Google posted a solid quarter, as total revenues for Q1 2014 jumped to $15.42 billion, a 19% increase compared to this time last year.
During its earnings call, Google emphasized its ambitions to extend its value as a brand builder and to close the price gap between mobile and desktop display advertising.
Google also stated that as of Q2, it will further break down cost-per-click (CPC) revenues by splitting out differences in clicks on Google’s owned websites vs. those on its network partners. CPCs as reported in Google’s earnings are aggregated.
Google does not exclude the cost of acquiring traffic (ex-TAC) when it reports advertising revenues, though it reported TAC increased to $3.23 billion in Q1 2014 (representing 23% of advertising revenue) compared to $2.96 billion this time last year.
Paid clicks, which Google defines as clicks on ads served on Google or network member sites, increased 26% over Q1 2013. Average CPC decreased 9% from Q1 2013.
The business breakdown
Here’s the breakdown of Google’s revenues as it relates to advertising: Its site properties generated $10.47 billion in revenue during Q1 2014, constituting 68% of the company’s total revenues. This is a 21% increase over Q1 2013. Nikesh Arora, Google’s SVP and chief business officer, attributed this growth to the strength of the company’s network advertising business.
Revenues from Google’s partner sites generated $3.4 billion in revenue during Q1 2014, constituting 22% of the company’s total revenues. This is a 4% increase over Q1 2013. Arora said this increase comes from Google’s AdEx and its mobile ad network, AdMob.
Arora further split Google’s various lines of business as follows: Direct response (AKA performance marketing), advertising technology and platforms, brand building and digital hardware (which includes Google Play and its Chromecast dongle).
Arora said Google’s direct response-related investments were driven by consumers’ constant presence online and their desire for “seamless experiences screen-to-screen.”
When it comes to advertising technology and platforms, Google is making a big push into developing tools to facilitate the sale of premium inventory. “Programmatic saw great momentum with premium publishers, like the Local Media Consortium,” Arora said, alluding to a February deal with a collective of 42 local media holding companies to enable private exchange deals.
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Arora also pointed to acquisitions like spider.io to build out Google’s quality controls and ensure advertisers have faith in the impressions the company serves. “Thousands of clients are already using our MRC-accredited technology to buy qualified ad impressions,” Arora said.
Brand building aspirations
Brand building is a relatively new area for Google and reflects the company’s attempt to capitalize on the evolution of digital marketing. “We’ve noticed in the past year and a half that some people come to the digital medium to create extensions of brand campaigns,” Arora said. “The real fun will begin when people start doing campaigns exclusively on digital to help them build brands.”
This requires Google to get in front of the creative process earlier. Arora conceded that Google normally is a participant only toward the end of the campaign-planning phase.
Consequently, Google has been stepping its attempts to work with ad agencies to build advertising and marketing campaigns that exist exclusively in a digital environment.
“This is definitely the holy grail and will take us time to get there,” Arora said. He added that getting attribution strategies in place and establishing deals with offline measurement companies like Nielsen and comScore will help Google better prove to brand clients the value of digital spend as it relates to business results.
It will be important for Google to establish faith in the validity of its cross-measurement capabilities, as brand marketers are reluctant to move broadcast spend into digital, if the measurements aren’t there.
Google’s push, however, is that its reach is greater than broadcast TV’s. For instance, though the Super Bowl had 111.5 million viewers, Arora pointed out that Super Bowl ads that played on YouTube “were viewed over 300 million times, three times the size of the audience that watches on TV.”
Closing the mobile gap
Arora said that over the long haul, mobile inventory pricing needs to catch up to its desktop counterpart. In fact, Arora said mobile pricing should actually supersede desktop pricing. “Mobile has location and context, which you don’t have on the desktop,” he said, adding that mobile consumers are usually closer to a transaction than desktop consumers. “The more you know, the more effective advertising you can provide them,” he said.
But he also acknowledged a “whole bunch of building blocks” that need to be assembled before that gap can be closed.
These include better payment methods, so consumers don’t have to hassle with manually inputting payment information on a small screen. Additionally, search needs to be improved so consumers can find what they’re looking for without having to search multiple sites.
Finally, merchants need to provide a better experience. Arora pointed out that often making a mobile purchase is more difficult than buying on desktop.
