• by Laurie Sullivan  @lauriesullivan, October 18, 2012

Google's premature third-quarter earnings release stirred the investment community Thursday by reporting 20% declining profits and sliding advertising prices, with mobile becoming the wild card.

The average cost that advertisers paid Google per click in Q3 fell 15% compared with the year-ago quarter and 3% sequentially. Paid clicks rose 33% and 6%, respectively.

Overall, Google reported consolidated revenue of $14.1 billion for the quarter ended Sept. 30, up 45% compared with the year-ago quarter. Revenue from advertising drew in $11.5 billion, or 82% of consolidated revenue, up 19% compared with the year-ago quarter of $9.7 billion.

Google-owned sites generated $7.7 billion, or 67%, representing a 15% increase over third-quarter 2011 Google sites revenue of $6.7 billion. Partner sites generated $3.1 billion, or 27% -- up 21% compared with the year-ago quarter, in which the company generated revenue of $2.6 billion.

Google CEO Larry Page made it clear in a prepared statement that the company surpassed its first $14 billion revenue quarter.

When it comes to mobile advertising, Google generates less revenue on smartphone and tablet devices compared with computers, driving down prices and profits. Motorola's hardware business operating loss was $527 million, but generated $2.58 billion in revenue, with $1.78 billion from mobile and $797 million from the home segment.

iProspect U.S. President Brian Kaminski said Q3 earnings demonstrate that Google needs to make improvements in the way the company monetized mobile advertising, especially if it wants to retain the dominant market share. "Google seems to monetize desktop queries well, proving there could be some amazing opportunities in mobile, but you have to be set up to deliver the experience and conversion," he said. "It should be a wake-up call to advertisers that not all the mobile opportunities are capitalized on today."

Google is leaving a lot of ad dollars on the table, but the dichotomy resides in the inability of brands to take advantage of that shortcoming before CPCs rise. Once Google works out the kinks, prices will go up, similar to gas prices during a refinery shutdown. That's when mobile CPCs will start to look a lot more like desktop CPC, and we'll start to see mobile pass desktop, Kaminski explains.

Analytics also becomes a key issue, along with monetizing ads in search, video and other media.

Today, Google dominates the overall U.S. mobile ad market, according to eMarketer. The data firm said Google should reach $2.6 billion in 2012, with a 54.5% share of net revenue, dropping to 54.1% by 2014 as more competitors enter the market. But Kaminski said not having the ability to monetize the ads forces some of the mobile marketing dollars to Bing or Apple.

Google holds the majority share in each of the U.S. online, search, display and mobile advertising markets, according to eMarketer. Google's ad revenue will account for 41% of total U.S. digital ad revenue in 2012, the research firm projects.

The market was clearly disappointed that Google missed their numbers.

"While a lot of the disappointment was due to Motorola, Google’s core business missed expectations, too, though not by a large percentage," said Roger Barnette, IgnitionOne president. "Missing these estimates is significant and it spooked investors, but we feel this is a momentary blip in core business and we expect the fourth quarter to be a strong one. Increased efforts in paid search through the holiday buying season and the potential for Product Listing Ads to be a revenue driver for Google contribute to a positive outlook for the rest of the year."