Mobile ads yet to click for Google
For more than a year, Google has been struggling to solve this riddle - even though people are using Google on their mobile devices more than ever, how does it make more money on mobile ads?
The riddle remains unsolved, the company's financial results revealed on Thursday.
Google reported second-quarter results that missed analyst expectations on both revenue and profit. They showed that its desktop search business continues to slow and ad prices fall as it struggles to make as much money on mobile devices.
It is a vexing problem for every company that has generated revenue through advertising. Mobile ads do not command the premium that internet advertising does.
"One of the reasons why people like Google is you can look forward and see what they're doing with Glass and laying fibre and driverless cars and Chrome, chasing after new revenue streams," said Colin Gillis, a technology analyst at BGC Partners. "But those are still pretty far away. Google's core business is all about advertising and clicks, and the core business is absolutely maturing."
Mobile ads, he said, were inexpensive yet "overpriced because the conversion rates are so low".
"It's still too hard to transact on a phone," Mr Gillis said.
Google had seemed to have finally found a solution to the riddle, by making changes to its AdWords advertising product.
The new program, enhanced campaigns, which was introduced in February and will be mandatory for all advertisers on Monday, gives advertisers less choice about advertising on mobile devices by automatically including desktop, tablet and cell phone ads for all campaigns. Advertisers can choose not to buy cell phone ads but are required to buy tablet ads.
But it was too early for the results of the new ad program to show up in Google's most recent results. The price that advertisers pay when Google users click on their ads fell 6 per cent from last year and 2 per cent from the previous quarter, declining for the seventh quarter in a row and at a steeper annual rate than in the previous quarter.
Mobile ad pricing is "one of the many factors at work" affecting click prices, said Nikesh Arora, Google's chief business officer. Google was in the early stages of enhanced campaigns and it would most likely take a year for the results to become apparent, he said. He added the number of clicks on ads was up 23 per cent over last year.
Google reported second-quarter revenue of $US14.11 billion, up 19 per cent. Net revenue, which excludes payments to ad partners, was $US11.1 billion, up from $US9.2 billion. Net income rose to $US3.23 billion, or $US9.54 a share.