At Google, ‘Advertising’ Is the Key Word; Under the new policy, advertisers can no longer bid on keywords for separate devices. Tablet computers are treated the same as desktops.

October 14, 2013 Leave a comment

At Google, ‘Advertising’ Is the Key Word

New Ad System Could Affect Search Giant’s Coming Results

ROLFE WINKLER

Oct. 13, 2013 5:05 p.m. ET

In July Google Inc. GOOG +0.43% made what Chief Executive Larry Page called “the biggest-ever change” to its cash-cow search-advertising service, completing the transition to “enhanced campaigns.” When Google reports its third-quarter results on Thursday, investors will see whether the new system is enhancing the bottom line. The change altered the rules of Google’s keyword auctions, where advertisers bid to put their ads in Google searches. Under the new policy, advertisers can no longer bid on keywords for separate devices. Tablet computers are treated the same as desktops. Meanwhile, advertisers’ control over smartphone bids is now more limited.Google made the change to address a fundamental problem: More of its searches are coming from mobile devices, but ads on mobile devices are cheaper, because they generate less-valuable clicks. Goldman Sachs estimates that on average, Google’s mobile ads sold for 35% less than desktop ads in the third quarter.

That’s a big reason that the average price advertisers pay Google every time someone clicks on an ad has been falling. It was down 6% in the second quarter from a year earlier, marking the seventh consecutive quarter of declines.

In all, Wall Street expects the search company to report adjusted earnings of $10.35 a share, according to Thomson Reuters, up 15% from a year earlier. Analysts project quarterly net revenue of $11.9 billion, up 5.3%. The revenue figure will be watched closely as a barometer on the health of the Internet economy.

Google rivals, such as Facebook Inc., FB +0.12% have confronted a similar issue, as users shift to mobile. RBC Capital Markets analyst Mark Mahaney says enhanced campaigns are Google’s attempt “to entice, cajole and force advertisers to catch up” on mobile.

There are several reasons why mobile ads are cheaper. Users might not be in the mood to buy things while surfing the Web on a smartphone. Meanwhile, many advertisers have been slow to optimize their websites for smaller screens, making it harder to capitalize on mobile clicks.

Enhanced campaigns are designed to help. Combining tablets with desktops should boost prices, says Kevin Lee , CEO of search-engine marketing consultant Didit. “Tablet bids were 20% to 40% lower than for desktop clicks for our clients,” he says.

At the same time, Google is also giving advertisers new tools to make their ads more effective. Dennis Shirokov , director of interactive marketing for FedEx Corp. FDX +0.70%, likes that Google is enabling advertisers to target Web searchers based on their location and the time of day, among other things.

Granted, mobile has been more of a speed bump than a roadblock for the search company. While average click prices are down, the volume of clicks has grown rapidly. Volume was up 23% in the second quarter compared with a year earlier. EMarketer estimates that Google will control 53% of the nearly $17 billion world-wide mobile ad market this year.

With enhanced campaigns, Google is aiming to be even more upwardly mobile.

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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