Google said Thursday the Web search market remained strong in the fourth quarter, helping the company post better-than-expected earnings and stronger click rates. But even though Google's operating profit rose sharply, the Internet giant posted the company's first decline in net profit. Google reported that aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of its AdSense partners, rose 18% over the fourth quarter of 2007. Partner sites generated revenue--through AdSense programs--of $1.69 billion, or 30% of total revenue, in the quarter. This represents a 4% increase over fourth-quarter 2007 network revenues of $1.64 billion and a 1% increase over third quarter 2008 network revenues of $1.68 billion. Mountain View, Calif.-based Google's core focus remains the "huge untapped potential" of search and ads, said Eric Schmidt, Google CEO, during a call with investors and analysts. "Search, more dynamic, less static, empowers peoples' use," he said. "SearchWiki is a current example where people can annotate search quality and tell us how to make the search better." Schmidt said an enabling technology--which would help the search engine to understand the meaning of a phrase rather than simply the meaning of the individual words--is not far off. Along with that boot in technology should come a lift in advertising. Spending in the U.S. on ads connected to search should grow 14.9% in 2009 to $12.3 billion, according to research firm eMarketer. Bringing the science of search into the art of display ads, Google's fourth-quarter revenue rose 18% to $5.70 billion for the quarter end Dec. 31, up from $4.83 billion in the year-ago quarter. Excluding commissions paid to advertising partners, Google had sales of $4.22 billion. Net income came in at $382 million, or $1.21 per share--compared with $1.21 billion, or $3.79, in the year earlier. That represented a 68% drop from the same quarter in 2007. The company's profit had climbed by about 17% in the previous 17 quarters. "There are few, if any, businesses able to withstand the global economic forces bringing business levels down, and Google is no exception," said Cantor Fitzgerald Analyst Derek Brown. "The company's pay-per-performance model is likely more recession-resistant than other forms of advertising." While Google's business is made of billions of clicks worth quarters, nickels, dimes, dollars, Brown said the company has made it clear that it's shedding less productive products, which is consistent with tightening the belt. Excluding special items, Google said earnings would have been $5.10 per share. Analysts on average estimated Google to report earnings of $4.95 a share for the period ended in December, and $4.1 billion in net revenue, according to Thomson Reuters. Google-owned sites generated revenue of $3.81 billion, or 67% of total revenue--up 22% from the same quarter in the prior year. Revenue from outside the U.S. reached $2.86 billion, representing 50% of total revenues in the fourth quarter of 2008, compared to 48% in the fourth quarter of 2007. Web traffic on Google's search engine rose 9% from the prior year, and a three-month average monthly unique audience reached 132.6 million in the quarter, up from 121.9 million in the year-ago quarter, according to Nielsen Online. The research firm said total minutes spent on Google Web properties rose 35% to 47.7 billion, compared with the same quarter in 2007. The search engine remained the No. 1 search provider in December 2008, with an estimated 5.4 billion search queries, representing 62.9% of all search queries conducted during the month. YouTube was the number one Web brand when ranked by total streams in December 2008, with 5.6 billion total streams and 84.6 million unique viewers. Google recently expanded its business beyond ads that appear on its main search engine and into YouTube. The company unveiled a new advertising product on the video-sharing site last quarter, and released new business software and a video conferencing program. It also cut or combined some products. The company nixed Google Notebook, which lets users post content from various sources to one site, and the newspaper ad program that began in 2006. Schmidt said the company now has tight controls over costs, which eluded it in the past.
