comScore: Google's Ad Drop No Cause For Alarm
A bombshell report that panicked investors earlier this week gets a lengthy clarification.
After jangling investors' nerves earlier this week with a report that Google's paid clicks were declining, comScore today offered a detailed analysis of its figures, which may help calm a jittery Wall Street.
In a blog post, comScore CEO Magid Abraham and James Lamberti, senior vice president of media and search, attributed the drop-off to improvements Google had made to its ad platform -- nothing that indicated a pervasive weakness in Google's ad business.
Earlier this week, shares of Google fell $43.61 (8.6 percent) largely on the report. The figures alerted investors to a 7 percent sequential drop in Google's total paid clicks from December to January, and a flat annual growth from the previous year.
This came after comScore reported 25 percent growth year-to-year growth in Google's paid clicks in the fourth quarter of 2007, a period which disappointed analysts.
The report touched off a mini-panic as analysts worried that Google might fall short of its first-quarter earnings projection, and speculation renewed about weakening consumer spending eroding the online advertising market.
In today's response, Abraham and Lamberti did not say that those concerns were necessarily invalid -- only that comScore's data did not support them.
The number of paid clicks had dropped because Google placed fewer, better-targeted ads in January as part of its ongoing initiative to reduce low-quality leads for its advertisers, comScore said.
The coverage index -- the portion of pages that Google places ads on -- dropped from 52 percent to 48 percent in January.
The note from Abraham and Lamberti reads like an extended clarification that a newspaper might offer to a story that provoked an unwarranted panic among readers.
That may not seem surprising: Google, a client of comScore's, saw its market capitalization take a significant hit on what comScore now suggests may have been a collective misreading of a single data point.
Neither company would comment on whether Google had approached the research firm about its initial report.
A second issue of concern had been that Google's clickthrough rate also declined in January. Of the already-lowered number of ad-supported queries, consumers still clicked on 8 percent fewer placements in January, per comScore's analysis.
What had been troubling was that assuming Google has improved targeting search ads by eliminating bad matches, one might expect the clickthrough rate to increase, not decline.
Not so, according to Abraham and Lamberti. Today's post explained that more relevant ads mean that it takes fewer clicks for consumers to find what they're looking for.
"Perversely, a high number of clicks means that the ads are not delivering what the user is looking for on the first try, which induces additional clicks on the second or third try," the authors wrote. "The benefits to marketers are real, but also counterintuitive."
comScore also noted that other search engines did not experience a decline in paid clicks like Google, suggesting economic softness was not behind the drop-off -- since there is no reason why a downturn would hit Google but leave Yahoo, MSN, AOL and Ask untouched.