True to form, Google announced another bumper quarter last night. But one statistic causing some hand wringing is the continual fall of CPC prices.

Google say this isn’t a problem and not a concern for their business. Not only do I agree with them, but I think Google are the cause of the decrease in CPCs. Here’s a simple thought experiment to show why.

Let’s imagine a scenario where an advertiser gets 100 clicks a day from a search query. Let’s say 20 come from a paid ad and 80 come from an organic listing. Also, let’s assume that clicks from both convert at an equal rate (5%).

So our SEM report for day 1 looks like this:

So the advertiser is happy, hitting his/her CPA target.

However, Google, in the quest for higher revenues, decides to increase the paid ad space on the page. Overnight, sitelinks, product ads etc appear, pushing the organic listings further below the fold. As a result, more traffic goes through the paid ads. The SEM report for day 2, to the advertiser’s horror, looks like this:

At this point, the advertiser does what anyone would do to get back to their target. They reduce their bids.

Satisfyingly, this prompt action means day 3′s report reveals this:

As Google increases the supply of paid ads and the demand stays the same, then the price will fall. That’s simple economics.

Google isn’t resting on its laurels. Many macro factors (e.g. spread of the internet in developing markets) and controllable factors (e.g. better targeting, more network partners) mean they can increase the revenue from paid ads despite the fall in CPCs.

The real stat, which Google doesn’t reveal, is the growth of monetisable impressions. That is, search queries that have ads against them. If that increases, all is good.

Update

Google have been releasing paid clicks and CPC variance data since Q2 2009. I’ve taken that to produce an indexed view of change over time.

As you can see since Q2 2008, although CPCs have declined about 19%, the number of paid clicks has increased by 130%. That’s not a bad trade-off.

My copy of Google Think Quarterly just arrived in the post. Although it’s available online, Google has sent me a lovely hardback copy. Probably one of the nicest pieces of print marketing I’ve seen in a long while; I dread to think what the unit cost is. Here are some photos:

Came in a nice cardboard box with a card that was in a handwritten envelope. Note the wax seal on the ribbon.

The book was inside a red translucent protector, showing a human brain on the cover

Remove the cover, and in fact there’s a lightbulb inside the brain too

A closer look at the lightbulb reveals it’s made up of my name. Add 25% to the unit cost.

At the back there’s a three-dimensional, pop-up infographic about TFL’s cycle hire scheme. Add another 25% to the unit cost.

On the back, handwritten, is 885/1500, so I feel honoured I made it into such a short print run!

Google released its Q4 ’10 earnings last week. I’ve taken the figures for the UK and converted them to pounds which gives some insight on Google’s performance here in Blighty.

2010 showed a 13% growth on 2009, as Google recorded c.£2.15bn of revenue in the UK. It’s a staggering amount – ITV will probably make £1.4bn in revenues from TV advertising in 2010 (based on their H1 results).

Here are the charts that give the quarter-on-quarter view since 2007.

Quarterly revenue in GBP and USD

Year-on-year change

Quarter-on-quarter change

So Google’s Q1 results came out over a month ago, so this post is quite late. Nevertheless, here the usual UK analysis. I’ve tweaked the chart to give the USD change too.

Quarter	USD (millions)	GBP (millions)	FX
Q1 07	578	296	0.5117
Q2 07	600	302	0.5037
Q3 07	661	327	0.4948
Q4 07	692	338	0.4891
Q1 08	803	406	0.5056
Q2 08	774	393	0.5071
Q3 08	776	410	0.5282
Q4 08	685	437	0.6373
Q1 09	733	510	0.6959
Q2 09	715	463	0.6474
Q3 09	765	466	0.6093
Q4 09	772	473	0.6127
Q1 10	842	540	0.6411

FX rates are taken from oanda.com.

Here’s the chart of the data table:

Here’s the year-on-year percentage growth:

And finally the quarter-on-quarter percentage growth:

There we have it. Google UK’s biggest quarter, no matter which currency you look at, not something that could have been said last year.

Google results came out yesterday, so here’s my usual look at the sterling version of the numbers.

Quarter	USD (millions)	GBP (millions)	FX
Q1 07	578	296	0.5117
Q2 07	600	302	0.5037
Q3 07	661	327	0.4948
Q4 07	692	338	0.4891
Q1 08	803	406	0.5056
Q2 08	774	393	0.5071
Q3 08	776	410	0.5282
Q4 08	685	437	0.6373
Q1 09	733	510	0.6959
Q2 09	715	463	0.6474
Q3 09	765	466	0.6093
Q4 09	772	473	0.6127

FX rates are taken from oanda.com as usual.

Here’s the chart of the data table:

Here’s the year-on-year percentage growth:

And finally the quarter-on-quarter percentage growth:

Perhaps the only concern is that QoQ, Q4 is only 1% up on Q3. You would hope it would be higher given all the additional retail activity during that time. But it’s a decent quarter all-in-all, up 8% YoY in GBP and 13% YoY in USD. Let’s hope there’s more of that to come in 2010.

