Google's earnings report reveals advertisers are sticking to basics - accountability and performance get the ad dollars.
Will Facebook make more money than Google? If this question had been posed a couple of years ago, most investors and ad gurus would have laughed as a response. And just to be clear this is not about whether the circle is superior to the news feed.
Today with all the hype about Facebook and the probability that it would surpass Yahoo revenues in display, the question is very much on the table. And that is why the Google third quarter revenues, released mid-October, make for very interesting reading.
The earnings report for third quarter 2011 shows net revenues of US$7.5 billion. That's a 33 percent jump over third quarter revenues 2010. Listening to Larry Page however, you would think that Google is a social player. Such is the hold of social media that he focused on how Google Plus had passed the 40 million-subscriber mark rather than the growth in his search business.
So where did Google make money from? Mobile revenue came in at $2.5 billion, up from $1 billion a year ago. That's coming from the Android platform and AdMob. Google Sites accounted for about 70 percent of revenue while network revenue generated through AdSense accounted for the rest.
Search advertising is expected to reach US$38 billion this year growing by about 23 percent over 2010. (Source: Magna Global). This is also reflected in numbers shared by Google. Paid search clicks were up 28 percent while cost per click (CPC) was up 5 percent as compared to 2010. Therefore there were more clicks being generated in spite of price inflation.
Contrast this with expectations on Facebook revenue this year. EMarketer predicts it will top US$4 billion US with ad revenue coming in at $3.8 billion. In other words, Google generates double what Facebook is predicted to generate in a year in a quarter.
In an atmosphere of uncertainty, advertisers who desire accountability, value search. Google's success ironically emanates from search and its accountability-led approach toward display. While the focus is largely on Facebook stealing ad share from Yahoo, the fact is that Google's mobile (AdMob, Android) and display (DoubleClick Exchange) plays are cramping the others.
Google Plus is unlikely to generate any serious numbers any time soon, circles or no circles. But what the Google numbers show is that advertisers are sticking to the plain old basics. Accountability and performance get ad dollars.
Advertisers are also looking at Facebook as a platform, some to the extent of replacing their websites with Facebook pages. The Facebook advertising ecosystem is limited and there is no serious evidence yet that user data is being used to offer better targeting beyond the obvious.
Google's performance is ominous for Facebook since the Google ecosystem is diversified and its core built around search, is strong. The more Google grows, the more it can invest behind Google Plus and force Facebook to compete on its terms. Facebook has to reduce its dependence on ad revenues and focus on developing its virtual currency environment and app streams.
While both players will post growth and large revenues in the future, it will take something special from Facebook to make more money than Google.
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Arun Kumar is president of the Mediabrands Audience Platform (MAP) G14. He is responsible for supporting and driving the IPG Mediabrands digital practices that include Cadreon, Spring Creek Group, Ansible, and Reprise. Arun's remit will include these following countries: Australia, Brazil, China, France, Germany, India, Ireland, Italy, Japan, Mexico, Netherlands, Russia, Spain, and the U.K. Previously, Arun served as head of digital for Asia Pacific, overseeing Mediabrands' digital offering. He worked closely with all of Mediabrands' clients to create integrated and value-driven digital strategies across Asia Pacific. Arun's intimate understanding of the digital space has made him the ideal team member to lead Mediabrands' 100 percent digitally-focused culture. Arun brings more than 12 years experience in driving digital development in the region.
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