Google says online ad market is stabilising

17 July 2009

MOUNTAIN VIEW, California: The online advertising market is visibly "stabilising", with sectors such as retail and travel boosting their spending levels after a period of decline, according to Eric Schmidt, ceo of Google.

During the last quarter, the Mountain View-based company saw its revenues rise by 2.9% on an annual basis, to $5.52 billion (€3.92bn; £3.38bn), compared with growth of 6% in Q1 this year, and 39% in the second quarter of 2008.

Profits increased by 19% year-on-year, to $1.48bn, largely as a result of continued cost-cutting and a further rationalisation of its operations, which has recently included the closure of its print and radio advertising services.

According to Schmidt, "a quarter ago, we had no idea where the bottom was. We started off the year and all of a sudden our metrics were off."

In evidence of this, he said that consumers had been spending more time searching for products but ultimately bought cheaper goods, and "when they did so, the whole process just took more time."

However, in terms of advertising categories, "with the notable exception of the financial vertical, the other verticals, in particular shopping and travel, which had been significantly affected, appear to be recovering," he added.

As such, Google's ceo stated that "we're not at the moment looking at that downward spiral that we thought we might see six months ago."

Over the course of the second quarter, marketers and consumers were "obviously seeing the benefit of the performance-based advertising that we offer," according to the company.

Globally, the number of paid clicks rose 15% on an annual basis, but declined by 2% quarter-on-quarter, with the typical cost-per-click falling 13% compared with Q1 2008, but rising by 5% on Q1 this year. 

The web pioneer also gained from other emerging digital trends, as "mobile monetization picked up a good bit of momentum as search traffic grew, again driven mostly by the smartphones."

Patrick Pichette, Google's chief financial officer, also said that YouTube, the video-sharing site, would soon reach profitability.

"We're really pleased both in terms of its revenue growth, which is really material to YouTube and, in the not long, too long distance future, we actually see a very profitable and good business for us," he said.

This is because the site has become "established in the advertiser space now that the YouTube home page is of relevance and is desirable for customers."

Indeed, he argued the company has witnessed "significant sell-through in most of our major markets where we have YouTube home page for sale."

Data sourced from Financial Times/Wall Street Journal; additional content by WARC staff