This is an update on a previous post, looking at Google’s UK revenues in GBP. Google breaks out its UK revenues due to SEC regulations, but in dollars. This makes it difficult to determine how successful they’ve been in the UK because of currency fluctuations. I make the conversions back to sterling, so here’s the latest based on yesterday’s Q3 results.

Quarter	USD (millions)	GBP (millions)	FX
Q1 07	578	296	0.5117
Q2 07	600	302	0.5037
Q3 07	661	327	0.4948
Q4 07	692	338	0.4891
Q1 08	803	406	0.5056
Q2 08	774	393	0.5071
Q3 08	776	410	0.5282
Q4 08	685	437	0.6373
Q1 09	733	510	0.6959
Q2 09	715	463	0.6474
Q3 09	765	466	0.6093

FX rates are taken from oanda.com as usual.

Here’s the data in chart form:

The quarter-over-quarter change:

And the year-over-year change:

Not a bad result at 14% up year-on-year. Looks positive for the economy, and pretty much what I expected after reading Efficient Frontier’s UK Q3 report.

Google’s Q2 2009 results came out last week, with the usual parade of pre-forecasting and post-analysis. I thought it would be useful to breakout the UK component of their revenues. Being a US company, Google report in US dollars, so I’ve made a rough estimate of what those revenues are in sterling.

Quarter	USD (millions)	GBP (millions)	FX
Q1 07	578	296	0.5117
Q2 07	600	302	0.5037
Q3 07	661	327	0.4948
Q4 07	692	338	0.4891
Q1 08	803	406	0.5056
Q2 08	774	393	0.5071
Q3 08	776	410	0.5282
Q4 08	685	437	0.6373
Q1 09	733	510	0.6959
Q2 09	715	463	0.6474

I’ve taken the FX rates from quarterly mid-market averages supplied by oanda.com. And for the more visually minded, here’s that data in a chart:

The data suggests that the UK business has started to mature since the start of 2008. We can clearly see the seasonal trends (high Q1, Q4; lower Q2, Q3) that one would expect as overall growth diminishes. Although we have only 2 quarters of data for this year so far, this seasonality seems to be more marked.

I’m sure, like me, you can’t resist a couple more charts. So here they are. The first one looks at quarter-over-quarter change:

The second looks at year-on-year change:

So with double-digit YoY growth in a recession, perhaps Google doesn’t have too much to worry about in the UK.

Google released their Q4 2008 results last night and on the face of it it didn’t look good for the UK business. Q4 revenues were down to $685m from $772m in Q3, and even down slightly from Q4 2007′s number of $692m. Of course what’s really done for Google UK is not the economy (so far), but the collapse of sterling.

A back of the envelope calculation in sterling terms actually shows an impressive increase in both quarter on quarter and year on year growth:

• Q4 2007 – £338m
• Q3 2008 – £408m
• Q4 2008 – £437m

So the most recent quarter was up 29% Y/Y and 7% Q/Q in GBP terms, which isn’t so bad. Of course, this is little comfort to Google, an American company that reports in dollars. So Google hedged against currency movements in Q4 and managed to record a $129m income because of it. Clever sods.

To make the calculations, I took average quarterly mid-market interbank rates from Oanda.com. Someone who knows more about forex and finance than me could probably come up with a better analysis, but I think the above is a good rule of thumb.

Her Royal Maj is visiting Google's London office today, along with everyone's favourite off-the-cuff speaker, Prince Philip. Here's Google UK's logo to mark the occasion:

A bit dull, so I created my own:

Much better!

Updated on 8th June 2008

So Google is about to get into the financial comparison market.  Look what I saw when I just did a search for secured loans:

A customised ad slot promoting Google Merchant Search Beta, with a helpful dropdown of loan amounts.  Clicking through the ad leads to this comparison of different loans providers:

Holy moly.  Is Google trying to beat some of their biggest advertisers at their own game?  This is a big leap into the CPA business.  As the FAQ page says:

Participating providers pay Google when someone requests a quote through this system.

Why Secured Loans?
Secured loans are the easiest financial products to compare side-by-side. Companies can simply tell Google their interest rates for different loans amounts and that's more or less it.  Compared to more complex products such as insurance or mortgages it's a walk in the park.  The requirements for going beyond secured loans should not be underestimated.  As Doug Scott points out, managing dozens of feeds that change in realtime can lead to massive technical headaches.

Google also has another problem enticing traditional, high street lenders into competing in the AdWords auction.  Looking up at that SERPs screenshot, you can see only see comparators and bad credit specialists.  That's because those advertisers have bigger margins and can afford to bid higher.  High street brands just can't afford to appear at those high CPCs.  Therefore Google is looking for another mechanism to get at their marketing budgets.

Is Google Abusing Its Position?
Perhaps. Google is promoting Merchant Search Beta with an ad that has a title of 49 characters, almost double what it allows other advertisers. Not to mention the dropdown, again a feature unavailable to anyone else.

Google usually pushes new features through universal search. Patrick Altoft has a mock-up of how that might look if Merchant Search appeared there.

Ultimately Google has got to decide whether the revenue it earns through the Merchant Search can surpass the revenue it would make selling that top spot to an advertiser.  It might take sometime for Google to make that decision, so expect more experiments like this in the future.