Google's paid search growth soft again in February
For the second straight month, a comScore report suggests that Google's revenue
engine is slowing down, highlighting again the perils of the company's overwhelming
dependence on a single type of online advertising to fuel its business.
The report is available only to comScore clients, but a comScore spokesman
said that its findings are accurately rendered in a note authored Wednesday
by Citigroup analysts Mark Mahaney and James Samford.
A key takeaway from the Citigroup analysts: In February, clicks on Google's
U.S. search ads grew only 3.1 percent year-on-year. Considering that February
had 29 days, the growth rate would probably have been flat without the extra
day, Mahaney and Samford wrote.
Coupled with a 0.3 percent year-on-year decline in January, also per comScore,
a trend is emerging that Google's pay-per-click (PPC) ad business may be losing
steam, after powering the search giant to mindblowing levels of revenue and
profit growth for years.
While the news is of concern mostly to investors, it is also of interest for
companies investing in Google's enterprise software products, like the fee-based
version of the Google Apps suite and the Google Search Appliance. This is because
the robust growth of Google's PPC ad business is what has allowed the company
in recent years to fund its endeavors in enterprise search and hosted collaboration
and communication suites. Should the PPC business slow down significantly, it
will be interesting to see how that may affect Google's investment in its enterprise
software unit, which generates a small percentage of the company's revenue.
Unfortunately for Google, it lacks a complementary revenue stream at the moment,
despite years of actively trying to diversify into other forms of online ads,
like banner ads, and into offline ads, like magazine, radio and TV advertising.
Google still depends almost entirely on the PPC text ads it delivers along with
its search results and in third-party partner sites.
Citigroup has been expecting a paid clicks growth of about 20 percent year-on-year
for Google in the first quarter. "So if the comScore data is accurate and
holds for Q1, and if it is representative of Googles global trends --
not just U.S. -- then it could imply risk to Q1 estimates," the analysts
wrote.
Google executives, aware that the company is long overdue for diversifying
its revenue mix, are promising concrete results this year and in 2009 in display
advertising, such as banners, now that the DoubleClick acquisition has been
finalized.
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