Google, Comscore and AdGooroo: Reconciling the Differences

The past few months have been a roller coaster ride for Google’s stock price. The main culprit was a series of Comscore reports, starting in January, that implied Google search volume was heading south. Many analysts interpreted this to mean Google’s Q1 2008 revenue from paid ad clicks would be disappointing. Subsequent Comscore reports seemed to confirm this.

Then Google released the Q1 2008 financial results, and all hell broke loose. Advertising revenue was up over 40%, surprising analysts and especially Comscore.

Research firm AdGooroo released data a few days before Google’s earning announcement, claiming that the number of Google advertisers had increased significantly in Q1, which seemed to bode well for Google ad revenue. This data seemed to correlate to/predict Google’s ad revenue improvement — certainly more so than the somber Comscore data.

So what happened? Was Comscore’s data flat wrong? Wall Street seemed to think so; Comscore stick price has dropped 8% over the past few weeks.

Comscore sought to reclaim credibility via this blog post last Friday and this one yesterday. The main points:

  1. Comscore’s reported data was U.S. paid click data, which didn’t take into consideration Google’s stronger non-U.S. ad revenue growth.
  2. Comscore’s reported paid clicks did not include paid clicks from the Google Network (site publishers in the Google Adsense program), as well as paid clicks from other sources reflected in this table:

Comscore ate a little crow by admitting they should have been clearer up front that their initial reports did not include 70-85% of Google’s total paid clicks. They also promised to keep working on their ability to measure/estimate the number of contextual paid clicks.

I think there are a few more caveats and deeper observations in the data reported by Google, Comscore and AdGooroo. Here goes:

  1. Google’s first quarter paid click revenue growth has historically been less steep than its previous fourth quarter. This is due to the fact that there’s significant seasonality in the paid search advertising biz, due to Christmas shoppers. To illustrate this: while Google Site Revenue increased 10% in Q3 2007 over Q2 2007, the increase in Q4 2007 over Q3 2007 was 14%.
  2. AdGooroo’s data seems to imply that Google advertising revenue will continue to grow strongly. I believe advertiser revenue increase could lag the increase in the number of advertisers, since advertisers tend to spend more over time as they optimize their ad campaigns and enjoy increasing ROI.
  3. Google’s paid clicks are increasingly profitable. As Comscore points out in its most recent blog posts, average click CPS (costs-per-click) have increased, probably due to the implementation of Google’s AdWords Quality Score efforts. Comscore also alludes to another factor that I think will become increasingly significant: more ads appearing on more Google-owned web sites, like Gmail, YouTube, Google groups, etc., as well as via other Google ad-delivery channels like Feedburner. Google pays no TAC (Traffic Acquisition Cost) for these placements, as they do with Adsense publishers.

Here are a few examples of the last observation:

As I detailed in this blog post, YouTube has become a potent force for advertisers, who can place ads on the YouTube site pages, and also right within videos themselves. YouTube is the 6th most-visited site on the internet, with 68 million unique visitors per month. Advertisers pay a tiny fraction of what they would need to pay for an equivalent broadcast or cable ad with equivalent reach. And YouTube InVideo ads can be targeted such that they are relevant to the context of the video.

(Side note: the acquisition of YouTube may have inspired Google to snap up other hot “internet channels” like MySpace or Facebook – Social PPC anyone?)

Another example: advertising within Gmail. When a Gmail user reads an email, Adsense ads are displayed and the ads are relevant to the content of the email being read. For example, here’s an email that pertains to real estate:

And here’s one pertaining to camping equipment:

A last example: ads displayed by Google-owned Feedburner, which places contextually-relevant ads right within RSS feeds:

This last example underscores a strength Google is exploiting – a move that Microsoft has been reticent to make: ad-supported applications. Google ads might soon appear adjacent to documents in their “Office-alike” applications like Google Docs, Google Spreadsheets and Google Calendar – ads that are relevant to the document content. Since the applications are free, users might not mind the intrusion of ads (though certainly there are privacy-protection issues that would need to be addressed). Google doesn’t need to worry about cannibalizing the revenue stream from paid applications – a concern that has probably kept Microsoft out of this obvious game.

The list of Google-owned web sites is big and growing bigger. More and more of them will become channels for targeted content and targeted ads. Good news for advertisers – and Google shareholders.

Update: Google bristles at Comscore.