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The Massive Mystery In Google's Finances

154 points by Straubiz 15y ago

binarymax 15y ago
This is a wild guess, but what about partner sites' changes also having an effect? The NYT implemented a paywall - possibly resulting in a significant reduction in adsense income?
- Iv 15y ago
  Wouldn't that imply less revenues for Google as well ?
  - jupiter 15y ago
    Not if they shifted traffic to their own free inventory
    - chopsueyar 15y ago
      Can you elaborate?
  - binarymax 15y ago
    Yes you are right, I suspect my guess is only part of the equation. Google must have shifted something as the article suggests.
- rjd 15y ago
  Having worked recently for a large media company (controlling half the TV, radio, and a sizable chunk of online news to an entire country) we had very close ties to Google i.e. there salesmen where constantly knocking and begging us to use there products. Direct dial numbers to peoples offices etc... Anyway the thing is adsense would pay anywhere from 2%-10% the value of an advertising campaign which our sales team could source, and if it was a true multi-media campaign across radio, tv ,online Google revenues across the whole network for a month wouldn't even ad up to one sale. Even a standard interactive take over would pay in one week on one site what adsense would for a whole month. So it was considered a last choice to have adsense on anything, even with foreign exchange rates making the adsense payouts more valuable. Infact we often ran house ads in favour of them as it was considered better value to self promote than run lower return ads. So I wouldn't be surprised to see lots of other partners taking a similar stance in a tough economic climate by chasing after better returns than Google can offer. (and yes we had our pages fine tuned for ad sense. We had our SEO team working very closely with Google trying to get things running at highest efficiency/return). EDIT: If our sales teams figures seem high compared to Googles payouts it would relate to our position in the market and audience. Our sales teams could naturally haggle a far greater rate than smaller websites could.
notintokyo 15y ago
Maybe these are mobile searches.
- binarymax 15y ago
  Good point, half a million android devices are being activated daily apparently. Free apps with adsense on all those devices is a possible explanation.
dirtyaura 15y ago
Two wild guesses: Video ads - They finally figured out efficient video ads and have turned YouTube from a loss leader to a money-making machine Mobile ads - Do GMail and other Google apps on Android already show ads?
- growt 15y ago
  I think the first one might be true. I'm seeing ads on almost every video now.
  - smashing 15y ago
    I am using adblock plus on firefox. I haven't seen an ads for a long time.
- throwaway32 15y ago
  Its impossible to get hard numbers, but I don't think Youtube has been the massive loss leader everyone assumed it was for a long time. Run a trace route from pretty much any home connection, Google is directly peered with nearly every residential ISP, that's bound to save massive amounts on bandwidth.
patio11 15y ago
Some combination of: 1) Panda, which redirected hundreds of millions in revenue from some content farms to other parties (including, likely, the ether) which do not show up on Google's books 2) Google is being increasingly aggressive about monetizing the Google SERPS. More ads in more places with more prominent billing. Other sites on the Internet have not been aggressively up-monetizing principally because they have less room to do so. Google has a cash cow and they've only really been working one or two of the squeezable portions, somewhat halfheartedly. 3) Google is cannibalizing the organic results for high money verticals, for example with consumer finance comparison products. Why have Citibank pay an affiliate $200 to buy $160 of AdSense ads to pay Google ~70 when Citi is perfectly happy to pay Google $200 directly? 4) Routine optimization works. Google+ gets all the ink, but Google is keenly aware that they have two products: core search and AdWords/AdSense. If you thought Circles got some programming chops thrown at it, pretend a 1% improvement was worth billions and you had infinite R&D resources. 5) Something else entirely.
- nikcub 15y ago
  If Google ever does end up facing an anti-trust trial, your second point will likely form part of the case against them. This could be considered direct evidence that Google are using their dominance in search to favor their own properties over others.
  - dchest 15y ago
    A few years ago they had an ad for Blogger, which was not actually an AdWords ad, shown if a search request contained a word "blog". It was placed above AdWords.
  - aneth 15y ago
    It's not illegal to use dominance in one market to enter another. That's called good business. Antitrust requires monopoly, which google does not have. There are many competitive and successful ad networks and search engines, and there is no lock in to the search product.
    - 15y ago
gojomo 15y ago