Issuing a surprise earnings report before the opening bell Thursday morning, Microsoft announced a drop in earnings for its fiscal second quarter, along with plans to lay off as many as 5,000 employees. For the period ended Dec. 31, Microsoft reported net income of $4.17 billion, or 47 cents a share, compared with net income of $4.7 billion, or 50 cents a share, year-over-year. Mixed with the bad news, however, was some good. Revenue increased to $16.6 billion from $16.4 billion last year. "Also, some people are overlooking the fact that online ad revenue went up 7%, so that paints a better picture than the ad services numbers," said Greg Sterling, principal analyst at Sterling Market Intelligence. Over the next 18 months, job cuts will impact many areas of the company, including research and development, marketing, sales, finance, legal, human resources, and IT. The company eliminated 1,400 jobs on Thursday, according to Microsoft. The cuts are expected to reduce the company's annual operating expense run rate by approximately $1.5 billion, and reduce fiscal year 2009 capital expenditures by $700 million. During an earnings call Thursday, Microsoft CEO Steve Ballmer said he intends to bolster the company's search business with additional hires. "Even as we take out 5,000 jobs, we will also add a few thousand jobs back into areas like search where we continue to see incredible opportunity to do good work," Ballmer said. In addition, Ballmer said Microsoft was still open to a search partnership with rival--and one-time acquisition target--Yahoo. According to Sterling, however, Microsoft does not have much of a choice. "They have to continue to spend money in the online area to stay competitive, particularly against Google," Sterling said. Citing the highly uncertain economy, Microsoft refrained from giving a forecast for the current period. "We are planning for economic uncertainty to continue through the remainder of the fiscal year, almost certainly leading to lower revenue and earnings for the second half relative to the previous year," said Chris Liddell, Microsoft's chief financial officer. "In this environment, we will focus on outperforming our competitors and addressing our cost structure." Due to slowing PC sales, Microsoft's client business, including its Windows operating system, saw revenue fall 8% year over year. The business division, including its Office software, saw revenue increase by just 1% for the period. Thanks to strong holiday sales of Microsoft Xbox 306 video game console, its entertainment and device business--which also includes the Zune music player--saw sales rise 3%. Price cuts, however, hurt the division's operating income, which fell 60% during the quarter.
Social news site Digg Thursday confirmed that it plans to lay off 10% of its 75-person workforce as part of wider efforts to make the company profitable in 2009. The cutbacks come amid slowing audience growth at Digg and the broader pullback in online advertising that has led to staff reductions at hundreds of Internet and high-tech companies in recent months. Among the steps toward achieving profitability outlined by Digg CEO Jay Adelson on the company blog Thursday were hiring a direct sales team, rolling out new features to expand its user community, building on its "advertising infrastructure" and ad partnership with Microsoft, and maintaining ongoing sponsorship opportunities. "As we've often stated over the past couple of months, given the current economic climate, we've made the decision to take a more conservative approach to our expansion plans and aggressively focus on reaching profitability within the year," said Adelson in the statement. The company declined to comment Thursday beyond the announcement. Social media properties, not long ago the darlings of Silicon Valley investors, are under increasing pressure to demonstrate economic viability in the face of a deepening recession threatening their nascent business models. The most prominent of a category of social sites that allow users to share and rate the importance of news stories, Digg has seen its traffic flatten over the last year. The site drew 6.8 million U.S. unique visitors in December 2008, up only 13% from 6 million in the year-earlier period. Quantcast estimates its worldwide audience at 23.8 million. Compare that to Facebook, which had 54 million U.S. unique visitors in December, up nearly 60% from 34.7 million a year ago. Web measurement service Compete also reported this week that Digg had been edged out for the first time in audience share last week by Twitter, the latest social media sensation. Digg founder Kevin Rose recently stated that the company had doubled its user base to 35 million in the last year. Regardless of size, social networking sites have struggled to monetize their audiences because of marketer unease with user-generated content, a lack of specialized metrics, and the sheer amount of inventory they represent. To build ad revenue, Digg in 2007 entered into a three-year deal with Microsoft to exclusively handle its contextual display and text advertising on the site. But it has not ventured much beyond that initiative, failing to explore new ad formats or ad programs as aggressively as larger rivals such as Facebook and MySpace. Meanwhile, average display ad CPMs have dropped by almost half to 26 cents in the last year, according to PubMatic's AdPrice Index. "Obviously, (Digg) has to get more creative and push the envelope," said Paul Verna, a senior analyst at eMarketer. "Maybe that means they're going to have to go more mainstream or form partnerships with sites that will steer more advertising-friendly content to the site." According to a BusinessWeek story in December, Digg has started advertising on RSS feeds and is poised to relaunch its homegrown search engine to produce more relevant results. The company is also reportedly close to a deal with a mobile ad provider to sell more ads on cell phones. Marketers may shy away from social networks this year in favor of proven types of online advertising such as search marketing and direct-response placements. EMarketer has already revised downward its estimate for advertising on social networks in 2009 to $1.3 billion, from $1.8 billion. Without a direct sales team to date, Digg has also had little presence on Madison Avenue. "They are barely on the radar for most buyers," said Adam Kasper, senior vice president, director of digital media, at Havas' Media Contacts unit. "To be honest, I have never even heard from them." He added that the company hiring its own sales force may change that. Digg has long been mentioned, however, as a potential acquisition target for the likes of Microsoft and Google. But finding a buyer now will be more challenging as larger companies balk at paying steep prices for Internet startups with little revenue and untested business models. The total dollar value of online media M&A transactions in 2008 fell 62% to $16.9 billion, according to a recent study by investment bank Peachtree Media Advisors.
