Google stems decline in mobile ad rates, vows improved user experience

January 23, 2013 | By Jason Ankeny

Google (NASDAQ:GOOG) shares jumped 6 percent in early trading Wednesday after the company assuaged concerns that user migration from the desktop to mobile devices is adversely impacting its core advertising business.

While Google does not break down revenues from mobile advertising, executives said Tuesday that average cost-per-click, which measures the price advertisers pay the company, fell 6 percent year-over-year during the fourth quarter of 2012, compared to double-digit declines during the previous three quarters. Analysts have blamed the plunge on the shift to mobile, where ad rates still lag behind the desktop.

Speaking on Tuesday's earnings call, Google CEO Larry Page argued that improvements in mobile devices are rendering distinctions in platforms and form factors irrelevant, guaranteeing the continued health of the ad business as a whole. "We should be designing for the kind of mobile phones that we have right now that are state of the art," Page said. "Those experiences should work on all devices pretty well."

Google Chief Business Officer Nikesh Arora said on the call that Google is taking steps to reduce the number of ads displayed to improve the user experience. Wired notes the move also should signal a reduction in ad inventory, which could help boost the value of individual ads.

Analysts expressed relief. "We come out of the fourth quarter feeling better about Google's mobile transition and segment growth rate going forward," J.P. Morgan Securities analyst Doug Anmuth said in a note to clients. "As the business continues to shift toward mobile and advertisers think holistically about clicks rather than about which devices they're coming from... the Street will as well." Added Piper Jaffray analyst Gene Munster, "Long term, Google will be able to tie offline activity/purchases to online/mobile ads, which will better demonstrate the value of mobile and could encourage advertisers to spend more."

Google reported fourth quarter revenues of $11.34 billion, below analyst forecasts of $12.36 billion. However, the firm stipulated that its revenue before subtracting traffic acquisition costs was $14.42 billion.

For more:
- read this Wired article
- read this Reuters article