Why Google thinks mobile ad pricing will beat desktop ad pricing

Market Realist

Google's Q1 earnings disappoint on lower-than-expected profits (Part 2 of 4)

(Continued from Part 1)

Ad clicks on mobile are less valuable than desktop ad clicks

In the last article of this series, we discussed Google’s (GOOG) Q1 earnings and that although the number of paid clicks for its core advertising business increased year-over-year by 26%, the aggregate cost-per-click declined 9%. The primary reason for the decline in cost-per-click was the reduced advertising pricing or cost-per-click rates prevailing on mobile versus desktop ads. In other words, although smartphone use is increasing faster than desktop use, the clicks on mobile ads are less valuable, which is causing a decline in cost-per-click rates. However, Google thinks differently and believes that in the medium to long term, mobile pricing will be better than desktop pricing.

Why Google thinks mobile pricing will be better

During the conference call to discuss earnings, Google’s SVP and chief business officer, Nikesh Arora, mentioned that in mobile, you have the advantage of knowing the location and context of the individual—which you don’t have on desktop. This information helps Google provide effective advertising and thereby achieve better conversion rates. However, Arora mentioned that there are a few things that need to improve for a better user experience on mobile. Firstly, there should be a frictionless payment mechanism system for user to conduct mobile transactions. Secondly, when people search for things, they need to quickly get down to the information they want and not have to browse multiple sites. Thirdly, merchants need to optimize their sites for mobile, keeping in mind screen size, just like they’ve done it for desktop over the years.

Facebook’s growing faster than Google in the mobile advertising market

According to a report from eMarketer, Facebook (FB) and Google accounted for the majority of mobile ad market growth worldwide last year. Google is the leading player in this market, with a share of about 50% in 2013, although its share declined by about 3% from 2012. However, Facebook showed the rapidest growth, with its share increasing from 5.4% in 2012 to 17.5% in 2013. Twitter’s (TWTR) market share increased from 1.5% in 2012 to 2.4% in 2013, while Pandora’s (P) declined from 2.6% to 2.1%, YP’s declined from 2.9% to 2.1%, while Millennial Media’s (MM) remained stable at 0.8%.

Continue to Part 3

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