Key Trends in Google Revenue and how Google makes money

Google is an advertising behemoth, which makes most of its money through search based advertising revenue and advertising revenue from Youtube, Gmail, Google Map, AdSense, AdMob and Double Click Ad Exchange. Google advertising revenue constitutes majority of Google’s total revenue but Google has now started diversifying its revenue so as to reduce its dependence on advertising and more specifically search based advertising.

This blog discusses key trends in Google revenue, non-advertising revenue, segment wise Google’s revenue, Paid Clicks and Cost per Click earned by Google. Paid Clicks and Cost per Click metrics are 2 important metrics to understand the direction in which Google business is going.

Key trends in Google’s overall revenue is as following:

1. Increasing non-advertising revenue

Google parent company Alphabet Inc’s posted $26.064 Billion revenue in Q4, 2016 quarter (quarter ending 31 December 2016 and fiscal year ending December 31, 2016) with $3.665 Billion revenue coming from other bets and Google’s other revenue. Contribution of non advertising revenue increased from 10.5% in Q4, 2015 ($2.251 Billion revenue through other sources out of total revenue of $21.329 Billion revenue) to 14.06% in Q4, 2016.

2. Huge dependence on advertisement for revenue 

Google depends heavily on advertisement to generate its revenue. Google generated 88% of its total revenues from advertising in 2016. This over dependence possesses huge risk for Google’s overall revenue.

3. Mobile search and Youtube driven growth

Google posted 22% YoY growth in Q4 revenue largely driven by strong performance in mobile search and YouTube. Advertising revenue growth was mainly driven by mobile search with ongoing strength in YouTube and programmatic. There was substantial growth in other Revenues from Hardware, Play and Cloud.

4. Increasing paid clicks and decreasing cost per clicks continued

  • Paid Clicks – Paid Clicks can be divided into 2 components – Paid clicks on Google properties and Paid Clicks on Google Network Members property. Paid clicks on Google properties include clicks on advertisements on searches, other owned and operated properties such as Gmail, Maps, and Google Play and YouTube engagement ads like TrueView (counted as an engagement when the user chooses not to skip the ad) and certain trial ad formats. Paid Clicks on Google Network Members property, include clicks on advertisements served on Google’s AdSense for Search, AdSense for Content and AdMob businesses. Number of paid clicks increased in Q4, 2016 with same overall trend being 2016 as well.
  • Cost per Click – Cost-per-click is another metrics that helps in understanding Google business. Cost-per-click is equal to total click-driven revenue divided by total number of paid clicks and represents average amount Google charge advertisers for each engagement by users. Any change in Google Cost per Clicks also influences overall digital marketing cost of all the companies that relies on Google for their marketing needs. Cost per click decreased in the Q4, 2016 with same overall trend in 2016 as well.

5. Increase in competition

Google faces increasing competition from players in different industries which include:

  1. General purpose search engines and information services
  2. Vertical search engines and e-commerce websites
  3. Social networks
  4. Other forms of advertising and online advertising platforms
  5. Companies that design, manufacture, and market consumer electronic products
  6. Providers of enterprise cloud services and digital video services
  7. Digital assistant providers.

6. Risk faced by Google and its impact on Google’s revenue

Google faces many risks to its business including increased completion and advertiser’s willingness to pay for Google’s ad. These factors are mainly due to following factors:

  1. Fees advertisers are willing to pay based on how they manage their advertising costs
  2. Termination of contract by Google’s advertisers, companies that distribute Google’s products and services, digital publishers, and content partners if Google fails to provide value for them (such as increased numbers of users or customers, new sales leads, increased brand awareness, or more effective monetization) efficiently and competitively than other alternatives.
  3. Cyclical expenditures by advertisers based on overall economic conditions and their budgeting and buying patterns
  4. General economic conditions – Adverse macroeconomic conditions also impact user activity and demand for advertising leading to reduced spending by advertisers
  5. Advertiser competition for keywords
  6. Changes in advertising quality or formats
  7. Changes in device mix
  8. Query growth rates
  9. Challenges in maintaining growth rate as our revenues increase to higher levels
  10. Evolution of online advertising market
  11. Investments in new business strategies
  12. Changes in product mix
  13. Shifts in geographic mix of Google revenue
  14. Evolving user preferences
  15. Acceptance by users of Google products and services as they are delivered on diverse device
  16. Our ability to create a seamless experience for users and advertisers
  17. Movements in foreign currency exchange rates
  18. Seasonality
  19. Changes in foreign currency exchange rates
  20. Traffic growth in emerging markets and mature markets and across various advertising verticals and channels

7. Alphabet Revenue

Alphabet’s Q4, 2016 revenue increased to $26.1 billion in Q4, 2016 from $21.3-bn revenue in Q4, 2015.