A new program aimed at expanding broadband availability advanced in Congress Thursday when the House Energy and Commerce Committee approved the measure. And in a victory for broadband advocacy groups, the measure incorporates net neutrality principles. The program, part of a proposed $6 billion broadband package, calls for the U.S. National Telecommunications and Information Administration to make up to $2.85 billion in grants to companies that will build out broadband and wireless networks. That measure is just one component of a far-reaching $825 billion economic stimulus proposal. "Broadband investments are important because they have a tremendous multiplier effect on our economy," committee chair Rep. Henry Waxman (D-Calif.) said in a statement. The bill specifies that grant recipients must adhere to the Federal Communications Commission's 2005 broadband policy statement, which set out net neutrality principles. In that statement, the FCC said that consumers are entitled to access all lawful content, to run applications of their choice, and to connect legal devices that don't harm the network. The FCC takes the position that those principles are binding on Internet service providers. Last year, the agency sanctioned Comcast for violating the policy statement by slowing peer-to-peer traffic. (Comcast, which is appealing the FCC's ruling, argues that the principles were never legally binding because they are neither laws or regulations.) Digital rights groups cheered the lawmakers for incorporating those standards in the new package. "We're very pleased that Energy and Commerce moved quickly to get this bill through and that they left in the 'open Internet' requirement," said Derek Turner, research director of Free Press. Seventy-five percent of the grant money allocated Thursday would go to underserved portions of the country, while 25% of it would go to areas that currently lack all broadband. Wired broadband providers would be required to offer speeds of at least 5Mbps downstream and 1Mbps upstream for the areas that now completely lack high-speed Web access. Those who build networks in "underserved" areas would have to offer speeds of at least 45 Mbps upstream and 15 Mbps downstream.
With increasing consumer familiarity and growing ease of use, mobile applications for financial services companies--particularly banks--could become the new "killer app" for telecommunications. The number of people banking through a mobile device could hit half a billion worldwide by 2013, according to ABI Research. "Mobile financial services have the potential to be bigger than mobile TV and premium mobile content in terms of numbers of subscribers," said Mark Beccue, senior analyst of consumer mobility. "Everybody's trying to do it, and they're all scrambling." The drive for more and better mobile financial services applications is being fed by consumers who are becoming more accustomed to banking online. "The lowest-hanging fruit are the online customers," Beccue says. "That's one of the only barriers to mobile banking; if you don't trust online, you won't trust mobile." But just as customers are using online banking for uses beyond simply checking their accounts, they will also begin to use their mobile devices for those purposes. "The growing parts will be more sophisticated applications like bill payment," Beccue says. But banks will have to work on making the mobile experiences as simple and user-friendly as the online services. Increasing numbers of customers--particularly younger ones--are learning to trust the online space for their banking, and mobile will quickly follow. "Generation Y expects mobile to be part of what they're doing, and banking is no different," Beccue says. In the U.S., the mobile banking leader is Bank of America, Beccue says. The bank launched its mobile service in May 2007, and by the end of 2008 it had 1.5 million subscribers. "It's a growing segment, and it's being led by Bank of America," Beccue says.
