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Can Fewer Clicks Lead To More Revenue For Google?

There's one question on everybody's mind before Google releases first-quarter earnings in a few weeks: can fewer clicks on paid links lead to more revenue for the search giant? This depends on many factors--but if the answer is yes, it would corroborate the claim made by Google supporters that fewer clicks reflect the company's efforts to improve the quality of its advertising system by minimizing the number of clicks that don't lead to conversions for advertisers. The result: advertisers would pay more money for higher-quality clicks--a measurement that comScore couldn't take into account in its January and February reports, which showed a marked decline in click-through growth for the search giant.

The most recent comScore report, released last week, showed that clicks on ads in February were up just 3 percent over February 2007; the measurement said growth was flat the month before. Google's stock is now trading at around $445, an astonishing $300 less than it was six months ago.

It depends on your bias--whether you believe the Web giant is showing signs of weakness or is simply in the midst of improving its pay-for-performance advertising system. BusinessWeek talks to both camps, but financial analysts say that regardless of system tweaks, it will be hard for Google to hit first-quarter estimates. Clayton Moran, an analyst with Stanford Group, cut $115 off his Google price target the day after the comScore report, citing an overall weakness in the tech sector. "Checks and data indicate softness," he wrote in a note to investors

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