Q4, 2015 Q4, 2016
Alphabet Revenue 21.329 26.064
Google Revenue 21.179 25.802
Other Bets Revenue 0.150 0.262

Breakup of Alphabet and Google’s revenue, expenses, profit and Net Income can be seen below:

Q4, 2015 Q4, 2016
Revenue 21.329 26.064
Cost of Revenue 8.188 10.661
Gross Profit 13.141 15.403
Selling/General/Administrative Expense 4.251 5.142
Research & Development 3.510 3.622
Operating Expense 7.761 8.764
Total Operating Expense 15.949 19.425
Operating Income 5.380 6.639
Net Income 4.923 5.333
Revenue 21.179 25.802
Operating Income 6,744 7.883
Other Bets
Revenue 0.150 0.262
Operating Income -1.213 -1.088

Alphabet’s revenue consists of revenue from 2 segments:

  • Google segment – Google segment consists mainly of 3 components –
    • Google properties
    • Google’s Network Member’s Properties
    • Google’s other revenue.
  • Other bets – Other bets include all other operating segments other than Google segment.

Alphabet’s segment wise revenue (revenue for Google properties, Google’s Network Member’s Properties and Google’s other revenue along with revenue from Google’s Other Bets for 2015 and 2016 can be seen below:

Q4, 2015 Q4, 2016 Year ended 2016 Year ended 2015
Google Segment
Google properties 14.936 17.968 63.785 52.357
Google’s Network Member’s Properties 4.142 4.431 15.598 15.033
Google’s Advertising revenues 19.078 22.399 79.383 67.390
Google’s other revenues 2.101 3.403 10.080 7.154
Google segment revenues 21.179 25.802 89.463 74.544
Other Bets
Other Bets Revenue 0.150 0.262 0.809 0.445
Consolidated Revenue 21.329 26.064 90.272 74.989

We will discuss trends in Google Segment revenue and Other bets later.

8. Google Paid Clicks

There was 36% YoY increase in Google aggregate paid clicks in Q4, 2016(with respect to Q4, 2015) and 20% QoQ increase in aggregate paid clicks (with respect to Q3, 2016).

Q4, 2015 Q4, 2016
Alphabet Revenue 21.329 26.064
Google Revenue 21.179 25.802
Other Bets Revenue 0.150 0.262

9. Google Cost per Click

There was 15% YoY decrease in Google Cost per Click in Q4, 2016 with respect to Q4, 2015 and 9% QoQ decrease in Google Cost per Click with respect to Q3, 2016.

YoY Change from Q4, 2015 to Q4, 2016 QoQ change from Q3, 2016 to Q3, 2016
Aggregate Cost per Clicks -15% -9%
Paid Clicks on Google properties -16% -11%
Paid Clicks on Google Network Members’ properties -19% 0%

There was 16% YoY decrease in Google properties Cost per Clicks and 19% YoY decrease in Cost per Clicks on Google Network Members’ properties. At the same time, there was there was 11% QoQ decrease in Cost per Clicks on Google properties and 1% decrease on Cost per Click on Google Network Members’ properties.

10. Google Properties Revenue

Revenue from Google properties primarily include revenue generated on:

  • com searches and searches from distribution partners using as default search in browsers, toolbars, etc
  • Other Google properties like Gmail, Maps and Google Play
  • YouTube TrueView and Google Preferred ads

Key trends in Google Properties revenue:

