Google Sacrifices Profits To Increase Advertiser ROI

WebProNews reports that Google investors are grieving their losses after comScore’s report that paid revenues were flat in the month of January. Those in the know believe it is more than the impending recession that is the cause of a decrease in earnings.

It appears that revenues began to flatten soon after webmasters began reporting on decreases in AdSense earnings. One theory is that Google decreased the clickable area of AdSense ads to reduce accidental clicks. This change was implemented in mid-November, shortly before some publishers reported a drop in earnings and a few weeks before comScore released its report that AdSense revenues had flattened.

The question on everyones mind is why would Google implement a change that reduced its revenues? One answer posed is that Google plans to make it up by creating a higher value on valid clicks, creating a win win situation for Google. Adwords advertisers pay more for their clicks but get much better conversion rates, whilst quality Adsense partners generate good revenues from higher click prices.

The comScore report authors Magid Abraham and James Lamberti came to a similar conclusion: "The evidence suggests that the softness in Google’s paid click metrics is primarily a result of Google’s own quality initiatives that result in a reduction in the number of paid listings and, therefore, the opportunity for paid clicks to occur.

In addition, the reduction in the incidence of paid listings existed progressively throughout 2007 and was successfully offset by improved revenue per click. It is entirely possible, if not likely, that the improved revenue yield will continue to deliver strong revenue growth in the first quarter. Separately, there is no evidence of a slowdown in consumers clicking on paid search ads for rest of the US search market, which comprises 40% of all searches."

So even though there were fewer ad clicks in 2007, Google made more money and it looks like they're trying to repeat the model in 2008.