Google: Lower CPCs Are Because Of YouTube, Not Mobile Search

For several quarters of declining Google CPCs, financial analysts have speculated and assumed that the migration of usage to mobile and lower bids for mobile clicks were responsible. However on Google’s earnings call today CFO Patrick Pichette sought to dispel that belief.

During the call the retiring Pichette said that it was YouTube TrueView that were largely responsible for the most recent drop in aggregate CPC pricing, not a less competitive mobile search environment. Pichette is quoted in the earnings release saying, “We continue to see great momentum in our mobile advertising business and opportunities with brand advertisers.”

Google consolidated earnings were slightly below $17.3 billion, with ad revenues coming in at $15.51 billion (11 percent growth YoY). Paid clicks were up 13 percent on Google sites but CPCs were down an identical 13 percent.

Pichette blamed YouTube rather than mobile paid search for the lower CPCs. The following is an excerpt from his remarks, delivered on the earnings call (emphasis added):

Over the past year, we have seen YouTube viewership climb dramatically, both in established markets but also due to expansion in emerging markets.  And quality improvements to TrueView ads mean that more users are choosing not to skip them, increasing overall ad views.This means that there is a much higher volume of TrueView ads being seen, which has been a significant driver of the Y/Y growth numbers you’ve seen in Sites clicks. TrueView ads currently monetize at a lower rate than ad clicks on Google.com.  As you know, video ads generally reach people earlier in the purchase funnel, and so across the industry, they tend to have a different pricing profile than that of search ads.

Excluding the impact of YouTube TrueView ads, growth in Sites clicks would be lower, but still positive and CPCs would be healthy and growing Y/Y.

During the Q&A portion of the call analysts returned to the CPC and mobile search question several times. Pinchete reiterated that “CPCs would be growing if you take out TrueView ads on YouTube.”

This is the first time we’ve heard this sort of explanation for the CPC slump. However it’s difficult to fully assess the statement because the company doesn’t break out mobile vs. PC query trends nor does the company report on mobile revenues, unlike Facebook and Twitter for example.