  1. Revenue growth – Revenue from Google properties increased by $11.428 bn from 2015 to 2016. Further there revenue from Google properties as percentage of Google segment revenues also increased during this period. Increase in Google properties revenue was driven by:
    • Mobile search ad revenue – Growth in Google properties revenue was primarily led by mobile search, which in turn was driven by improvements in ad formats and delivery launched during 2016.
    • YouTube revenue – Growth in You tube revenue was mainly driven by TrueView video ads and Google preferred ads (Google Preferred aggregates YouTube’s top content into easy-to-buy packages for brand advertisers), growing contribution of ad buying on DoubleClick Bid Manager and improvements in YouTube ad formats and delivery.
  1. Paid clicks on Google properties – Number of paid clicks increased 40% YoY from 2015 to 2016 due to:
    • Increased adoption of YouTube engagement ads
    • Improvements in ad formats and delivery
    • Increase in user base across all platforms particularly mobile
    • Global expansion of Google products and advertisers
  1. Decrease in CPC – Increase in paid clicks was offset by decrease in CPC paid by advertisers. The main reason for decrease in CPC was:
    • Continued growth in YouTube engagement ads where CPC is lower than CPC on other advertising platforms
    • Changes in device mix, property mix, product mix, geographic mix and ongoing product changes
    • General strengthening of U.S. dollar compared to certain foreign currencies

11. Google’s Network Member’s Properties trends

Revenue from Google’s Network Member’s Properties primarily consist of ad revenues generated from:

  1. AdSense (AdSense for Search, AdSense for Content etc.)
  2. AdMob
  3. DoubleClick AdExchange

Key trends in revenue from Google Network Members’ properties:

  1. Revenue growth – Revenue from Google Network Members’ properties increased by $565 million from 2015 to 2016. Main driver for this growth was strength in programmatic advertising buying and strength in AdMob. This growth was offset by a decline in traditional AdSense business and USD strengthening with respect to certain foreign currencies.
  2. Increasing Paid Clicks – Paid clicks increased by 3% from 2015 to 2016. This increase was driven by growth in AdMob and at the same time this increase was offset by declines in AdSense.
  3. Declining Cost per click – CPC decreased by 13% from 2015 to 2016. This decrease was driven by changes in product mix of Google Network Members advertising revenues, ongoing product and policy changes for AdSense aiming to enrich user experience, changes in property and device mix, geographic mix and strengthening of USD compared to certain foreign currencies

12. Google’s other revenue trends

Revenue from Google’s other revenues consist primarily of revenue from:

  1. Apps, in-app purchases, and digital content in Google Play store
  2. Hardware
  3. Licensing-related revenue
  4. Service fees received for our Google Cloud offerings

Key trends in Google other revenues

  1. Revenue Growth – Revenue from this segment increased $2.926 bn from 2015 to 2016. Its share as percentage of Google segment revenues also increased to 11.3% in 2016.
  2. This increase was due to growth in digital content products in Google Play store, primarily due to increase in revenue from in-app purchases, hardware sales, and service fees from Google Cloud offerings

13. Other Bets revenue trend

 Revenue from Other Bets consists of revenues and sales from:

  1. Internet and TV services
  2. Licensing and R&D services
  3. Nest branded hardware

Key trends in revenue from Other bets:

  1. Revenue Growth – Revenue from this segment increased $364 mn from 2015 to 2016. Its share as percentage of Google segment revenues also increased to 0.9% in 2016.
  2. This increase was driven by sales of Nest branded hardware and revenues from Fiber internet and TV services. There was also an increase in revenues from Verily licensing and R&D services from 2015 to 2016.





How Alibaba makes money and Alibaba’s business model

Understanding Alibaba's Business Model
Chinese ecommerce giant Alibaba’s business model has 2 main components – ECommerce and ad technology. Alibaba makes money through purchases happening on its ecommerce arm which is world’s largest and advertisement revenue using an ad technology which is among the best in world due to its sophisticated advertising technology and the future marketing potential.  Alibaba as an eCommerce giant has been discussed in detail in my previous blog post Alibaba as eCommerce Giant. Alibaba’s foray into advertising is mainly aimed at increasing product sales for sellers at its market places and ecommerce sites, but its ad business has been also extended to advertisers wishing to push their products. 
In advertisement value chain, role played by participants varies greatly depending on their position in the value chain. For example, Advertisers aim to get their products sold and focus on creating content that resonates well with their target audiences. I have discussed Advertising Value chain in detail my previous blog Digital Advertisement Value Chain. Well targeted content keeps audience engaged and leads to repeat visits and repeat purchase. Publishers like media companies and content creators sell their inventory to the advertisers and aim to fetch maximum money for their inventory. Data Management Platforms helps in providing insights about users and segment these users into audiences based on user’s online behaviour. These segmented audiences can then be sold to appropriate advertisers leading to higher CPMs for publishers and targeted sales for the advertisers. 


