Google's Mobile Ad Business Is Radically Altering The Quality Of Its Revenues

mobile phone girl

Photo: e3000 / Flickr, CC

A huge increase in mobile advertising appears to be radically changing the quality of Google’s earnings, and is one explanation for why growth at the search giant slowed in Q1 2012.Google reported aggregate paid clicks were up 39 per cent but the average cost-per-click was down 12 per cent. In its 10-Q filing with the SEC, Google declined to detail why that was happening, citing “various factors” that can make its click prices fluctuate.

But when you put Google’s numbers alongside what’s happening in the mobile ad market generally, it looks as if a massive increase in mobile advertising is driving down the overall price of ads. As Google takes a huge chunk of the mobile market, it cannot help but be affected by it.

Google initially expected to earn $1.2 billion in mobile ad revenues by 2013, but some analysts believe it could be as much as $5.8 billion this year and $9.9 billion next year.

These charts show how Google’s revenues slowed as mobile advertising took off, and click prices declined on greater aggregate volume as a result.

Lastly, the numbers suggest that Facebook—which is still in its infancy when it comes to mobile ads—may soon face the same problem.

The big picture: Revenue growth at Google is basically slowing down. The next slide offers an explanation ...

Although Google is earning more through greater aggregate paid clicks, the cost-per-click is in decline. Google is getting lower prices for greater volume. Why?

According to KCPB partner Mary Meeker, mobile platform sales overtook desktop sales in 2011.

That crossover happened two years before Meeker expected it to, according to this slide she created in 2010.

Mobile internet use is increasing faster than desktop web use did, according to Meeker.

With mobile ad inventory exploding, is it any wonder than cost-per-click prices for Google overall are coming down?

Generally, mobile ads are cheaper than display ads on web sites. The more of them that proliferate, the more they drive down the average price.

As Facebook is just about to enter the mobile ad market in a big way, the same slowdown in revenue growth could also happen to Facebook.

In fact, it may already be happening. Facebook's ad prices collapsed in Q1 2012 ...

Want more data on Google and Facebook's revenues?

  • This Google PowerPoint Details Android's Mobile Ad Revenues >
  • How Facebook's Ad Prices Collapsed in Q1 2012 >
  • Facebook Had A Massive Q1 2012, But Performance Softens In The US >

NOW WATCH: Briefing videos

Business Insider Emails & Alerts

Site highlights each day to your inbox.

Follow Business Insider Australia on Facebook, Twitter, LinkedIn, and Instagram.