Google's Declining Click Volume: Theories

So you've probably already read about the comScore data published yesterday suggesting Google's paid clicks are no longer growing as fast as they once were.

The measurement firm believes paid clicks in October were up 37 percent over the year ago period, a distinguished growth rate, but that they fell precipitously from there. It estimates they grew 27 percent in November, 12 percent in December, and were flat in January. Further, its said the volume of clicks actually declined sequentially last month, from December to January. Sequential data is less valid than year-over-year, especially between Q4 and Q1, but this is still worth noting since we're talking about the heretofore-invincible Big G.

Still, the finding shouldn't come as a shock. Google said itself, during its Jan. 31 earnings call, that clicks are no longer growing as fast as they once did. The company's explanations for the anemic growth center on an ongoing effort to improve click quality by reducing the number of ads on its sites and its network. Example: On AdSense for Content, Google has shrunk the clickable area around ads to reduce accidental clicks. It also seems to have further restricted search keyword bidding on generic and low-converting terms, for instance "baseball." (Ably explained by Greg Yardley here.)

Investors aren't buying it however and have pummeled the company's stock since close of business yesterday. Further, many news and blog reports seem to be assuming macro-economic conditions are the principle force behind the click declines.

There are two main recession arguments. The first is that small to mid-sized advertisers are scaling back their search spend. The Wall Street Journal today quoted a Majestic Research analyst to this effect. The analyst said the SMB fall-off had been happening for the past four to five months. If so, that's a huge development but I honestly don't buy it. During the Q4 earnings call, CEO Schmidt said rather vehemently the company has picked up no hints of a macro-economic slowdown in its advertisers' spending activity; and a decline in small businesses would certainly qualify as such a hint -- a hairy, ugly one at that. "I'm happy to say that we have not yet seen any negative impact from the rumors of future recessions," he told investors. "We'll see what happens."

The second, more convincing economic explanation is that consumers are holing up for the coming (perceived) recession and conducting fewer shopping related searches as a result. Fewer people in the purchase funnel equal fewer ad clicks, plain and simple. What categories get hit? Travel, new car buying, consumer electronics. Entertainment and CPG, maybe not so much.

While I buy that argument, I’m not sure it's happening yet. Hitwise offered a dissenting data point to comScore's report, finding Google's downstream traffic to retail sites in January increased year over year, the opposite of what you'd expect based on comScore's numbers.

A further point that must be mentioned is that comScore's data is not infallible. Anyone shorting the company's stock based on the findings of one measurement firm -- a firm frequently contested by major publishers, I might add -- would likely be making a mistake.