Is Google going to have problems with search advertising as more people shift to mobile?

You’ve probably heard this by now, but if not: Google’s Q1 estimates were under the expectations, which doesn’t often happen with them. Income/profit was $3.45 billion (yes, a number that indicates you’re struggling) and revenue was $12.2 billion once you take out partner fees (for example, Google paying Apple to be the default search in Safari on iPhones). Both were misses as opposed to what analysts thought. (It should be noted, though, that revenue is still three times what it was in Q1 of 2009, and most companies would kill for that growth in five years.)

The central problem is an increasing shift to mobile. Google dominates — dominates — the search advertising space, but on mobile, space is at a premium, and marketers/advertisers make different sets of choices. Or, said by someone smarter than I:

Still, smartphones are dragging down prices for digital ads, with smaller screens limiting the number of promotions that can be displayed, while marketers are becoming more selective in using them. The cost per click for search advertising on smartphones dropped 35 percent during the first quarter in the U.S., according to researcher IgnitionOne. Tablets, which have larger screens and are more like traditional desktops, saw ad prices rise 29 percent.

Would you bet against Google figuring this out? I wouldn’t. Here’s what one of their chief business guys said after the earnings report:

“In the medium to long-term, mobile pricing has to be better than desktop pricing,” Arora said. “In mobile, you have location, and you have context of individuals which you don’t have in the desktop.”

I would say the next big thing moniker probably falls to “giving context to mobile,” as in … your phone theoretically knows where you are (omg so does the government…), so can’t it tell you what you could do? You can already do this via Google and Apple products working together with a bit of context provided on your end — although I’m always stunned on road/work trips when no one knows how to navigate in Google, for example — but if it was straight-up just there for you, people would probably like that. So, in sum, “mobile context is the future.” I wouldn’t bet against Google nailing that.

This was also interesting, from one of the Google-could-be-doomed articles:

Google is investing in new products to drive future growth. The company is licensing hotel-booking software from Room 77 Inc., a startup backed by Expedia Inc. (EXPE) With Room 77, Google can cater to travelers looking to quickly book hotels, the most lucrative part of online travel.

Here’s Room 77, if you’ve never tried it. It’s pretty cool and similar to stuff like “Hotel Tonight” or “Priceline Name Your Price.”

Final thought on Google: here are a couple of ways they can work the mobile ad space to drive revenues/profits back up to analyst-predicted levels.




Ted Bauer