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Google's Earnings: Good News for Advertisers

Buried in the search giant's third-quarter earnings is a stat every e-commerce company should know.
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Lost in Google's disappointing third-quarter results--even though $10.8 billion in advertising revenue, up 5% from the previous quarter and 16% year over year, hardly seems disappointing--is good news for advertisers. (And bad news for someone else, but not in the way you might think.*)

According to analysis conducted by WordStream, a PPC technology company, the average cost per click is down 16.5% for Google Search and 18.2% for the Google Display Network.

At the same time ad impressions and clicks grew at an impressive rate. Clicks were up 21.6% for Search and 29.1% for Display Network.

The bottom line for advertisers: A larger inventory of impressions and a lower cost per click means you have the opportunity to get more customers for less money.

"The trends we're seeing in the Google economy," says Larry Kim, founder and CTO of WordStream, "open up search engine marketing to more advertisers, including perhaps advertisers for whom the economics of search previously might not have made sense at higher average costs per click."

As the company has done in the past, WordStream analyzed Google's third-quarter results. (An infographic showing CTR, CPC, and conversion rates for the top 10 industries that spend the most on Google advertising can be found here.)

Some interesting findings:

  • Average costs per click in the Finance industry, which spends the most of any industry on Google advertising, are high--over $3 per click on the search network and over $1 per click on the Display Network. The vertical with the next highest CPC is Jobs and Education at $1.80 on Google search.
  • Finance-related ads on Google result in over 1 million completed conversions per day.
  • The industry with the highest average click-through rate is Shopping, with an average CTR of 5.23%, followed by Travel at 4.88%.
  • The Jobs and Education sector has the highest conversion rates, at 6.27%, followed by Shopping at 6.09%, and Beauty and Fitness at 5.63%.
  • Together, the Search and Display networks account for nearly 13 million conversions per day--great for Google, but also great for advertisers and the economy as a whole.

"It's hard to say for certain what is causing what," Kim says. "The dramatic increase in impressions and clicks certainly contributed to the decline in average CPCs and CTRs. Generally speaking higher supply means lower prices, and showing a greater number of ads on a page inevitably means any one individual ad is less likely to be clicked on. Alternatively, the massive increase in impressions could be a deliberate strategy on Google's part to monetize more of their search inventory to increase clicks and revenues.

"I believe this is advantageous for both Google and advertisers--it's a win-win," Kim adds. "Advertisers can now get more customers for lower costs, increasing the ROI of this marketing channel."

* Earnings were released early, causing Google to halt trading until they finalized their 8k. Google blamed the unauthorized release on R.R. Donnelley, a company I once worked for... sadly, that was probably a career-limiting move for one of my ex-colleagues.

Last updated: Oct 25, 2012

JEFF HADEN | Columnist

Jeff Haden learned much of what he knows about business and technology as he worked his way up in the manufacturing industry. Everything else he picks up from ghostwriting books for some of the smartest leaders he knows in business.

The opinions expressed here by Inc.com columnists are their own, not those of Inc.com.



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