The 'black box' of AdSense payout rates has long given Google has a lot of discretion, checked only by publishers' other alternatives (credible threat of switching) and Google's strategic goals. Perhaps the next-best alternatives to fill the same space aren't paying as much. Perhaps Google was strategically overpaying AdSense partners for a while, to achieve critical mass (of advertisers and publishers) and forestall the development of competitive networks. Now, having achieved an enduring dominance in this two-sided returns-to-scale market, they're dialing back their AdSense payments. Only the emergence of a strong alternative would prompt them to continue paying the same premium that was offered during the capture phase. (And even if Google thought a competitor of similar scale was likely to arrive – eg Facebook – they might want to continue charging a lot for their market-making, building a large warchest, until the competitor arrives. Then, crush the upstart by dynamically charging very little, making AdSense extra-attractive for exactly those advertisers/publishers of greatest importance against the upstart. Similar to how a hundred years ago, Standard Oil was accused of using targeted rate changes to undermine upstart competitors.) Maybe ad-blindness (if not outright ad-blocking) is spreading more widely among the masses, especially in AdSense scenarios. Maybe AdSense was only ever meant as a moat to protect AdWords from possible network-of-ads competitors.
Tichy 15y ago
Maybe they were simply better than their partners. Is it really a mystery?
- jeswin 15y ago
  Nope. Massive mystery. :) Every time I see such titles on HN, I worry a little. We should down-vote such links; I have seen way too many sites become infested with trolls and link-baits, and such titles hitting front page is just what gets them excited. No offence to the poster. But maybe we should all summarize things objectively.
  - chalst 15y ago
    I voted up the story because it is a very good question, but the title is awful, as you say. Something like "An unexplained anomaly in Google's Q1-Q2 earnings" would have been better for our site.
- smackfu 15y ago
  They were also better than themselves in previous quarters.
Smrchy 15y ago
We are AdSense premium partners and have seen our revenues nearly cut in half while our page views remained constant. I can safely say this is due to the fact that a lot of our visitors use ad block plugins. I can't blame them - some ad formats are annoying enough to justify ad blockers. Unfortunately Google does not offer a way for us to receive ads on the server level and integrate them into the page content, bypassing the ad blockers - like Google does it on his own properties.
- forcer 15y ago
  We too are getting some significant revenue from Adsense. The income has been stable for last 2 years. It dropped by around half as well in last 3 months. It is worrying. I am not sure if ad blocks are the cause when the drop has been quite sudden.
- SoftwareMaven 15y ago
  Ad blockers can block those, too. It's not just blocking calls to the Google ad engine; it's monitoring pages for (user defined and shared) ad divs.
deleted 15y ago
[deleted]
happybuy 15y ago
Isn't it true that Google doesn't actually tell advertisers what % of the per click advertising revenue they are paid? Its amazing that after all these years we have learnt to accept this black box and trust Google is somehow paying advertisers a constant percentage. It's likely Google wanted a bit more revenue for this quarter so decided to pay advertisers slightly less of the cut. Wouldn't surprise me if this becomes more commonplace in the future as Google keeps being tempted to improve their profits.
- ry0ohki 15y ago
  They never promise or make it transparent, although in an earnings call in Q1 2007 they basically said they only keep 25% (they generated $1.2B and paid out $916m). I have noticed that this year my AdSense revenue has fallen even though click-thru rate and impressions have been constant. I assumed it was lower spend on the advertising side, but a bigger Google cut may make sense.
- jonknee 15y ago
  Publishers can log in and see their current split. It's in account settings and I'm currently getting about 70% with the "AdSense for Content" product which is what I use. If you use the Google Analytics hook-in you can get very detailed statistics about which pages/visits are paying you what too.
hootmon 15y ago
Remember that anon service that turned out to be funded by the CIA? Is it a coincidence that Google started just a few blocks from SRI the premier spook work contractor on the planet. Tell me just how useful would it be for the US gov to be able to monitor everyone's searches of the net?
Revisor 15y ago
Google has become a publisher and an affiliate marketer, dabbling in mortgages, loans, flight search, even clothing (Boutiques.com). The search results are clobbered more and more with results to Google's own properties. Less long tail, more Google properties, outprice and drive out the small enterpreneurs. That's the reason. Have a look at the screenshots in this article, especially in the second half http://www.seobook.com/category-killer-domain-names http://www.seobook.com/category-killer-domain-names Don't mind the name, but read it anyway, Aaron Wall is today probably the most inquisitive watchdog of Google.
