According to seasoned analysts, November 7th 2007 was the day when Google's share price peeked at an all time high of $742 per share. Since then the stock price has suffered serious losses and is trading at $464.19 today.
Of course, recent economic turmoil in the United States is to be blamed but you when you hear analysts talk about the possibility that Google's business model may be outdated, after only 9 young years in the business, you wonder what other reasons may be contributing to this decline. Find out what experts are saying...
A first hint at Google's decline was announced by a recent report in late February by research firm comScore. They reported that “Google paid clicks” decreased by 7% in January compared to last year's January results. In other words, Google surfers clicked less frequently on the sponsored text advertisements that Google often places on their search result pages. February numbers confirmed that this was no fad but a reality Google would have to start dealing with if they want to continue growing in the hearts of investors.
The question is... "What underlying causes are contributing to this case of missing clicks?"
Could it be that Google search engine visitors performed fewer web searches, resulting in fewer ad displays and consequently less clicks?
Since Google Web searches grew in January, Google's market share is not at risk and cannot be blamed for the downturn in pay per click visits. However, that also means that the paid clicks to searches ratio dropped even faster than the number of paid clicks. It was down by 16% in January!
Is it possible that the downturn in the economy is holding business owners back from advertising on Google? This may be a good explanation but not according to eMarketer, another research firm. They project that online advertising will grow by 23% in the US this year. Other indicators clearly point to an upturn in online advertising... rival search engines such as Yahoo! and MSN experienced an increase in paid search ad clicks during January and February. It is obvious that Google visitors are not more worried about the economy than thos using Yahoo! or MSN.
So, what is causing the downturn in Google pay per click ads?
Paradoxically, Google itself is to blame according to comScore. Google interprets lots of clicking without subsequent purchasing to mean that its ads are not very good and has been working towards improving the "quality" of paid ads. By removing "low quality" ads from its search results (such as parked domains and low paying advertisers) Google now offers fewer paying ads on each results page, sometimes even none at all.With less space devoted to ads, Google is trying to reduce visual clutter to please both users and the remaining advertisers. Since only higher-bidding advertisers are getting through, there are fewer ads to click on and those remaining are presumably easier to see and more relevant.
If Googl'e strategy pans out, better quality ads should coincide with more conversions into actual sales and Google's revenue for each individual click ought to shoot up. Why? Simply because advertisers will be prepared to pay more for a click with a higher percentage of sales conversions.
Last year Google grew their revenue by 56% while revenue per paid click only gre 21%. That indicated that better quality ads and consequently better conversion rates into actual sales may still provide Google with the boost in revenue they are seeking. Since Google doesn't disclose its per click revenue figures, we will have to wait until April 17th, when Google reports on its first quarter results to find out if the missing clicks mystery spells trouble or success for Google.
Source: Written by the Chief Editor of DomainNews - Wednesday 9th, 2008
Chief Editor