Google's upwardly mobile dilemma

For more than a decade, Google's search advertising business has seemed almost magical in its ability to mint money. But the magic is beginning to wear off as people spend more time on mobile devices, where the company makes less money on ads.

Investors sent Google shares up 8 per cent in after-hours trading on Thursday after a better-than-expected third-quarter financial report. Google reported third-quarter revenue of $US14.89 billion (415.5 billion), up 12 per cent from a year ago and exceeding analyst forecasts of $US14.82 billion.

But the results revealed the company's deep challenges: As its desktop search and advertising businesses mature, along with overall business in the US, its growth rate is slowing and the amount of money it makes from each ad it sells is falling. In Google's core business, the price that advertisers pay each time someone clicks on an ad decreased for the eighth quarter in a row.

The problem is that mobile ads cost half to two-thirds as much as desktop ads, but they lead to purchases just a quarter to a third of the frequency that desktop ads do.

Google executives acknowledged the challenge while emphasising that they were embracing phones and other mobile devices, as well as non-advertising businesses like hardware and business services.

"For years, everyone talked about the multiscreen world. Now it's arrived, and on a scale few imagined," Google chief executive Larry Page said. Most consumers had more than one device, he said, and devices for people's homes and bodies would proliferate.

People activate 1.5 million Android devices a day and Google has introduced its first Motorola phone, the Moto X. It has been encouraging advertisers to transition to mobile, like requiring them to buy mobile ads when they buy desktop ones, and introducing new tools such as the one to track consumers across devices.

Mr Page also addressed research projects, such as Calico, the new health startup financed by Google to investigate ageing. "It's hard to spend meaningful amounts of money, relative to Google's scale, on things that are speculative," he said. "You should probably be asking me to make more significant investments."

New York Times