The Real Story: Why ComScore’s Google Clicks are Flat

GOOG has fallen from a high of $747 a share to less than $450 intra day yesterday. The latest 10% or so drop comes as comScore reports that clicks on Google ads in the United States were flat in January when compared with a year earlier.

But why? WHY are Clicks flat from a year ago? Is it the oncoming recession? A sign that this “Internet thing” is just another bubble? Is comScore one of the Four Horsemen of the apocalypse?

To find out what really happened, let’s take a short stroll down memory lane: all the way back to the middle of October 2007.

To set the scene, picture ten men clad in dark blue business suits in a smoke filled executive boardroom deciding how to squeeze the last nickel out of customers for shareholder value. Then slap yourself in forehead: this is Google after all.

To reset the scene, imagine something like the 10-year reunion of your University’s Computer Science Fraternity set in an office best described as Geek Paradise. Towards the middle of the room, two people are engaging in a “policy meeting”. It looks something like this:

Cutts Zhu Sword Fight

Googleoid says to GoogleDork, “You know, [snort-laugh], most Adsense clicks are an accident because of the clickable area of the Adsense Ads.”

GoogleDork Replies (in his best Yoda Voice) “Foolish you are in the way of the Click. Knows where he clicks, does user. Accidents, they are not.”

Googleoid whips out his Gangsta Rap impression “Shit Holmes, Don’t make me put the smackdown on your ass, [Snort-Laugh], dem clicks is played out. And you’d know dat if youz let me do some regulate’in”

“Clickable area size matters not. Look at me. Judge me by my size, do you? Hmm? Hmm?” taunts GoogleDork.

“Yo Homey, don’t be fronten. [pushes up glasses on nose] The shit ain’t broken, so maybe we shouldn’t be fuckin wit it – know what I’m sayin?” asks Googleoid.

“Fear is the path to the dark side. Fear leads to . . .”

Googleoid Interrupts “Pleeeeeeze Neeegro! I’ll bet you that 6 digit ICQ number you got that reducing the clickable area drops the CTR by more than 30% of the quotient of area reduced over net total area.”

GoogleDork Breaks from his Yoda Voice and says “Put up that complete 1984 1st edition Legoland Kings Castle set and you got yourself a bet.”

They drop their foam swords, shake hands on the bet and walk over to GooglePlebe’s desk (seen here):

Google Plebe

They tell Googleplebe to reduce the clickable area on Adsense text ads and he makes it so. Before, a user could click anywhere on the ad and be brought to the destination. After the changes, users have to click on something that looks like a hyperlink.

The Aftermath

“The CTR on text ads declined about 60% in the last 2 months with Googles changes, Image ads on the other hand stayed the same.” January 4th, 2008 Marcus of Plentyoffish.com

4 months later, that little back and forth in the Google Rec Room shaved about $85 Billion (with a B) in market capitalization.

But it wasn’t as stupid an idea as it might seem. You see, Adsense works in a Quasi-market place environment. The market will bid up the cost per click once the adjustment for accidental clicks is readjusted. Right now, marketers should be getting a better value per click as a higher percentage of the clicks are “real” or intentional. That will lead to higher bids per click and ultimately should be close to a break even for GOOGs bottom line.

Is the Sky Really Falling?

The problem is that in the interim, GOOG gives almost not Guidance to the stock market. Mutual Fund types are really too thick to grasp exactly what’s going on, so they think that this “slowing” in the growth has to do with the potential recession effecting GOOG.

Meanwhile, the real story is that Online Advertising Spending will continue to grow at about 30% per year for at least the next 3 years and GOOG is poised to take a disproportionate amount of that growth even if nothing else they do is even marginally successful.

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10 Responses to “The Real Story: Why ComScore’s Google Clicks are Flat”

  1. mark says:

    Nice analysis. I guess that change in clickable area with a 60% drop in click throughs really put Google between a rock and a hard place.

    On one hand, it makes their business model look like there is no growth (as you said this is what the mutual fund people think), or it shows just how fickle users are and how Google doesn’t really understand user’s behavior and the associated revenue.

  2. Gotan Raider says:

    What about the potential MSN+Yahoo merge?
    P/E is 34.90 right now, seems like a reasonable entry point..

  3. karthikeyan says:

    GOOG comes with new TOS for Adsense before couple of days. :(

    Alexa:
    #1 Yahoo
    #2 YouTube
    #3 Live
    #4 Google

    Seems like, “Human Assisted” search of Live.com becomes popular or useful.

    @QuadZilla:
    I noticed that, “Yahoo Sponsored Ads” are displaying on Live.com search results.
    Do Live & Yahoo became partners in search or just ad campaign? Sometimes “No” Ads are displaying on Live SERPs. do you have any idea about it?

  4. ruug says:

    the death of domain tasting with adsense won’t help either

  5. evulvmedia says:

    Good analysis, Quads… Like you, I’m no stranger to GOOG. They know the rules of the market and so do I. You just have to have a full commitment to holding the stock. You wouldn’t do this with any other company.

    I’d like to tell you how I’m feeling about this. I’ll try to make you understand: I’m never going to give up my GOOG shares. They’re never gonna let me down, I’m sure. I’m certainly not going to run around with MSFT in my account and desert the smartest guys in the business. Of course it’ll make me cry a little if MSFT gets to take over YHOO, but then it’s time for anyone with some sense to say goodbye to them completely. Or maybe GOOG can tell a lie or something and hurt MSFT’s chances.

    Look, Quads, we’ve known each other for a long time. Your GOOG is aching now, and I think you are writing this post because you are just too shy to say it. So inside we both know what’s been going on. We know the game and we’ve just gotta keep on playing it.

    And if you ask me about how I’m feeling about my own GOOG shares? C’mon… Don’t tell me you’re too blind to see it! But let me make it clear: I’m never going to give them up! I know Sergey and Larry will never let us shareholders down.

    Like I said, I just wanted to tell you how I’m feeling and try to make you understand.

  6. [...] SEO BlackHat gets it right February 27: 4 months later, that little back and forth in the Google Rec Room shaved about $85 Billion (with a B) in market capitalization. [...]

  7. [...] Sin embargo, como comentan en TechCrunch, la inversión en publicidad online en estos 3 últimos meses ha crecido un 30%. La explicación podría ser la siguiente: Con esta reducción del CTR, Google ha conseguido que las conversiones y el valor por clicks haya aumentado considerablemente para los anunciantes de AdWords. Esto significa que la rentabilidad aumenta para el anunciante, y una vez que los clicks accidentales se ha reajustado, las pujas y el precio por palabras claves han aumentado. [...]

  8. [...] Incidentally, that shrinkage is attributed by some as the cause for ComScores report of flat click growth for Google, among other declining click volume theories. [...]

  9. lw says:

    Nice, even convincing. Call me a skeptic, who might be persuaded: how do you know with certainty that this is what ‘really happened’ and all the happened to cause CTR to drop?

  10. lw says:

    Interesting point of view. Sounds plausible. Interesting character development to enhance plausibility. But quite seriously, is it true?Please persuade me, how do you (authors) know with certainty that the cause of the CTR drop was (largely,if not entirely) due reduction in clickable area? Sincerely interested in hearing earnest response…