deleted 15y ago
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- deleted 15y ago
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fonosip 15y ago
As far as I know google pays 69% of revenue to adsense partners. But when they need extra money they can still use the highest paying ads for themselves, sending them to gmail, youtube. So yes, google is in control. Adsense partners are not.
Matt_Cutts 15y ago
Not sure if people saw the comment that someone left on the original thread: "Seriously? It is because of the Panda update and the resulting shift in traffic away from ad-ridden low-quality sites and towards higher quality sites that often haven't yet been optimized for ads in the Google network. They've addressed this directly in both of the last two earnings calls and have said they expect the effects to be largely transitory."
- DanielBMarkham 15y ago
  Matt, hated to downvote you but your comment didn't add much here. Simply saying that something was addressed and dismissed doesn't tell the reader why it was dismissed so that they could judge for themselves. Your premise seemed to be that if Google says something it must be true, which isn't necessarily the case. (And I'm definitely not implying any evil or bad reason, sometimes people are just mistaken)
  - Matt_Cutts 15y ago
    DanielBMarkham, let me try again using quotes from Google's last two earning transcripts from the last two quarters and see whether that helps to clarify. I'm loath to go anywhere near a subject like corporate earnings for various reasons, but Foremski says "There is no explanation from Google or Wall Street analysts that I could find," but anyone can go read Google's Q2 2011 earnings call transcript, which you can find at http://seekingalpha.com/article/279555-google-s-ceo-discusses-q2-2011-results-earnings-call-transcript http://seekingalpha.com/article/279555-google-s-ceo-discusse... . The relevant sentence is "Network revenue was again negatively impacted by the Search quality improvements made during the latter part of Q1, as you will remember, and know that Q2 reflects a full quarter of this impact." Now go read Google's Q1 earning's transcript at http://seekingalpha.com/article/263665-google-s-ceo-discusses-q1-2011-results-earnings-call-transcript http://seekingalpha.com/article/263665-google-s-ceo-discusse... . The relevant section is "The Google Network revenue was up 19% year-over-year to $2.4 billion. That Network revenue was negatively impacted by two things, the loss of a Search distribution partnership deal and also, what has been broadly communicated, by Search quality improvement made during the quarter. Regarding the Search quality improvement, remember that we regularly make such trade-offs. We really believe that the quality improvements that benefit the user always serves us well both in the short term and in the mid term in terms of revenue." So Foremski claims that "For some strange reason no one has picked up on this or noticed this huge change in its business model. There is no explanation from Google or Wall Street analysts that I could find." I would contend that Google has actually been quite clear about the reasons for the change in network revenue in its earnings calls. In particular, Google has been clear in that it's willing to accept an impact in our revenue in order to improve the quality of our search results.
andrewtbham 15y ago
I manage an adwords campaign for a highly competitive local search term and we are getting gouged because of layout changes. about 5 or 6 months ago google added a local map on the right column and lowered the ads beneath the map. the results has been you have to bid much higher and pay more for less.
deleted 15y ago
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teflonhook 15y ago
Now we know how Panda determined low quality sites. They looked at the click through rate and cpc rates for adsense ads. If the market didn't click on the ads google served, then they mustn't have been relevant to the content (or more importantly, the content isn't relevant to the ad. IE it's low quality. Furthermore, if the market wasn't prepare d to pay much for the ad, it must be for content that's low value. Basically, google has redirected traffic from low paying adsense pages to high paying adsense pages for those keywords. Our site was hit hard with the last panda update, losing 30 percent of our traffic. We have two main types of pages that are quite similar which constitute our site. Which pages were hit? Only one had google ads on it. Those pages were hit, the others were untouched. So in their efforts to steal revenue from their partners the corollary is now true: Put google ads on your site and run the risk of getting deranked.
chopsueyar 15y ago
Devil's Advocate: Could it be the ad-revenue is down overall, and this is an accounting game to prevent GOOG stock's price from dropping?

