Commentary

Google Educates Wall Street On CPCs And Clicks

Susan-WojcickiPaid-click growth came in strong for Q4 2011, but the cost per click (CPC) from Google's google.com and AdSense properties fell 8% year-over-year and quarter-over- quarter. Susan Wojcicki, Google's senior vice president of advertising, told analysts during the Q4 earnings call Thursday that the company continues to see improvements in ad quality, and when modeling financials they need to understand that more clicks can often lead to decreases in average CPC and vice versa. Making quality or format changes can impact CPCs and paid clicks.

Wojcicki points to Sitelinks as an example. When Google first introduced Sitelinks, the company saw an increase in clicks. But the additional clicks were on lower-CPC ads, which reduced the average cost. Many changes to ad quality in Q3 increased paid clicks at lower CPCs, and they were revenue-positive with good user and good advertiser metrics, she said.

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The FX (foreign exchange market) rate and changes made to ad format quality in Q3 201 were the two biggest factors influencing cost per click in Q4 2011. Google can't control FX, but it can determine the speed at which it drives innovation for its products. Google made about 20 changes in Q3 and about another 20 in Q4.

Google SVP and CFO Patrick Pichette said great products drive a ton of clicks, and if it happens to have lower cost or CPC, that's still for the benefit of everyone.

Those changes aim to make the ads more readable. They may be more visible, so people searching notice the ads. For marketers, that’s positive. Google measures the metrics to determine how users and advertisers respond, and whether this produces positive revenue.

Aside from search, a notable uptick points to display advertising results.

Display advertising reached a $5 billion annualized run rate in Q4 2011. A key growth driver has been success in audience buying, said Wojcicki during the Q4 earnings call. Many of the buyers purchase the segments from the ad exchange, which now also supports mobile and video.

Audience buying also continues to grow on the Google Display Network. The number of active users tapping into audience buying increased 60% in Q4, sequentially.

Google's share of overall U.S. display advertising revenue grew to 9.3% in 2011 -- up from an 8.6% share in 2010, eMarketer estimates. 

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