Online video provider Veoh Networks has launched a browser add-on that displays relevant video recommendations when a user is searching a topic on popular sites including Google, Amazon, Yahoo and AOL. The downloadable Veoh Video Compass can also show related videos when someone is browsing a specific Web page, as well as generate a list of related search terms. So searching or viewing content about Barack Obama would trigger a list of terms including the slogan "Yes We Can" and John McCain. The video recommendations are based on the viewing behavior of millions of Veoh users, according to the company. Clicking on a video via Compass allows viewing on the Veoh player without having to leave the site a user is on. In addition to helping expand Veoh's audience, the increased usage through the new browser tool also helps the company refine its ad targeting capability, and boosts ad impressions. A Veoh spokesperson said the company may also explore new ad formats tied to Compass including offering banner sponsorships in the semi-transparent space that forms around the media player when a video is played. Other sites compatible with Compass include Best Buy, WalMart, Wikipedia, and IMDB.com. The plug-in works with the Firefox and Internet Explorer 7 browsers, and will soon be available for Safari and Chrome.
In an attempt to end the brand vs. performance debate that has plagued advertising since John Wanamaker couldn't figure out which half of his spend was a waste, the nation's advertising agencies have convinced every client to only put their products on sale for three hours at a time. Starting Monday, all major retailers will rotate the stock on their shelves so that each product is only displayed for three hours. Items are then removed with no notice of when they might reappear. Manufacturers and retailer Web sites will also comply and remove products after 180 minutes. Items not for sale at the current moment will not be searchable or subject to a wrenching plea to the stock boy to get some from the storeroom since "we only have three diapers left." "This will greatly simplify the advertising business," says Chief Eco/Bio/Psycho Officer of PHD Matt Seiler. "Rather than have to figure a clever way to worm our way into the emotional betawave or whatever that part of the brain triggers, 'I can't live without one of those...' now all we have to do is say 'If you want this beer you better get your ass down to the Stop and Shop between 11 and 1 on Saturday.'" Retailers, at first reluctant to incur the substantial manpower cost of constantly restocking shelves, were convinced by master black belt arm twister Michael Kassan that the creation of artificial shortages could increase their profits. "Look at what happened when gas prices went up. It is the same model," Kassan might have told Over the Line but didn't. "If I have five kids and need milk, I don't care what the grocery charges, I'm going to get that milk since I can't be sure when it will come back on sale again." "This finally solves the worry about how to measure the effectiveness of an ad if the viewer/user/listener/reader doesn't take action immediately," says Dave Morgan, who also says his Next Big Thing will be So-Big-That-You-Won't-Believe-It. "Now, if you don't take an action, you are kinda SOL." "These ads will write themselves so it is a matter of time before all the copywriters are eliminated in favor of software that will generate the 'On Sale ONLY from x to x' ads and machines will insert them in the media optimized to the hour designed to most frighten the consumer into going and standing in line for six hours before the store opens," laments author and humanities proponent Jeff Einstein. "Not to mention that trying to calculate when the ads will run will become an addiction unto itself." "This DOES NOT mean the end of branding," says Wenda Millard, a chef on one of the Martha Stewart TV cooking shows. "Big brands still need to deliver a brand message in branded media environments so that brand-conscious consumers can have brand recall and brand affinity. I know I'd said it is all about the food, but it's really all about the brand. Besides, who has time to run down to the store six or eight times a day?" The speculation of the three-hour on-sale strategy has lifted nearly all parts of the economy. Consumers are rushing out to buy second and third refrigerator-freezers and are adding additions on to their houses so they'll have some place to put all the stuff they'll horde between sales. This has resulted in increased home equity borrowing and the sale of larger cars to hold a larger volume of shopping bags. The ANA, initially reluctant to back a plan that will most certainly result in smaller agencies, has reversed itself and now takes credit for jumpstarting the entire economy. A blog post by Bob Liodice supporting the three-hour plan was backdated to October 2008. The story you have just read is an attempt to blend fact and fiction in a manner that provokes thought, and on a good day, merriment. It would be ill-advised to take any of it literally. Take it, rather, with the same humor with which it is intended. Cut and paste or link to it at your own peril.