Google has a new and unexpected explanation for its falling ad rates
Google+Google has an explanation for its declining advertising rates, and it's not what you might have expected.
For the past several years, Wall Street has obsessed about Google's declining cost-per-click - the amount of money that Google makes when consumers click on its online ads. In Q1, Google's CPC tumbled 7% year-over-year.
The conventional wisdom has been that the CPC decline is due to the shift to mobile computing. Consumers are increasingly accessing the Web on smartphones, and Google is not able to charge marketers as much for mobile ads as it can for the ads that are displayed on PCs.
Not so, said Google's (outgoing) CFO Patrick Pichette during Thursday's earnings conference call with analysts.
The real culprit, Pichette said, are the skippable "TrueView" video ads on YouTube.
"TrueView ads currently monetize at a lower rate than ad clicks on Google.com. As you know, video ads generally reach people earlier in the purchase funnel, and so across the industry, they tend to have a different pricing profile than that of search ads," Pichette explained.
"Excluding the impact of YouTube TrueView ads, growth in Sites clicks would be lower, but still positive and CPCs would be healthy and growing Y/Y," Pichette continued.
"Really we have two positive stories here," Pichette said. "First, as I mentioned earlier, we are experiencing strength in mobile search and the CPCs in our core search business are continuing to grow Y/Y."
"Second, viewership of YouTube videos and TrueView ads are growing significantly and YouTube's contribution to our advertising revenues continues to grow at a strong rate Y/Y. We're really pleased with how the YouTube business is progressing."
The fact that mobile ads may not be the drag on Google's ad rates that many had assumed could improve the company's story on Wall Street. But the news that video ads don't monetize as well as search ads may raise some eyebrows, given that video ads are generally considered to command some of the richest premiums in the online ad world.