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Oct 16, 2008

STATS: CPC up, CPM down

Ed: Compete.com reports 35.7% YOY growth in number of USA search. Google CFO reports paid click growth of 18%. CTR declined by 13%. Fewer % of people clicked on ads. 

Average CPC improved 2%, not enough to offset the CTR decline, and much less than reported by Efficient Frontier. 

Affiliate's share of the pie is bigger, but proportionally smaller, and shared among more affiliates. I wouldn't be surprised if the average affiliate share declined. ;^)

Google growth is sustained by overall Internet growth, both domestically and internationally. There seems to be no indication that the hundreds of improvements per month has substantially changed CTR or CPC - particularly for affiliates.

All Eyes On Google This Week

Google, whose stock is down 45% this year, announces third quarter financial results tomorrow, and Silicon Valley will be watching. Analysts expect revenues of a little over $4 billion and EPS of $4.79 - and most have price targets for the stock, which closed yesterday at $363, to bounce back up to the high 500’s.

For now, the big factors affecting Google are the strengthening dollar (half their revenue is outside the U.S.) and general pessimism about the advertising market moving forward. There are also concerns about the intense regulatory scrutiny of the Google/Yahoo search deal.

Beyond this quarter, though, no one really has any idea how Google will do, and that uncertainty is what’s driving Google’s stock down. A declining stock market means less consumer spending, which then means less advertising dollars flowing as well. But what isn’t certain is how that will impact Internet advertising, which is still taking share from more traditional ad spending.

Citi analyst Mark Mahaney, who’s targeting Google stock at $590, thinks Google is in a good position to weather a storm: “GOOG is the market share leader – and is gaining share – in arguably the most dynamic part of Internet advertising – search, which appears to be less impacted by the current macro economic environment,” he said in a recent preview report for the fiscal quarter. He also sees strong growth potential for non-search ads through YouTube and DoubleClick. ComScore is reporting that the growth in the number of searches on Google accelerated in September.

Display Ad Prices Trending Downward; Fall-Off Is Consistent, But Not 'Dramatic'—Pubmatic
Here's some more evidence of how bad things are… The average price of a display ad was 27 cents in Q3, a nearly 50 percent drop from Q407's 50 cents, according to Pubmatic, which sells software optimization tools to ad networks and has been surveying prices for the past four months. In Q1, the company said the average price of a display ad was 37 cents, while from Q2's price was 34 cents, said Pubmatic, which bases itsPubMatic AdPrice Index (PDF) on a survey of roughly 5,000 websites mostly in the U.S. 
Google CFO:

We had another solid q, despite a challenging economic environment

gross revenue up 31 % yoy to $5.5B
Google.com was up 34% yoy to $2.7B
AdSense up 15% yoy to $1.7B

paid click growth up 18% yoy, up 4% q over q
US revenues up 22% yoy to $2.7B, up 5% q over q

International revenue:

UK showed some softness, essentially flat Q over Q,

rest of EMEA performed better, relatively good performance in Netherlands and Germany,.

Also good performance in Brazil and China.

Why Google’s Partners Should Be Worried

Google today announced its third-quarter 2008 earnings — which were in line with investor expectations, thus giving market a reason to exhale. For the quarter, Google reported net income of $1.35 billion on sales of $5.54 billion.

Google’s partners however, should gulp hard, for the Mountain View, Calif.-based search and online advertising company is keeping more and more of its online ad bounty for itself. You can see that from the three metrics: revenues from Google-owned sites, revenue generated by partner sites and the traffic acquisition costs. Google’s partners’ piece of the pie isn’t growing that much. Check out the table:

Q3 2008Q2 2008Q3 2007
Google-owned site Revenues$3.67 billion (67% of total revenues)$3.53 billion (66% of total revenues)$2.73 billion (65% of total revenues)
Revenues from Partners$1.68 billion(30% of total revenues)$1.66 billion (31% of total revenues)$1.45 billion (34% of total revenues)
TAC$1.5 billion (28% of total revenues)$1.47 billion (28% of total revenues)$1.22 billion (29% of total revenues)

What that table is saying is that Google today is less reliant on partners for ad inventory. This shift isn’t going to change anytime soon, especially as Google launches more and more ad-supported services and finds new users for Google Mail and Google Android.

Google Gains 2 Points of Search Share in Q3, CPCs rise on Google Search and Content

Today we released the Efficient Frontier Q3 2008 U.S. Search Engine Performance Report. which analyzes the performance of Google, Yahoo, and Microsoft Live Search on search engine spending, CTR, CPC and ROI from advertisers in the Efficient Frontier Client Index. Because conditions in the finance sector have been so volatile over the past year, trends were reported separately for financial services advertisers and non-financial services advertisers.

Google continued to gain share for all advertisers over last year, capturing 76% the share of total search engine spending in Q3, up 2.1 percentage points from Q3 2007. That gain in share was largely due to growth in Google content spending, which increased from 2.6% to 4.6% of spending from Q3 2007 to Q3 2008. Content spending increased by 82.8% YOY  in Q3 2008 for non-financial services advertisers, and by 16.6% in financial services.

A look at trends in CPCs across search and content gives an indication of why advertisers are investing more in Google content and continue to spend on Yahoo and Microsoft Live Search. On a YOY basis CPCs on Google search increased by 8.3% and 4.7% respectively for financial and non-financial services advertisers. CPCs declined YOY for Microsoft Live Search and Yahoo Search, with the exception of CPCs on Microsoft Live Search for non-financial services advertisers, which were up 6%. Google content CPCs increased by 20% for non-financial services advertisers, but at $0.28 a click, Google content is still 53% cheaper than Google search, which averaged $0.61 per click in Q3.

The report also found that, in an increasingly unstable economic environment, ROI improved on all three major search engines in Q3 2008 on a YOY basis. Google search ROI for non-financial services advertisers increased by 11.3%, Yahoo search by 19.7% and Microsoft Live Search by 29.9% YOY.

For more findings from the report, read our press release, or download the full report here.

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