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Is Google Forcing the Mobile Question?

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During Google's (NASDAQ: GOOGL  ) last earnings call, CEO Larry Page discussed the difference between desktop and mobile ad rates. The company's lower cost-per-click, or CPC, results were largely attributed to the lower rates commanded by mobile. The issue poses a significant concern for investors who recognize the increasing shift toward mobile, or more specifically, the shift to the multiscreen world. To Google's credit, but the annoyance of many advertisers, the company is addressing the issue with the release of AdWords Enhanced Campaigns. The new rollout will change the way advertisers interact with the Google system, which more fully integrates mobile into the mix and should close some of the revenue gap in mobile search. While advertisers may be forced to pay more, this is great news for investors and should be seen as a positive catalyst for the stock.

The new system
The enhancement to the AdWords system involves three primary changes:

  1. Multidevice bidding: Using this change, you will now be able to more carefully target searches between device type, geographic location, and time of day. The example posted by Goggle Senior Vice President of Engineering Sridhar Ramaswamay involved an individual looking for coffee. With Enhanced Campaigns, you can now bid 20% lower for searches that occur after 11 a.m., but 50% higher for smartphones, and 25% higher still if the search is taking place within a half mile of your location. The functionality should allow advertisers to really target the potential customers they want to reach.
  2. Device-specific search results: Where a user sitting in front of a PC may prefer to be provided with a link to the company website, someone on a smartphone may appreciate a click-to-call option. The new platform will now allow advertisers to target specific functionality to specific device types for optimized user results. The lack of this option in the past often meant that only the largest and best-capitalized advertisers could have true mobile campaigns. Under this platform, small and medium-sized businesses should be able to make use of mobile.
  3. Enhanced reporting capabilities: While clicks, views, eyeballs, and so forth have been the standard in measuring the efficacy of advertising campaigns, with Enhanced Campaigns, Google will provide additional metrics by which to measure. Some of these include click-to-call calls, app downloads, and others to better understand the value behind the marketing. Particularly in the multiscreen world, additional metrics are expected to become a better measure of success than was previously available. A searcher that calls or downloads your app is more valuable than one that simply views your ad.

It's all so unfair
While Google shareholders should see this as a very positive development, as it is expected to drive up CPCs, some advertisers are taking a less positive view. Until now, the mobile space has been largely underserved, meaning the CPC in mobile has remained low. The smaller screens mean less real estate, more intrusiveness of ads, and potentially less impact. Given the reasonable skepticism of advertisers, the cost has stayed low.

Under Google's new system, a Google algorithm, not the advertiser, will decide where ads are delivered. The company argues that this will allow it to provide its customers with the most effective advertising option. Some advertisers argue that by taking control away from customers, Google is feathering its own nest by driving up prices and not providing much more service.

Additionally, some advertisers are concerned that companies that do not have the capacity to manage complex campaigns will be given little option due to the lack of control. If you cannot control where your ads are seen, you are forced to develop smartphone versions of your ads; this places an undue burden on small businesses goes the argument. Search marketing firm iProspect said (link opens PDF): "Advertisers who do not have a smartphone strategy will be forced to come up with one, or leverage the bid multiplier workaround (setting the bid multiplier to negative 100 percent) to opt out of smartphones. Advertisers who don't take the time to make this adjustment, or are unaware of it, will start serving ads on smartphones unintentionally."

Still, even the critics finding issue with Google's move have commented that it will ultimately be good for the search King's revenues. iProspect went on to say: "This is an example of Google deciding what is best for the advertiser-however, in this case they're not just opting you into a setting by default, they're removing the option of opting out or using a workaround. iProspect believes that the increase in the number of advertisers participating in the auction on smartphone searches will lead to increased overall CPCs."

The bottom line
Ultimately whether or not you think the move is "fair," it should benefit Google's revenue and help to close the monetization gap in mobile. Without wanting to sound like a cynic, this is business and even those complaining the loudest are not saying they will abandon Google. Nobody likes having to pay for something they have been getting for free, but faulting Google for capitalizing on the service it is providing hardly seems reasonable. At the bottom line, the move should benefit the company and shareholders, making the stock a buy on the news.

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