Alibaba has large amount of users visiting to its various e-commerce platforms, market places and partner websites, leading to Alibaba getting access to vast trove of consumer and transactional data. Alibaba applies proprietary algorithms on these transactional data to evaluate quality of advertising inventory and based on these data predicts CTRs and conversion rates of marketing messages. This helps Alibaba segment advertising inventories leading better user targeting, increased marketing effectiveness, improved consumer targeting efficiency and enhanced ROI for advertisers.
For example Alibaba knows well in advance a user’s buying history and thus his taste, preferences and recent purchases. Based on this information and its targeting algorithms, Alibaba as a publisher is able to show perfectly targeted product advertisement to users.  This in turn helps Alibaba increase product sales for merchants listed on its e commerce platform. It also helps Alibaba enter and mark its presence in the ever important advertisement business. 
Key features of Alibaba’s online ad business are the following:

1. Data Management Platform

DMP helps in creating audience segments by using consumer’s online user behaviour (products people browse and buy) on Alibaba’s e-commerce platforms. Alibaba’s DMP data is further combined with advertiser’s audience data to deliver targeted advertisement to potential customers with similar attributes. This provides better targeting ability for advertisers on its ad exchange and its market place. 

2. Taobao Ad Network and Exchange (TANX)

TANX is one of the earliest and one of the largest real time online advertising exchanges in China. TANX handles and automates third party buying and selling of billions of advertising impressions on a daily basis by on Alibaba market places and non-Alibaba sites through real-time bidding auctions. TANX is powered by its DMP wherein DMP helps participants on TANX leverage its transactional data to evaluate and select online advertising inventory using both behavioural data of users as provided by DMP and browsing behaviour and shopping history as provided by advertisers. Unlike Alimama, TANX allows for transparent pricing of advertising inventory leading to increased ROI for marketers. TANX is not limited to merchants only and any brand advertiser can buy ads on TANX. Participants on TANX include publishers, merchants, Demand Side Platforms and third-party data and technology companies
U.S. rivals: Google’s AdX, Yahoo Exchange (formerly Right Media), Facebook Exchange, Twitter’s Mopub 

3. Taobao Affiliate Network

Taobao Affiliate Network is Alibaba’s network of third party sites like Weibo (China’s Twitter equivalent) wherein Taobao sellers run ads bought through Alimama. Sellers put marketing displays on our affiliates’ websites and mobile apps. Further, sellers pay a performance-based marketing fee primarily based on CPC or CPS basis with a significant portion of marketing fees getting shared with the participating affiliates. 
Taobao marketplace is one of the most prominent Alibaba’s e commerce property with 100 million visitors a day.
Rivals – Google Display Network, Facebook Audience Network, AOL’s

4. Alimama

Online marketing service is primary source of revenue as said by Alibaba in its US SEC filing. Advertiser can choose content-based PPC advertising plan (like adsense) or purchase banner or text link based on CPI or cost per time. Alimama is an online marketing technology platform that provides online marketing services to sellers. These online marketing services include services such as:
  1. P4P marketing service: Sellers bid for keywords that appear in search or browser results on a CPC basis based on prices as determined by Alimama’s online auction system. This facilitates market based price discovery based on online bidding system. This is similar to bidding of key words on Google ad words.
  2. Display marketing: Seller bids for display positions on areas like landing pages, channel pages and delivery confirmation pages of Taobao Marketplace and Tmall or Alibaba’s third-party marketing affiliates at fixed prices or prices established by a real-time bidding system on a CPM basis. Alimama provides one stop solution to promote product brands Display Marketing helps to promote product brands on Alibaba Market Place (Taobao) and Alibaba’s network of third party sites namely Taobao Affiliate Network. 
US Rivals – Amazon Advertising Platform, eBay Advertising, Google Shopping

Paradox of Twitter’s stagnant user growth and increasing revenue

Recent stepping down of Dick Costolo as CEO of Twitter and Twitter co founder Jack Dorsey being made interim CEO has again put on front Twitter’s 3 main challenges namely stagnant user growth, user retention and disappointing advertisement revenue. The micro messaging platform has been plagued by slow adoption by users and its user growth has become stagnant in recent years. Further, Twitter is getting stiff competition from its rival such as Facebook, Line, WeChat, Instagram, Snapchat and Pinterest. Twitter user growth chart, its revenue growth over the years and MAU growth chart can be seen as below:


