During its earnings conference call last week (view it below), Google shared some rather stunning revenue numbers from display and mobile advertising, saying that its new initiatives are now delivering results. The company reported a 23% year on year increase in total revenues, with revenue from Google properties up 22%, at $4.83 billion, or 67% of total revenues. Google network (AdSense) revenues were also up 22%, accounting for $2.20 billion, or 30% of total revenues. Google reported International revenues at $3.8 billion for the quarter, which still account for 52% of its total revenues (of $7.28 billion). Detailed trends (from the concall):
Traffic Acquisition Cost: traffic acquisition costs of 25.7% of advertising revenues, at $1.805 billion. This is much lower, primarily because Google’s MySpace search deal is over, and so no minimum guarantee to pay out; there’s also been an impact of the partners within the network.
Geographical Segmentation of Revenues: Rest of the world (not US and UK) revenues of $2.929 billion, with the US still being the single largest market for Google. UK accounts for $840 million.
Headcount: up approximately 1,500 versus Q2; around 23,300 full-time employees, of which about 300 came from acquisitions. Most hiring in engineering and sales.
Paid Clicks: Global aggregate paid click growth remained healthy up 16% year-over-year and also up 4% quarter-over-quarter.
Cost Per Click (CPC): Aggregate cost per click growth was up 3% year-over-year and 2% quarter-over-quarter. This is for Google properties, as well as network.
Google Instant: Instant, according to the company, was launched because it’s better for the user: “In fact, from a revenue standpoint, its impact has been very minimal; and from a resource standpoint, it’s actually pretty expensive”…”It saves about two to five seconds per search and users absolutely love it. The percentage of people who select Instant results before they finish their query is steadily rising”. Google Instant will be rolled out for BlackBerry, iPhone and other devices by something this fall this year – (closer to winter, though).
Ad Formats: New formats like site links and ads with seller ratings and product listing ads are now having an impact. “These ads appear on more than 10% of the queries where we show ads, and people like them. We see this because click-through rates are up for some formats as much as 10% and up more than 30% on some others.”
Social and Realtime Search: Google CEO Eric Schmidt said that the company will add additional social ranking clues with time, in a bid to make search results more personalized, and hence better for the user: “…we want users to be more logged into Google, more logged in they are, more likely we can get them not only the social information but the other information.” On Realtime search, he said that the company has a real-time index which is very successful for Google, and they use Twitter as a real-time source of information. “So, if you search for almost anything, you will see the Twitter feed is now part of universal search.”
– Display Ad Revenues: Google has estimated $2.5 billion in display advertising as an annualized run rate, on the basis of the trailing quarter. This includes AdMob, YouTube ads, non-text ads on the Google Display Network, DoubleClick platform and Ad Exchange. “The Ad Exchange is taking off, we are partnering very well with agencies, and of course more publishers are making more money.”
– Nikesh Arora, President, Global Sales Operations and Business Development said that this run-rate puts Google up there as one of the top three display networks in the world. (ED: keep in mind that this is on the basis of the trailing quarter)
– Banner vs Video: Most of the display advertising is still banner ads and other formats, and video isn’t quite there yet. “Video is beginning to come into it. But we believe in the future there is going to be a lot more rich media involved into display network, because as we go forward you are going to see more and more monetization of video, whether it’s on YouTube or other partner sites that’s going to happen. So we believe the display network we offer has maximum frequency and maximum reach.”
– YouTube New Ad Format: YouTube is monetizing over 2 billion views per week, up 50% year on year. Google has launched a new ad format called TrueView, where viewers get to choose which commercials to watch, or even skip watching the ad altogether. An interesting insight: “Turns out when advertisers only pay for the commercials people watch, we discover the ads are a lot more valuable to advertisers when they are only paying for viewers who have actually chosen to watch them.”
Once again, Google declined to comment on YouTube’s profitability. Our guess is that YouTube is profitable.
Mobile Advertising & Android
– Mobile Ad Revenues: $1 billion in mobile advertising, on an annualized run rate, based on the results of the trailing quarter. Readers should remember that this includes AdMob, so the numbers mentioned for Display and Mobile are not mutually exclusive. “Our mobile search queries have grown five times over the past couple of years. And of course, a lot more of those queries are now coming from Android phones.”
Arora said that the revenues are split between storage, display and application efforts “…more people who are able to access the web devices, the more we see the trend that people that are searching them, they are going to give us opportunities to put display advertising. So, we see no reason to change our monetization model. We think the current approach to Android drives more users and more usage and drives the ecosystem.” Schmidt added that display is a very big component of mobile revenue, and they’re seeing something of a hockeystick effect there.
– Android: According to Schmidt, “…you have this phenomenal success of Android, which is well past anything that I had ever hoped for and looks like it’s on its way to be a huge, huge success”…”There are up to 90,000 applications on Android and have grown very, very fast, and those applications of course have sort of drive to them.” Schmidt said that Android is probably the largest single platform available in the market today.
– Making money from Android: But how do you make money by giving the Operating System away? According to Schmidt, people who use Android search twice as much as everything else, and there is revenue through search. “Android is hugely profitable and we maintain the anti-segmentation and other things by a series of contracts around the store and so forth and so on”.” Schmidt said that it would be premature to estimate monetization on handsets, and Google will look to monetize with advertising and value added services by giving the OS away for free. He believes that search monetization on handsets will exceed desktop eventually.
– Competing Android App Stores: Google says that it is not looking at Android Market from a revenue perspective, but the focus is to make money for developers. There will be many Android app stores, and the key one will be from Google.
– Mobile CPC: Jonathan Rosenberg, SVP, Product Management at Google, said that the company recently started smart pricing on the mobile devices, and CPCs on mobile are lower, because the transaction isn’t completed on the mobile. “People don’t have their credit cards, and it’s harder to type into them. So, the mobile rates remain relatively lower. As payment platforms get built into the mobile devices and as people are more likely to actually complete the transaction, I think you will see those things go up substantially.” He said that tablets like the iPad work better in this regard.
– Mobile Formats: Google has started to introduce formats which drive better monetization, like click-to-call and hyper-local. Note that Amit Singhal, Google Fellow, had mentioned spoken about search results being more hyper-local on mobile earlier.
– Mobile Advertisers: Nikesh Arora said that it’s hard to go and make a pitch to a large advertiser when the maximum inventory on offer for them is in the range of $5000-$50,000, when they have advertising budgets of $100 million to $200 million, so it is important for inventory to grow. The early adopters are people who can actually consummate a transaction: insurance companies who want to do a click-to-call, or hyperlocal business like restaurants. Arora said that interest is growing in local and click-to-call categories, and as payment capabilities improve, e-commerce players will come on board. (ED: Google doesn’t want to partner with telecom operators for payment capabilities?)