Are we seeing the first fractures in the search based click revenue model?

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Analysts reviewing Google's quarterly earnings report, had some hard questions regarding Googles click based revenue model, which is touted as, " ...the best Internet business model ever created" by Jordan Rohan, of Clearmeadow Partners, a  advisory firm that focuses heavily on Internet companies.

Some statement from the latest in New York Times includes,

"The problem was that in the earnings report, the Internet giant showed signs that its ultraprofitable business in search advertising was starting to slow."

"The thing that worries investors, though, is that the company’s golden goose — its search engine — is showing signs of age. Paid clicks on advertisements increased 17 percent in the third quarter compared with the same quarter last year. But in the second quarter, paid clicks were up 25 percent from a year earlier."

"Another concern for analysts is the cost per click, the average price the company is paid each time a user clicks on an ad. The cost-per-click measurement has fallen for several years as people spend more time on mobile phones, which have smaller screens and are harder to place ads on.In the third quarter, the cost-per-click measure again fell, down 2 percent year over year and flat from the second quarter."

I think that google know that in a multi-device world, which is going to become even more complex as wearable tech becomes more popular, that traditional search is going to wane. I think this is why there is so much investment into better more complex understanding of synonym and making connectons about concepts, such as the hummingbird update, the knowledge graph, and so forth. I also think that Google is trying to catch up with Apple and Microsoft because they have build walled gardens around their users...and trying to rapid develop the same thing - but that is an expensive proposition..and will their Ad platform cash cow create a runway long enough for them to accomplish that?

Overall, I think that all the insiders know that search is going to undergo major changes in the next five years....and I feel that many people in the search space are just bracing for the storm....as an advertiser though, I can't lie, I'm excited!

Comments

And there is new competition...

There is now some very real competition from Twitter and Facebook with different and qute exciting advertising models... targeted differently. These are stronger competitors than Bing ads, because they have real inventory and real users... who have no plans soon to use Google to buy their next big ticket item.

In addition - Google's quest to maintain number is erronously eroding orginic results in the believe this will retain revenues. All it is doing is diluting market share and trust. If that goes all the way, then Google just becomes one great big ad-platform which nobody will use. I guess that is why SEO will never die!!! :)

I think Google knows the

I think Google knows the long-term end game of their current ad based revenue model is heading toward obsolecence. Mobile, wearable - this is where devices and internet usage is heading and I'm fairly confident Google will realign their current revenue stream with those growing trends.

However, I think it's also important to note that Google isn't purely an "ad" company - it's a "data" company. For years, they sold ads based on one specific type of data - search queries. But with them basically developing and then giving out Android (and Chrome) for free to device manufacturers, they've found another sneaky way to make sure they have access to a robust data set that they can sell to advertisers and marketers. Will it be like Adwords? No - probably not. But I don't believe that Google's revenue is that much at risk in the long run, provided they find a way to monetize the new data sets they'll have access to. To that end, I do believe Amazon and Facebook are their biggest threats, if only because those sites are walled gardens unto themselves with their own robust user-behavior data sets to monetize.

Great article. Thanks for sharing the link!

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