154 points by Straubiz 15y ago

This is a wild guess, but what about partner sites' changes also having an effect? The NYT implemented a paywall - possibly resulting in a significant reduction in adsense income?

Iv 15y ago
Wouldn't that imply less revenues for Google as well ?
- jupiter 15y ago
  Not if they shifted traffic to their own free inventory
  - chopsueyar 15y ago
    Can you elaborate?
- binarymax 15y ago
  Yes you are right, I suspect my guess is only part of the equation. Google must have shifted something as the article suggests.
rjd 15y ago
Having worked recently for a large media company (controlling half the TV, radio, and a sizable chunk of online news to an entire country) we had very close ties to Google i.e. there salesmen where constantly knocking and begging us to use there products. Direct dial numbers to peoples offices etc... Anyway the thing is adsense would pay anywhere from 2%-10% the value of an advertising campaign which our sales team could source, and if it was a true multi-media campaign across radio, tv ,online Google revenues across the whole network for a month wouldn't even ad up to one sale. Even a standard interactive take over would pay in one week on one site what adsense would for a whole month. So it was considered a last choice to have adsense on anything, even with foreign exchange rates making the adsense payouts more valuable. Infact we often ran house ads in favour of them as it was considered better value to self promote than run lower return ads. So I wouldn't be surprised to see lots of other partners taking a similar stance in a tough economic climate by chasing after better returns than Google can offer. (and yes we had our pages fine tuned for ad sense. We had our SEO team working very closely with Google trying to get things running at highest efficiency/return). EDIT: If our sales teams figures seem high compared to Googles payouts it would relate to our position in the market and audience. Our sales teams could naturally haggle a far greater rate than smaller websites could.

notintokyo 15y ago

Maybe these are mobile searches.

binarymax 15y ago
Good point, half a million android devices are being activated daily apparently. Free apps with adsense on all those devices is a possible explanation.

dirtyaura 15y ago

Two wild guesses: Video ads - They finally figured out efficient video ads and have turned YouTube from a loss leader to a money-making machine Mobile ads - Do GMail and other Google apps on Android already show ads?

growt 15y ago
I think the first one might be true. I'm seeing ads on almost every video now.
- smashing 15y ago
  I am using adblock plus on firefox. I haven't seen an ads for a long time.
throwaway32 15y ago
Its impossible to get hard numbers, but I don't think Youtube has been the massive loss leader everyone assumed it was for a long time. Run a trace route from pretty much any home connection, Google is directly peered with nearly every residential ISP, that's bound to save massive amounts on bandwidth.

patio11 15y ago

Some combination of: 1) Panda, which redirected hundreds of millions in revenue from some content farms to other parties (including, likely, the ether) which do not show up on Google's books 2) Google is being increasingly aggressive about monetizing the Google SERPS. More ads in more places with more prominent billing. Other sites on the Internet have not been aggressively up-monetizing principally because they have less room to do so. Google has a cash cow and they've only really been working one or two of the squeezable portions, somewhat halfheartedly. 3) Google is cannibalizing the organic results for high money verticals, for example with consumer finance comparison products. Why have Citibank pay an affiliate $200 to buy $160 of AdSense ads to pay Google ~70 when Citi is perfectly happy to pay Google $200 directly? 4) Routine optimization works. Google+ gets all the ink, but Google is keenly aware that they have two products: core search and AdWords/AdSense. If you thought Circles got some programming chops thrown at it, pretend a 1% improvement was worth billions and you had infinite R&D resources. 5) Something else entirely.

nikcub 15y ago
If Google ever does end up facing an anti-trust trial, your second point will likely form part of the case against them. This could be considered direct evidence that Google are using their dominance in search to favor their own properties over others.
- dchest 15y ago
  A few years ago they had an ad for Blogger, which was not actually an AdWords ad, shown if a search request contained a word "blog". It was placed above AdWords.
- aneth 15y ago
  It's not illegal to use dominance in one market to enter another. That's called good business. Antitrust requires monopoly, which google does not have. There are many competitive and successful ad networks and search engines, and there is no lock in to the search product.
  - 15y ago

