Why Google’s Ad Revenues Are Rising

Why Google’s Ad Revenues Are Rising

Google

A year ago, Google was feeling the pain of an economic downturn caused by the pandemic. My what a difference a year makes. On October 26, Google’s parent Alphabet reported that Google had beat earnings expectations across the board for the third quarter. Why is Google growing so well?

The News

Here are the financial highlights from Alphabet’s earnings announcement:

  • Google’s advertising revenue rose 43 percent to $53.13 billion, up from $37.1 billion the same time last year and slightly higher than the prior quarter. YouTube ads rose to $7.21 billion, up from $5.04 billion a year ago.
  • Retail was the largest contributor to year-over-year ad growth. Media and finance spending was also big.

Google, like its Big Tech rivals Amazon and Facebook, is benefitting from the surge in e-commerce that happened during the pandemic. With more consumers spending online, more businesses advertised online. The increase more than offset the slowdown Google suffered in 2020 when its travel and leisure clients scaled back advertising amid widespread travel restrictions. As we look closer at Google’s growth, we see two take-aways:

Privacy Is Google’s Ace in the Hole

Apple has enacted privacy controls that give users the choice of opting out of being tracked by apps on Apple iOS. As a result:

  • Google rival Facebook has experienced a slowdown in revenue in its most recent quarter as Facebook users opt out of having their behavior tracked, which hurts Facebook’s ability to serve up targeted ads for its customers.

Brian Wieser, GroupM’s global president of business intelligence, told The Wall Street Journal, “In the land of the blind, the one-eyed man is king. Whatever data they have [at Google] is better than what most others have.”

And Google’s data is going to look even better once Google successfully phases out third-party cookies on Chrome, which is the most popular browser in the world. Subject to regulatory oversight, Google will phase out cookies in 2023. This means that advertisers will no longer be able to rely on third-party cookies to track user behavior across the web in order to serve up personalized ads. Google will work with advertisers to create alternatives to third-party cookies through its Privacy Sandbox project.

Meanwhile, Google’s own powerful ad platforms, such as YouTube and Google Search, will be exempted from Google’s phasing out of cookies. That’s because those platforms use first-party data, or data collected from user behavior on those sites. They don’t rely on third-party cookies. When the dust settles, Google will emerge even stronger.

Google Is Making a Play for e-Commerce

We reported on our blog that Google is making some changes that will strengthen Google’s position as a challenger to Amazon’s e-commerce business. For instance, Google will make online searching and shopping more visually appealing by emulating the product display features you see on Amazon. For certain items such as apparel, Google will return search results with a page that resembles a visual store, not a list of links and text descriptions. Google will also soon introduce a new way to search visually, with the ability to ask questions about what you see. These changes will build on some moves Google has enacted already to become more influential in e-commerce. As The Wall Street Journal reported:

Much of the company’s growth has come from e-commerce advertisers eager to reach customers whose product searches begin online, as noted earlier. The company joined with Shopify Inc. this year to simplify search listings and ad purchases for 1.7 million merchants. The effort, which aimed to enliven its e-commerce segment, has helped turn retail ads into Google’s largest growth contributor.

Most product searches begin on Amazon, a scenario that is not likely to change soon. But Google still commands a large share of product-related searches. The explosive growth of e-ecommerce during the pandemic has suited the company well – and will continue to do so.

It’s clear that Google’s position among the Big Three online platforms (along with Amazon and Facebook) is as strong as ever. And Google is taking steps to write its own future through stronger consumer privacy measures.

As for what’s next? Look for Google to make more investments in artificial intelligence to fuel the development of more ad products. This commitment reflects a broader push into AI for Alphabet. As Alphabet CEO Sundar Pichai said in a call with investors, “In 2016, I laid out our vision to become an AI-first company. Five years later, this quarter’s results show how our investments in AI are building more helpful products for people and for our partners in local communities.”

Contact True Interactive

To succeed with online advertising, contact True Interactive. Read about some of our client work here.

Why the Google Ad Juggernaut Is Back

Why the Google Ad Juggernaut Is Back

Google

Google’s advertising business has come roaring back. In 2020, Google found itself to be in the unusual position of seeing a downturn in its advertising revenue for the first time in 29 years. That’s because a pullback in ad spending among Google’s clients, many of whom come from a travel/hospitality industry ravaged by the COVID-19 pandemic, hurt Google even as ad competitors Amazon and Facebook were reaping a windfall. But Google’s recent financial results show that the downturn was temporary, and Google will continue to exert an enormous influence on the advertising world.

Recently, Google’s parent firm Alphabet announced quarterly earnings that exceeded investors’ expectations. Although the growth of Google’s cloud computing business had a lot to do with Alphabet’s success, the rebound of Google advertising played a big role, too. Google’s advertising revenue rose to $44.68 billion for the first quarter of 2021, up from $33.76 billion the year before, prompting CNBC to note that the ad revenue spike was the fastest annualized growth rate in at least four years. So, what can we conclude form the turnaround?:

  • Google is benefitting from the popularity of video. YouTube earned $6 billion in revenue for the quarter, increasing 49 percent from a year earlier. Earlier in 2021, we predicted a surge in online video consumption, a reality that has been borne out during the pandemic. To be sure, online video is much bigger than YouTube, as the success of TikTok demonstrates. But as Google reported later in 2020, during the pandemic, people were turning to video more as a learning tool when in-person learning options were shut down, which benefits YouTube given the amount of instructional content that exists there. The only question that remains now is whether the popularity of online video, and, by extension, YouTube, will remain as strong in a post-pandemic world.
  • Google’s Knowledge Graph is becoming more powerful. The Google Knowledge Graph consists of all the sources of information that Google draws upon to provide search results to queries. It’s a wonky concept that people in the search engine optimization (SEO) industry follow closely. But the Knowledge Graph applies to advertising, too. When Google provides answers to searches such as “Where can I find a plumber near me?” or “Where can I find Anime T shirts?” Google draws upon sources such as Google Maps, Snippets, and a company’s Google My Business (GMB) listings (among other sources) to share information about relevant businesses. Well, guess what? Google is doing such an effective job tapping into its Knowledge Graph to serve up answers on search engine results pages (SERPs) that people are finding answers to what they need on Google without needing to click anywhere else. More eyeballs on Google SERPs means that Google can deliver a larger audience to advertisers through Google Search. As Google becomes an even stronger all-purpose search tool (hard to believe given Google’s dominance in search already), the company becomes even more valuable to advertisers.
  • Google is creating its own future. As widely reported, Google has intensified its war against third-party cookies that are essential for businesses to deliver ads based on a person’s browsing behavior across the web. As Google forces the demise of third-party cookies, advertisers will need to tap into businesses that possesses first-party data (such as Amazon) in order to continue to deliver effective personalized ads. And as it turns out, Google is sitting on a lot of first-party data through that Knowledge Graph I mentioned. When people use Google Maps, YouTube, and other Google properties, they give Google a ton of information about their search and purchase habits, which Google uses to create better ad products. According to Brendan Eich, cofounder and CEO of the privacy-focused browser company Brave, “The reality is that Google already has first-party access to nearly every site—via Google Analytics, ad words, Google Tag Manager, Google Maps, etc.—and that its users are being data mined for profit.”

All of this is not to say that businesses need to dial up their advertising on Google. We’ve always recommended that advertisers go where their audience is, period. At the same time, Google has demonstrated the wisdom of businesses taking the long view with their advertising. The Big Tech ad platforms – Amazon, Facebook, Google, and Microsoft – have carved out a powerful space in the advertising world. Those companies are all big targets for critics, which has resulted in antitrust action and negative PR. But the negative PR can lead a business around by the nose, too, resulting in short-sighted thinking. The ad giants are not going away. If they’re important to your business – and I suspect they are if you’ve read this far into my post – don’t pump on the brakes in 2021.

Contact True Interactive

To succeed with online advertising, contact True Interactive. Read about some of our client work here.

Photo by Brett Jordan on Unsplash

Artificial Intelligence Shapes Google’s Future

Artificial Intelligence Shapes Google’s Future

Marketing

For many marketers, Google means advertising. But Google also wants us to associate its name with artificial intelligence. Recent events illustrate how the company has one foot planted in the present and future. Can Google have its cake and eat it, too?

The Present: Advertising

The latest quarterly earnings announcement of Google’s parent, Alphabet, shows that Google remains a formidable force in the world of online advertising. Alphabet’s first-quarter revenues, $31.1 billion, outperformed analysts’ expectations. Why? Because Google is an advertising cash cow. As much as Alphabet likes to tout its forays into emerging technology, its money comes from Google’s ability to secure revenue via time-honored advertising tools such as AdWords.

Approximately $26.6 billion, or 86 percent of Alphabet’s quarterly revenue, came from Google advertising. Think about that: $26.6 billion. That’s enough to land a company in the Fortune500. Google is protecting its position by refining current tools such as AdWords while rolling out new tools to make online advertising more personal and mobile-centric. Although much has been said about Google’s struggle to make YouTube a safer advertising platform for brands, probably Google’s bigger threat is Amazon, which continues to ascend as a major search platform – and offers advertising tools of its own. As reported, Amazon is now a multi-billion dollar advertising giant. Google needs to adapt or fall behind.

The Future: Artificial Intelligence

The 2018 Google I/O event, occurring May 8-9, illustrates Google’s intent to change itself and the world around it. At this year’s I/O, Google has been pushing artificial intelligence through its products. For example, Google announced the creation of Duplex, an “AI System for Accomplishing Real World Tasks Over the Phone” in the words of a Google blog post. As Google noted:

The technology is directed towards completing specific tasks, such as scheduling certain types of appointments. For such tasks, the system makes the conversational experience as natural as possible, allowing people to speak normally, like they would to another person, without having to adapt to a machine.

Google CEO Sundar Pichai demonstrated how accurate Duplex already is when he showed how Duplex can make Google’s voice assistant (Google Assistant) smart enough to place a call to a hair salon and book an appointment with a real person, sounding so natural that a human being is not aware they are talking with a voice assistant.

Google also unleashed a number of AI-based product improvements ranging from a smarter, more personal Google Maps to a customized Google News. So why the push into AI? Because Google knows that the company needs to become more than a leading search platform. Google has long been evolving as a media platform for accomplishing everyday tasks, and in recent years, it has looked to emerging technology such as virtual reality to do so. Google needs to demonstrate to its advertisers that it can keep consumers inside the Google ecosystem, and simply making search better is not enough to do that.

If Google can pull off a future defined by AI, it will protect its advertising base. But here again, Amazon looms as a threat. Amazon is making its own investments into AI to be a smarter platform for its customers, both online and offline.

The competition between Google and Amazon is good for consumers and advertisers. Consumers should benefit from more personalized services while businesses have more choices to advertise. Choice is good. And Google wants to be the first choice. Contact us to learn more about how to thrive with online advertising with giants such as Google and Amazon.