1. Stalled user growth – Twitter had 302 MAUs in March 2015 and its growth has become a bit sluggish in recent quarters while its compettitor Facebook had around 1.4 billion MAUs in March 2015 and Facebook is still growing. Further, Twitter is facing stiff competition form its rival messaging and apps Facebook, Whatsapp, Line, Viber, Snapchat etc. Twitter grew from 255 MAUs in March 2014 to 302 MAUs is March 2015 while its rival Facebook increased its monthly active users from 1.276 Billion active users in March 2014 to 1.441 million active user in March 2015. Investors see MAUs as an indicator of growth and potential size of a platform and thus the lacklustre user growth despite continuous efforts from top management is a major cause of concern for Twitter.
2. Weak Ad Business – Ad business is continuously under pressure to sale more ads and ad sales are continuously failing to meet the forecast. Twitter’s quarterly revenue fell down from $479 million in Q4, 2014 to $436 million in Q1, 2015. The advertising revenue also fell down from $432 million USD in Q4, 2014 to $ 388 million USD in Q1, 2015. Last quarter, twitter reported weakest quarterly revenue growth and also missed revenue expectation for the market. This raises serious concern about twitter’s ability to generate revenue from sources like advertisements, data licensing etc.
3. Improving user experience – Twitter is said to be difficult to use for new users who are not used to short form of communication. Further, flood of content in twitter makes the platform scary for new users leading to very low retention rate. This can seen in that around 1 billion users have tried twitter sometimes but these users did not stuck around to twitter for long. Twitter needs to work on making navigation easier for new and existing users so as to provide compelling user experience to the suers. Thus, the main focus of twitter’s user acquisition strategy should be based on making easier onboarding of new users into twitter and retaining these users who are acquired.

Above mentioned challenges haver put immense pressure on Twitter’s product to make twitter more appealing to the users and more monetizable. This has led to accelerated pace of prodcut development in Twitter and thus Twitter has made slew of changes in its product so as to manage key challenges faced by it. Following are some of the key prodcut changes that twitter needs to include or has alsready included in its prodcut line.

1. Genre wise seperation of topic – Twitter may provide users ability to browse topic based on genre, area of interest for ex. News, Business, Sports, Tech, Music etc.

2. Save option to the user – A tweet gets lost in vast ocean of tweets and user sometimes is unbale to get back to tweet or a link he wanted to read/reply in future. User should be provided a save option to save his favourite tweets which he wants to read in future or reply back in future.