gojomo 15y ago

The 'black box' of AdSense payout rates has long given Google has a lot of discretion, checked only by publishers' other alternatives (credible threat of switching) and Google's strategic goals. Perhaps the next-best alternatives to fill the same space aren't paying as much. Perhaps Google was strategically overpaying AdSense partners for a while, to achieve critical mass (of advertisers and publishers) and forestall the development of competitive networks. Now, having achieved an enduring dominance in this two-sided returns-to-scale market, they're dialing back their AdSense payments. Only the emergence of a strong alternative would prompt them to continue paying the same premium that was offered during the capture phase. (And even if Google thought a competitor of similar scale was likely to arrive – eg Facebook – they might want to continue charging a lot for their market-making, building a large warchest, until the competitor arrives. Then, crush the upstart by dynamically charging very little, making AdSense extra-attractive for exactly those advertisers/publishers of greatest importance against the upstart. Similar to how a hundred years ago, Standard Oil was accused of using targeted rate changes to undermine upstart competitors.) Maybe ad-blindness (if not outright ad-blocking) is spreading more widely among the masses, especially in AdSense scenarios. Maybe AdSense was only ever meant as a moat to protect AdWords from possible network-of-ads competitors.

Tichy 15y ago

Maybe they were simply better than their partners. Is it really a mystery?

jeswin 15y ago
Nope. Massive mystery. :) Every time I see such titles on HN, I worry a little. We should down-vote such links; I have seen way too many sites become infested with trolls and link-baits, and such titles hitting front page is just what gets them excited. No offence to the poster. But maybe we should all summarize things objectively.
- chalst 15y ago
  I voted up the story because it is a very good question, but the title is awful, as you say. Something like "An unexplained anomaly in Google's Q1-Q2 earnings" would have been better for our site.
smackfu 15y ago
They were also better than themselves in previous quarters.

Smrchy 15y ago

We are AdSense premium partners and have seen our revenues nearly cut in half while our page views remained constant. I can safely say this is due to the fact that a lot of our visitors use ad block plugins. I can't blame them - some ad formats are annoying enough to justify ad blockers. Unfortunately Google does not offer a way for us to receive ads on the server level and integrate them into the page content, bypassing the ad blockers - like Google does it on his own properties.

forcer 15y ago
We too are getting some significant revenue from Adsense. The income has been stable for last 2 years. It dropped by around half as well in last 3 months. It is worrying. I am not sure if ad blocks are the cause when the drop has been quite sudden.
SoftwareMaven 15y ago
Ad blockers can block those, too. It's not just blocking calls to the Google ad engine; it's monitoring pages for (user defined and shared) ad divs.

deleted 15y ago

[deleted]

happybuy 15y ago

Isn't it true that Google doesn't actually tell advertisers what % of the per click advertising revenue they are paid? Its amazing that after all these years we have learnt to accept this black box and trust Google is somehow paying advertisers a constant percentage. It's likely Google wanted a bit more revenue for this quarter so decided to pay advertisers slightly less of the cut. Wouldn't surprise me if this becomes more commonplace in the future as Google keeps being tempted to improve their profits.

ry0ohki 15y ago
They never promise or make it transparent, although in an earnings call in Q1 2007 they basically said they only keep 25% (they generated $1.2B and paid out $916m). I have noticed that this year my AdSense revenue has fallen even though click-thru rate and impressions have been constant. I assumed it was lower spend on the advertising side, but a bigger Google cut may make sense.
jonknee 15y ago
Publishers can log in and see their current split. It's in account settings and I'm currently getting about 70% with the "AdSense for Content" product which is what I use. If you use the Google Analytics hook-in you can get very detailed statistics about which pages/visits are paying you what too.

hootmon 15y ago

Remember that anon service that turned out to be funded by the CIA? Is it a coincidence that Google started just a few blocks from SRI the premier spook work contractor on the planet. Tell me just how useful would it be for the US gov to be able to monitor everyone's searches of the net?

