I’m interested in the online advertising business. When I read about Google’s performance for the 3rd quarter, 2013, exceeding analyst estimates, and noted more than a 12% follow-on appreciation in the per share price of Google’s stock by Friday, October 18, 2013, I decided to take a look at the quarterly earnings report.
I found a couple of the sectors of revenue production, depicted in a bar graph on Google’s Q3 2013 Quarterly Earnings Summary to be interesting and worth a comment. While Google’s overall advertising business for the quarter grew substantially, year-over-year, the portion of revenue coming from the “network” (meaning the Display Network, Google’s AdSense Affiliates), actually contracted by a full percentage point.
I’m wondering if this revenue contraction for the Display Network business is the result of advertisers demanding better results from their campaigns, and, subsequently dropping network campaigns for Google Search campaigns, only. I’ve worked with my own clients on these campaigns (my clients are SMBs), and have to say the results have been poor, especially where we experimented with building “brand awareness”. Brand awareness campaigns are charged on a basis of 1000s of impressions, rather than per click. We’ve experienced very few successes with these campaigns.
If I’m correct, and today’s SMB online advertiser is much more demanding than was the case in the past, then the online advertising business is certainly trending even more towards a “volume-centric” business. Any drop in volume in subsequent quarters will likely hit Google’s results hard.
I was also taken by the growth in Google’s “other” revenue segment. In Q2 2013, this set of products (likely to include Google Apps) produced $1.046 Billion. But in Q3, production grew by 17.5% to $1.230 Billion. If this “other” set of products includes Google Apps, then it’s safe to say Google is taking some business away from Microsoft’s Office product line.
Finally, I liked the highlighted sentence on Page 2 of the summary: “Our infrastructure continues to be a key strategic area of investment”. A lot of what’s working in the cloud business as we proceed through Q4, 2013 is infrastructure. Enterprise businesses and large organizations in the public and not for profit sectors are, apparently, very keen on Infrastructure as a Service (IaaS) offers.
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