Reston (VA) - Earlier this week, a Comscore report claiming that Google’s paid clicks are on a decline unleashed a frenzy of speculations about the sustainability of one of Google’s core businesses, causing downgrades from major banks. Today, the research firm issued a clarification and interpretation of these numbers, stating that Google’s sales may actually not decline as a result of this trend, but actually increase.
Some may claim Comscore’s very carefully worded clarification about its findings may come a bit late. And these clarifications may leave some scratching their head why banks cut share price targets because of those findings while Comscore now says that these declines may not necessarily mean that Google’s revenues are heading south.
Magid Abraham and James Lamberti of Comscore say that "concerns" that Google may see a weak first quarter and that the soft U.S. economy is beginning to impact the online advertising market are "not unwarranted". However, these conclusions should not be made based on Comscore’s numbers.
"The [search data suggest] that the softness in Google’s paid click metrics is primarily a result of Google’s own quality initiatives that result in a reduction in the number of paid listings and, therefore, the opportunity for paid clicks to occur. In addition, the reduction in the incidence of paid listings existed progressively throughout 2007 and was successfully offset by improved revenue per click. It is entirely possible, if not likely, that the improved revenue yield will continue to deliver strong revenue growth in the first quarter," Abraham and Lamberti wrote.
Also, the analysts said that "there is no evidence of a slowdown in consumers clicking on paid search ads for rest of the US search market, which comprises 40% of all searches."
Diving deeper into the numbers, Comscore said that while the number of Google’s U.S. paid clicks dropped sequentially by 7%, its total number of search queries grew by 9% and the company was able to increase its market share. On a normalized basis, the number of paid clicks not only dropped by 7%, but by 16%. The rest of the market saw a 4% decline in the same time frame. Interestingly, this has not been the first time Google has seen such a dramatic decline in click rates: In 2007 clicks dropped by 33%, but revenues increased by 68% at the same time. So, at least in theory, this trend could continue in 2008, Comscore suggests.
The market research firm believes that Google’s "quality score" is responsible for the decrease in click numbers, which aims to reduce the number of low quality ads - and provide more relevant ads to consumers, an improved ad placement environment and higher for publishers and Google per ad. Overall, Google’s January ad click rates came in at 0.22%, down about 8.1% from December. Other search engines remained flat at 0.21%.
"In summary, the evidence points to a trend caused by another Google clever design, leveraging Adam Smith’s enduring ’invisible hand’," said Abraham and Lamberti.
What we aren’t so sure about this is, why banks jumped on Comscore’s numbers without coming to the same conclusion as the market research firm. At least as of now, there have been no upgrades announced.
Google shares traded at $474.50, up about 0.2% from Thursday.