Revisor 15y ago

Google has become a publisher and an affiliate marketer, dabbling in mortgages, loans, flight search, even clothing (Boutiques.com). The search results are clobbered more and more with results to Google's own properties. Less long tail, more Google properties, outprice and drive out the small enterpreneurs. That's the reason. Have a look at the screenshots in this article, especially in the second half http://www.seobook.com/category-killer-domain-names http://www.seobook.com/category-killer-domain-names Don't mind the name, but read it anyway, Aaron Wall is today probably the most inquisitive watchdog of Google.

deleted 15y ago

[deleted]

deleted 15y ago
[deleted]

fonosip 15y ago

As far as I know google pays 69% of revenue to adsense partners. But when they need extra money they can still use the highest paying ads for themselves, sending them to gmail, youtube. So yes, google is in control. Adsense partners are not.

Matt_Cutts 15y ago

Not sure if people saw the comment that someone left on the original thread: "Seriously? It is because of the Panda update and the resulting shift in traffic away from ad-ridden low-quality sites and towards higher quality sites that often haven't yet been optimized for ads in the Google network. They've addressed this directly in both of the last two earnings calls and have said they expect the effects to be largely transitory."

DanielBMarkham 15y ago
Matt, hated to downvote you but your comment didn't add much here. Simply saying that something was addressed and dismissed doesn't tell the reader why it was dismissed so that they could judge for themselves. Your premise seemed to be that if Google says something it must be true, which isn't necessarily the case. (And I'm definitely not implying any evil or bad reason, sometimes people are just mistaken)
- Matt_Cutts 15y ago
  DanielBMarkham, let me try again using quotes from Google's last two earning transcripts from the last two quarters and see whether that helps to clarify. I'm loath to go anywhere near a subject like corporate earnings for various reasons, but Foremski says "There is no explanation from Google or Wall Street analysts that I could find," but anyone can go read Google's Q2 2011 earnings call transcript, which you can find at http://seekingalpha.com/article/279555-google-s-ceo-discusses-q2-2011-results-earnings-call-transcript http://seekingalpha.com/article/279555-google-s-ceo-discusse... . The relevant sentence is "Network revenue was again negatively impacted by the Search quality improvements made during the latter part of Q1, as you will remember, and know that Q2 reflects a full quarter of this impact." Now go read Google's Q1 earning's transcript at http://seekingalpha.com/article/263665-google-s-ceo-discusses-q1-2011-results-earnings-call-transcript http://seekingalpha.com/article/263665-google-s-ceo-discusse... . The relevant section is "The Google Network revenue was up 19% year-over-year to $2.4 billion. That Network revenue was negatively impacted by two things, the loss of a Search distribution partnership deal and also, what has been broadly communicated, by Search quality improvement made during the quarter. Regarding the Search quality improvement, remember that we regularly make such trade-offs. We really believe that the quality improvements that benefit the user always serves us well both in the short term and in the mid term in terms of revenue." So Foremski claims that "For some strange reason no one has picked up on this or noticed this huge change in its business model. There is no explanation from Google or Wall Street analysts that I could find." I would contend that Google has actually been quite clear about the reasons for the change in network revenue in its earnings calls. In particular, Google has been clear in that it's willing to accept an impact in our revenue in order to improve the quality of our search results.

andrewtbham 15y ago

I manage an adwords campaign for a highly competitive local search term and we are getting gouged because of layout changes. about 5 or 6 months ago google added a local map on the right column and lowered the ads beneath the map. the results has been you have to bid much higher and pay more for less.

deleted 15y ago

[deleted]

teflonhook 15y ago

Now we know how Panda determined low quality sites. They looked at the click through rate and cpc rates for adsense ads. If the market didn't click on the ads google served, then they mustn't have been relevant to the content (or more importantly, the content isn't relevant to the ad. IE it's low quality. Furthermore, if the market wasn't prepare d to pay much for the ad, it must be for content that's low value. Basically, google has redirected traffic from low paying adsense pages to high paying adsense pages for those keywords. Our site was hit hard with the last panda update, losing 30 percent of our traffic. We have two main types of pages that are quite similar which constitute our site. Which pages were hit? Only one had google ads on it. Those pages were hit, the others were untouched. So in their efforts to steal revenue from their partners the corollary is now true: Put google ads on your site and run the risk of getting deranked.

chopsueyar 15y ago

Devil's Advocate: Could it be the ad-revenue is down overall, and this is an accounting game to prevent GOOG stock's price from dropping?