Skip to main content

Google AdSense revenue flat - what does it mean?

Google just released earnings. As usual, search advertising showed strong growth year-over-year as well as sequentially. Things were not nearly so good for AdSense.

From the earnings release, Google had this to say:
Google’s partner sites generated revenues, through AdSense programs, of $1.69 billion, or 30% of total revenues, in the fourth quarter of 2008. This represents a 4% increase over fourth quarter 2007 network revenues of $1.64 billion and a 1% increase over third quarter 2008 network revenues of $1.68 billion.
Only 1% over the previous quarter? That seems pretty light for Google. But look at the chart below (courtesy of HowToNotMakeMoneyOnline.com). AdSense revenue has not been growing significantly since the end of 2007. Yet it is also clear that AdSense makes up a big chunk of Google revenue: 30% as of the most recent quarter.

Google Share Of AdSense Revenue 4Q08
So what has caused AdSense revenue to stagnate?

Certainly there is no lack of opportunity. With the continued proliferation of blogs and web sites that are willing to host AdSense ads, the inventory of ad slots keeps increasing. Furthermore, Google has mentioned in its most recent conference call that as some advertisers reduce their ad buys in the current tough economy, those ad slots on affected web sites are willing to accept AdSense ads.

Google has referenced their effort to clean up "MFA" sites. These are Made for AdSense sites that have very little real content and feature AdSense ads disguised as menus and content to fool unsuspecting users into clicking them. These sites are combined with an AdWords campaign to drive traffic to these MFA sites (sometimes referred to as AdWords/AdSense "arbitrage"). Google feels that they "pollute" search results and has made a serious effort to ban them. During the conference call, the company indicated they had made so much progress that it may have had a noticeable impact on AdSense revenue. Still, it is unlikely this has caused a year's worth of stagnation in AdSense revenue

So if there are plenty of ad slots then either there are less clicks or each click is worth less. But here is what Google just said in the earnings release:
Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of our AdSense partners, increased approximately 18% over the fourth quarter of 2007 and increased approximately 10% over the third quarter of 2008.
So it seems like the number of clicks is not the problem. That leads us to how much money Google is making per click. This is composed of two parts: there is what Google gets from the advertiser and what Google pays to the publisher or owner of the web site hosting the ads. The payout to the publishers is known as Traffic Acquisition Cost or TAC. Google keeps the difference. This amount has also stayed the same for the last year. You can see it as the red area in the chart above.

That implies that what advertisers have been willing to pay for keyword-based advertising like AdSense has been stagnant or declining. This is in contrast to the keyword inflation that has been seen in AdWords, at least before the economic downturn got into full swing. The reason may be due to the maturity of the AdSense product.

Many of the biggest, most popular sites don't run AdSense. They work with ad networks and run text ads, display ads and affiliate-style ads. Some bloggers advise that getting rid of AdSense is necessary to convince visitors the site is run by professionals.

There is a movement toward cost-per-action (CPA) advertising where publishers are paid not merely for clicks but for buyers actually taking an action on the advertiser's site - buying a product, signing up for a demo or a newsletter, etc.

"Smart pricing" is a Google process that has been discussed in SEO circles. This is an attempt by Google to acknowledge differences in traffic quality and to begin to accommodate the CPA concept.

Google describes smart pricing this way: "Google's smart pricing feature automatically adjusts the cost of a keyword-targeted content click based on its effectiveness compared to a search click. So if our data shows that a click from a content page is less likely to turn into actionable business results -- such as online sales, registrations, phone calls, or newsletter signups -- we reduce the price you pay for that click."

So it appears that Google's own systems may be helping reduce AdSense revenue. The contention that AdSense doesn't provide the best traffic for advertisers may indeed be true. Acquiring more ad slots on higher quality web sites may help but when the economy improves, will those sites keep AdSense or go back to accepting more lucrative ads from higher quality, higher paying advertisers? AdSense may only see a temporary bump and then go back to its current flat level of revenues. Luckily, that is still a pretty good chunk of change. In terms of growth, though, it's a good thing search ad revenues are still increasing strongly for Google.

Comments

Anonymous said…
The site you got the AdSense Revenue Chart from is http://www.howTONOTmakemoney.com

not

http://www.howNOTTOmakemoney.com
My apologies! The link has been corrected.

Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position.

This first post in the series starts at the beginning: getting good investment ideas.

Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets.

As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professionals and …

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas.

Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what to lo…

Durable Goods report for Sept just so-so but Computer segment is on fire

The Durable Goods advanced report for September 2011 was released on Wednesday.

I like to dig into the Durable Goods report because it can be useful for seeing how tech in aggregate is performing and how the sector may perform in the future. I always focus on two particular measures: shipments and new orders. Let's see how it played out last month.

Shipments -- 

I generally give less importance to Shipments since this is a backward looking measure reflecting orders that have been confirmed, manufactured and shipped. It's similar to earnings reports -- it's good to know but the data is in the past and we're more interested in the future. The following chart shows how September shipments looked for the overall tech sector:


Results for the overall tech sector were a bit weak but take a look at the next chart which tracks the Computers and related products segment:


Results here were actually quite good and, to make things even better, the previous month was revised upward.

N…