Shares of Google (Nasdaq: GOOG) fell yesterday on the heels of another comScore report that shows weakness in the number of clicks that Google ads are receiving. With several media outlets reporting that Google's February paid click volume rose a scant 3% over last February (an anemic spurt that becomes even more disheartening when you consider the extra day this past February), flattish growth at Google through the first two months does not bode well as we head into next month's first-quarter report.
We don't know how much advertisers are paying for the average click, so the actual revenue being generated by Google could be more or less than it rang up a year ago. The comScore data also comes just from Google-owned domestic sites. It doesn't include the company's broad third-party reach through its AdSense program or its foothold in faster-growing international markets. Still, it's not a pretty number for the racehorse that was Google.
It could be worse. At least Google's market share is growing, according to a report issued earlier this week by Nielsen Online. The same can't be said for domestic rivals Microsoft (Nasdaq: MSFT) and Yahoo! (Nasdaq: YHOO).
Naturally, it could also be better.
Google's sluggish performance is being attributed to several factors. The more common explanations are Google's move to crack down on both fraudulent and accidental clicks. Catching bogus clicks early and policing accordingly is good. Narrowing the clickable link window within ads to make sure mostly interested visitors go through is honorable. However, what if the problem is deeper than that? What if ad blindness is kicking in, with greater reluctance to click through on Google's paid search ads?
We saw this happen with banner ads in the mid-90s. They were all the rage at first, until Web users began to disregard them. Google's paid search ads are superior, especially with the dot-com giant's ability to target ads relevant to both the content and user, but no one said the party would last forever.
This explains why both Google and Ask.com parent IAC (Nasdaq: IACI) are now trading at just 18 and 11 times next year's profit targets, respectively. Smaller paid search players like MIVA (Nasdaq: MIVA), Local.com (Nasdaq: LOCM), and LookSmart (Nasdaq: LOOK) find their shares trading for pocket change around the $3 mark.
This will make April one of the most important months in the history of online advertising, because if Google is vulnerable, one can only imagine the kind of headwinds that less relevant players are facing.
I don't think the good times are over for Google, but I think it's time for the dot-com giant to batten down the hatches, keep its payroll in check, and drum up the next great innovation in interactive marketing.
The clock is ticking, and we'd better hope it's an alarm clock instead of a time bomb.
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