3. Search functionality – There should be a search functionality wherein a user should be able to search tweets he or she might have missed or could not have saved to be read in future. The recent twitter google deal will also help users get tweets as result in Google search result. Twitter should provide a funclitonlity to search tweets in Twitter itself instead of asking users to go to Google and search a tweet. Location based search or topic based search are other area where twitter can make search more relevant to users.
4. Better experience for New Users – Twitter needs to work upon making twitter better for new users who are not used to short form of communication and the flood of content that they have to face when they use twitter for first time. The main focus of twitter’s user acquisition strategy should be based on making easier onboarding of new users into twitter and providing
5. Easier navigation for user – Twitter needs to work on making navigation easier for new user and existing user so as to provide compelling user experience to the suers.
6. Video Streaming – Twitter has recently launched live streaming app Periscope in march 2015. Twitter also plans to allow users to shoot and edit videos without leaving the twitter app. It also plans to allow users group direct messages and provide new camera tools.
7. Online bullies and Trolls – Online trolls have long been problematic for Twitter leading to serious users leaving the platform. Twitter needs to solve this problem and simplify reporting of these bullies so that serious and loyal users do not leave the platform.
8. App Aggregation and monetization through services – Twitter needs to emulate business model being used by Wechat, Snapchat and Facebook wherein these apps offers some specialized apps and services to the their users. For example Snapchat offers Discover sections which consist of stories from different publishers. Similarly Facebook provides apps for messaging, consuming news and sharing photos. WeChat provides services like eCommerce, gaming, mobile payment etc. Periscope is an attempt in this line and Twitter can also follow this in order to monetize its services.
9. Make conversations easier to follow – Conversations around a tweet are difficult to follow especially if there are large number of replies in a tweet. Twitter is working on grouping conversations together and highlight most interesting exchange around a tweet just below the tweet.
10. Removal of 140 character restriction in Direct Message – Twitter has recently removed 140 character restrictions for Direct messages, which will provide much awaited solutions to users who wanted to get this restriction removed.
11. Revamped home page for logged out users – Twitter has revamped its home page to provide a better experience to its logged out users by allowing non logged in users to follow trending tweets. Further, Logged-out users visiting the homepage can now see a feed of tweets from several popular accounts on the topic of their choice, similar to what they’d see if they were logged-in.
12. Recap feature – Twitter now provides list of missed tweets to users as and when he opens the app. These missed tweets include some of the best tweets user missed from the accounts he follows while he was away from Twitter.
13. Partner ship with Google, Yahoo Japan and Flipboard – Twitter has announced deals with Yahoo Japan and Flipboard that will see Twitter ads start coming as “promoted tweets” pop up on Yahoo Japan and Flipboard. Further, Twitter’s recent deal with Google will start start showing for tweets into Google search results. For Twitter, there is no direct monetization involved from the deal but Twitter stands to gain in terms of increased traffic.
14. Highlights for users – This feature brings summary of the best tweets tailored for the user via push notification by letting him quickly catch up with what’s happening in his world.
Twitter’s product has been tweeking with various product features and has been conducting series of endless A/B tests but it has to be seen in future whether these product changes will lead to break any logjam in user acquisition. Further, Growing its monthly and daily active users should be only one part of twitter’s plan as Twitter needs to diversify its advertising products and find more ways to monetize syndicated content so as to increase its revenue per user also. Further, Twitter needs to start reengaging with its 1 Billion account holders who tried Twitter in past but did not stuck around with it by providing a compelling user experience to these users and existing users.

Google declining CPC: Is mobile to be blamed for this?

Google posted its first quarter earning for 2015 on April 23, 2015 reporting $17.3 Billion revenue and EPS of $6.57.  Google missed market’s earning expectation of $17.5 Billion by a whisper and market gave Google thumps up for 12% YoY increase in revenue and the reported decrease in its Capital expenditure.
Pricing pressure on online ads led to 7% YoY decrease in Cost Per Click, however Google reported 13% YoY increase in aggregate paid clicks. The increase in aggregate paid clicks could offset the decline in cost per click and based on increased paid clicks Google could increase its YoY advertising revenue despite making less money per ad.  Finally Google ended up with $65.43 Billion cash and cash equivalents in Q1, 2015.
Some of the major highlights of Google’s Q1 earning can be seen as follow:
  • Revenue – Google’s Q1, 2015 revenue increased to $17.3 Billion, which is 12% up from $15.4 Billion revenue in first quarter of 2014.
  • Paid Clicks – increased by 13% YoY but decreased by 1% with respect to the previous quarter. This includes 12% YoY decline paid clicks from Networks and 25% increase in paid clicks due to Google sites
  • Cost Per Clicks – has seen decline for last 11 quarters and this has come up as big area of concern for Google. CPC saw 7% YoY decline.
  • Traffic Acquisition Cost – Traffic acquisition cost as a percentage of advertising revenue got down to 21.6% in Q1, 2015 to 23.1% in Q1, 2014.


Google’s Historical Revenue Data
Google gets most of its revenue through Advertising with 2 main components, namely advertising revenue from paid clicks on Google websites and advertising revenue on paid clicks on Google Network Members’ websites, contributing 89.5% of its total revenue in 2014.
Paid Click vers Cost Per Click mismatch in Google
Google has been grappling with Pricing vers Supply trend mismatch since 2011 wherein volume of paid search has been rising and cost for each click has been decreasing. This can also be seen in the figure as below:
Declining Cost Per Click
The falling CPC has led to  being interpreted as Google beginning to lag in advertising economy and thus started being left behind by players like Facebook and Twitter. But, can it always be said that falling CPC is the true measure of advertising effectiveness of a firm? We will discuss in detail about the trends in Google’s CPC and its advertising revenue in following section:
1. Shift to mobile
Google has around 90% market share in mobile search and thus dominates the mobile search engine market due to exceptional adoption of  Android OS by smartphone users. Android has 80% OS wise market share in smartphone landscape and google is expected to continue its leadership position in this area. Continuing decline in CPC has been attributed to massive shift to mobile and difficulties in monetising search on mobiles. Further, ads on mobile websites brings in smaller revenue than similar ads on desktop. But this trend may reverse due to innovations like Enhanced campaign.

