablet devices, and while the challenges Google faces in monetizing its mobile users may not be as steep as, say, Facebook, the Mountain View search giant has learned the hard way that all clicks aren’t created equal in the eyes of advertisers.
That became obvious in the third quarter of 2012, when Google reported that a year-over-year drop in the average cost per click of 15%. There was a drop in this last quarter, but it was only 6% year-over-year, suggesting that the rise in mobile and tablet clicks won’t lead to a collapse of Google’s cash cow.
Out of the woods?
But just because Wall Street is happy that the average cost per click isn’t in free fall doesn’t mean that Google is out of the woods yet. As the New York Times’ Claire Cain Miller points out, the future is uncertain and Google still has its work cut out for it.
Google’s CEO, Larry Page, admitted as much in yesterday’s earnings call. “We’re in some uncharted territory because of the rapid rate of change in these things, but I’m very optimistic about it,” he told analysts. “I think the CPCs will improve as the devices improve, as well.”
The savvy advertiser: Google’s biggest worry?
But is Page correct? Notwithstanding the fact that advertising on smaller screens is a different proposition, particularly on mobile devices, which are inherently intimate and personal, there’s another interesting possibility to consider: advertisers are simply getting smarter.
The average CPC, like Google’s stock price, may theoretically have no limit, but in reality, there is always a limit. As advertisers become more adept at managing their AdWords campaigns, culling poorly-performing keywords and identifying less competitive keywords that deliver good performance, many will naturally have a tendency to spend less on each click than if they were chasing the most competitive keywords and ignoring underperformers.
From this perspective, the biggest threat to the Google average CPC figure is the savvy advertiser. The good news for Google, of course, is that savvier advertisers are a good thing.
Yes, they might be less prone to overbidding for clicks, but they’re likely going to be more pleased with their results and highly invested in Google as a platform, and if they spend more on Google overall, Wall Street might eventually come to realize that even though Google gets paid by the click, the amount it gets paid isn’t the best metric by which to judge the company.