Google's Future Lies in Glass, Fiber But Present in Ads | Adweek
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Google's Future Lies in Glass and Fiber, Present Is In Ads

Ad revenue up 16 percent in first quarter

The biggest surprise in Google’s first-quarter earnings was the drop in advertising’s share of non-Motorola Mobility revenue from 96 percent a year ago to 92 percent in the most recent period. Advertising still makes Google a bunch of money—$11.9 billion in Q1, up 16 percent year-over-year—but the search giant’s $12.95 billion quarterly non-Motorola revenue also streams from businesses like Android app purchases and digital movies, music and magazines bought through its Play marketplace. If anything, advertising’s share of revenue will continue to dip as Google enters new markets like augmented reality eyewear, self-driving cars and wireless Internet infrastructure.

In fact, Google executives spent the majority of Thursday’s earnings call discussing its future products. Aside from CEO Larry Page acknowledging that Google Glass’ current $1,500 price tag is “certainly pretty high” and CFO Patrick Pichette suggesting the wireless speeds users will receive through Google Fiber should increase ad-supported content consumption, they didn’t go into much detail about how they would make money from those businesses.

But Page was adamant that these skunkworks projects aren’t just co-founder Sergey Brin’s playthings but core to Google’s future. “If you look at most companies, they never do anything different,” Page said, describing that business mentality as “common failure mode.”

Core to Google’s present, however, is search and display advertising. That business continues to grow steadily, with advertising on Google-owned sites up 18 percent to $8.64 billion and ads on Google’s network of third-party sites up 12 percent to $3.26 billion. But like other major ad-supported companies such as Facebook and Yahoo, Google has been hit by consumer’s shift to mobile and the smaller ad rates that market commands. Consumers clicked on 20 percent more paid links in Q1 2013 than in Q1 2012 and even 3 percent more than in Q4 2012. But likely a growing share of those clicks came by way of mobile phones, explaining the 4 percent dip year-over-year and quarter-over-quarter in the average amount Google makes per click.

With 95 percent of Google’s advertisers running campaigns across multiple screens, according to chief business officer Nikesh Arora, mobile could portend a rough future for Google’s ad business. But in February the company rolled out a new way for AdWords clients to buy ads, tying together desktop and mobile campaigns so that the higher desktop bid prices hopefully buoy the lesser mobile ones. “Enhanced Campaigns is an important long-term bet,” Arora said, adding that more than 1.5 million campaigns have been upgraded to the new buying format and the migration is expected to be completed by the end of the second quarter.

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