2. Growth of advertising on you tube

As per Google CFO Pichette, rapid growth of advertising on youtube rather than difficulty in monetisation mobile search is the main reason for decline in CPC. Further youtube ad monetisation is influenced by following factors:
a. Rapid growth of youtube viewership – Youtube has over 1 Billion MAU and youtube has grown very rapid in world more especially in less developed countries. Further, ad rates are less in less developed countries than ad rates in developed countries and this has led to overall decline in CPC.
b.  Growth of True View ads on Youtube – Number of advertisers on youtube has grown substantially by 45% YoY and all the top 100 largest advertising brand on Youtube run True View ads.  True View ads charge advertisers only when an ad is watched for 30 seconds or more by a user and this leads to lower monetisation from True View ads than monetisation from This has also led to decline in CPC for Google.


3. Multi platform enhanced campaign – Google introduced multi platform Enhanced Campaigns so as to make cross device paid search campaigns easier for advertisers to manage.  Multi platform enhanced campaign tie mobile and desktop bids together and thus ads on tablet can not be separately bid by an advertiser. Further, it was also presumed that CPC price for tablets will be pulled up to desktop levels as there will be same bid for both desktop and tablets. Most AdWords campaigns were converted to Enhanced by the end of July last year.
4. Realignment of advertising revenue in favour of mobile devices
Since large number of web traffic (in range of 50%) has started coming from mobile devices, advertisers have started realigning their ad budgets in favour of mobile devices.  Further, advertisers with less spending on mobile advertisement started putting more money for mobile advertisement and this might have led to decrease in desktop revenue as some money have got diverted from desktop and have been shifted towards mobile. Lack of price discovery arising due to shift in spending pattern of advertisers might have skewed the overall CPC but in longer run CPC for mobile devices and desktop may align to their respective prices.
5. Role of emerging markets
Increased share of emerging market has also led to overall decrease in CPCs as increased number of clicks from emerging market brought overall CPC down.  Most of Google growth is coming outside USA and European market which is a low priced market. Thus although, Google is able to add search volume but this addition is coming at a cheaper rate bringing overall CPC rate down.

6. Increasing CPC but decreasing paid clicks on Google Network Member’s site – For the last 2 quarters, CPC on Google network member’s properties has been increasing YoY and paid clicks on these properties have been decreasing YoY. The increase in CPC might be due to the fact that network ads might have been historically sold at lower price than Google’s site and this increase might be due to catching up by network’s ad CPC.

7.Decreasing CPC but increased paid clicks on Google Site –  But, Google web sites sold more
ads at a decreasing price a scan be seen below:
But as a whole, it can be seen below that Google earns more money form its own sites than network sites as can be seen below:

8. Increased contribution of advertising in Google’s revenue:

Google earned 59 Billion USD revenue through advertising which constituted 89.5% of its revenue. This shows Google’s dependence of advertising for its revenue and any decreasing trend, either in price or volume can have large impact on Google’s competitiveness.


Revenues (in millions) by revenue source for the periods as presented:
Year ended December 31
Advertising Revenue
Google Websites
Google Network Member’s websites
Total Advertising Revenue
Other Revenue
Total Revenue
Percentage of revenues by source as a percentage of total revenues for periods presented:
Year ended December 31
Advertising Revenue
Google Websites
Google Network Member’s websites
Total Advertising Revenue
Other Revenue
Total Revenue

Thus, it is difficult to say if average CPC is cause of worry for Google if overall click volume and overall revenue is increases.  and overall revenue is increasing. If Google is able to leverage its presence in desktop, search, youtube, chrome, android etc in a better way and is able to deliver well targeted quality ads for advertiser then falling CPC in short run should not be cause of worry for advertisers as there might be many exogenous factors that may be leading to decrease in overall CPC.
Google’s revenues from Google Network Members’ websites include revenues generated primarily through advertising programs including AdSense for search, AdSense for content, AdExchange, AdMob, and DoubleClick Bid Manager.
Paid clicks on Google websites include clicks related to ads served on Google owned and operated properties across different geographies and devices, including search, YouTube engagement ads like TrueView, and other owned and operated properties including Maps and Finance.