Google's disappointing Q2 reignites mobile ad worries

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Analysts continue to express concerns about Google's (NASDAQ:GOOG) efforts to migrate its desktop advertising business to the mobile platform after the digital services giant posted discouraging cost-per-click results during the second quarter of 2013.

"Cost-per-click"--the price that advertisers pay Google each time a consumer clicks on an ad linked to Google services--slipped 6 percent from a year ago and fell 2 percent quarter-over-quarter. Analysts had expected the metric to fall by just 3 percent compared to the second quarter of 2012.

"The CPC drop is a bit surprising, and perhaps raises again the question of whether Google really benefits from the mobile shift," RBC Capital Markets analyst Mark Mahaney told The Wall Street Journal. Independent analyst Jonathan Yarnis told USA Today "It's hard to fault [Google], because everyone is still searching for their mobile business model. I think we've figured out that merely transplanting the desktop model to the mobile business is not working."

Google is taking steps to accelerate advertisers' shift to mobile. In February the company overhauled its AdWords platform to reach consumers across all device screens, requiring advertisers to pay for mobile ads even if they only wish to reach consumers via the desktop. The revamp, dubbed "enhanced campaigns," was designed not only to increase Google's mobile ad revenue but also to help merchants manage integrated campaigns stretching across multiple connected devices.

"We want to make advertising super simple for customers," Google co-founder and CEO Larry Page said during the company's Thursday earnings call, according to a Seeking Alpha transcript. "Online advertising have developed in very specific ways with separate campaigns for desktop and mobile. This made arduous work for advertisers and agencies and meant mobile opportunities often got missed."

Advertisers have now upgraded 6 million campaigns, corresponding to almost 75 percent of all their active campaigns, Google said. "We're getting back evidence from clients seeing improved performance unit using enhanced campaigns," said Google SVP and Chief Business Officer Nikesh Ahora. "For example, Pizza Hut: Social mobile ROI increased by 20 percent. They found that mobile click-through rate has increased by more than 60 percent while that cost per order on smartphones has dropped by 17 percent. We believe enhanced campaigns does set up our clients and our business really well for the long-term and the move towards a constantly connected world goes far beyond just direct response and transaction of marketing."

Google reported second-quarter 2013 net income of $3.23 billion, up from $2.79 billion in the year-ago period. Revenues increased to $14.1 billion. Overall, Google posted earnings of $9.56 per share on net revenue of $11.1 billion, below analyst expectations of $10.80 per share on net revenue of $11.4 billion.

Page was nevertheless upbeat. "The shift from laptop to mobiles, from one screen to multiple screens, create a tremendous opportunity for Google. With more devices, more information and more activity online than ever, the potential to improve people's lives is immense," he said. "Getting you the right information, just when you need it, creating the tools to make everyone more effective at home and at work, and helping you share and remember the moments that matter in life. That's why I'm so excited about the velocity and execution of our platforms, apps and devices."

Google said it has now activated more than 900 million devices running its five-year-old Android mobile operating system, and that it activates an additional 1.5 million devices each day. In addition, consumers have now downloaded more than 50 million Android applications from the Google Play store. "In fact, we already paid out more money to Android developers this year than in the whole of 2012," Page said.

Page added that he's "really excited" about manufacturing arm Motorola Mobility's forthcoming Moto X smartphone and other Android-based products. The Moto X is one of several smartphones Motorola is expected to unveil by October: The company has said that customers will be able to customize the Moto X smartphone to their liking, but has not provided details about exactly how it can be personalized, what it will look like, when it will launch and how much it will cost.

For more:
- read this release
- read this Seeking Alpha transcript
- read this Wall Street Journal article
- see this FierceWireless article
- read this USA Today article

Special Report: Wireless in the second quarter of 2013

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