Google results reveal struggle to make money from mobile ads

PUBLISHED : Friday, 19 July, 2013, 8:50am
UPDATED : Saturday, 20 July, 2013, 3:27am

For more than a year, Google has been struggling to solve this riddle: even though people are using Google on their mobile devices more than ever, how can the company make more money from mobile ads?

Despite a range of efforts by Google, the riddle remains unsolved, its financial report on Thursday said.

Google reported second-quarter results that missed analysts' expectations for revenue and profit. They showed that its desktop search business continues to slow and ad prices continue to fall as it struggles to make as much money on mobile devices.

It is a vexing problem for every company that has generated revenue through advertising, be it a century-old magazine with a mobile app or a new website aggregating the news. Mobile ads do not command the premium that web advertising does (and web ads do not make as much as print ads).

Google's shares, which fell 1 per cent before the report on Thursday, fell another 4 per cent in after-hours trading.

"One of the reasons why people like Google is you can look forward and see what they're doing with Glass and laying fibre and driverless cars and Chrome, chasing after new revenue streams," said Colin Gillis, a technology analyst at BGC Partners. "But those are still pretty far away. Google's core business is all about advertising and clicks, and the core business is absolutely maturing."

Mobile ads, he added, are inexpensive yet "overpriced because the conversion rates are so low".

"It's still too hard to transact on a phone," Gillis said.

Google had seemed to have finally found a solution to the riddle, by making its biggest change to its AdWords advertising product.

The new programme, which was introduced in February and will be mandatory for all advertisers on Monday, gives then less choice about advertising on mobile devices by automatically including desktop, tablet and phone ads for all campaigns. Advertisers can choose not to buy phone ads but are required to buy tablet ads.

Google says makes it easier for advertisers to reach customers who use devices indiscriminately.