Over the past month-plus, Google (NASDAQ: GOOG) (NASDAQ: GOOGL) has rolled out several mobile-friendly initiatives. While these updates and features have helped improve user experience, it seems they could also be efforts to improve declining ad cost-per-click rates.
A full transcript follows the video.
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Sean O'Reilly: Why Google needs to figure out mobile ads yesterday, on this tech edition of Industry Focus.
Greetings, Fools! I am Sean O'Reilly joining you here form beautiful Alexandria, Virginia at Fool headquarters. To my left is the incomparable Dylan Lewis. How are you today, sir?
Dylan Lewis: Doing all right. Having a nice day so far.
O'Reilly: Fighting a little cold though? You got your Halls...
Lewis: Fighting a little cold. I'll try to make it through the podcast.
O'Reilly: As long as you have some water you'll be all right.
Lewis: Yeah.
O'Reilly: So, I hate to make you talk a lot right now, but lots of big news. Even just the past month alone from what we'll call "The Land of Google", I guess. I just wanted to, first and foremost, let the audience know what the highlights were.
Lewis: Yeah. A month to the day...
O'Reilly: Starting of course with Mobilegeddon.
Lewis: Yes. It's been a pretty interesting past month in terms of recent developments for Google. You look back around April 22nd, 2015 that was the first day post...
O'Reilly: And we talked about that a week later, if anybody remembers.
Lewis: Yeah.
O'Reilly: And it wasn't that bad?
Lewis: No. So, Mobilegeddon was the search engine algorithm update that Google had told people well ahead that they were going to initiate. Basically, it was going to be an update to mobile rankings and it would ding sites that were not as mobile friendly. So, they were looking for dynamic sites that had well optimized desktop and mobile experiences.
O'Reilly: So, if you're not optimized for smart phones you're in trouble.
Lewis: Yeah.
O'Reilly: Thankfully most people are, apparently.
Lewis: Right. I think this was something mainstream media was reporting on a ton. The impact might have been a little overstated. I've seen -- in some of the aftermath, now that people are actually looking at the news of what the change was -- it wasn't all that impactful.
O'Reilly: I wonder if that's because, if you're searching for something, even if they aren't the world's greatest mobile site, if you're searching for something, you're searching for something no matter what. You're going to word your query in such a way to get what you want.
Lewis: I think there's that, and even if you're not totally mobile friendly, if you are the authority on something, Google can only ding you so much for that.
O'Reilly: Right.
Lewis: Like, at the end of the day it's still their search product that they're giving.
O'Reilly: Right. It is a very long formulaic algorithm and not one thing.
Lewis: So, there was Mobilegeddon, and that was late April. Then in early May -- this is something we talked about on the show -- Google announced its Place an Order mobile experience.
O'Reilly: Is that how you bought your bike?
Lewis: No. it was a Craigslist purchase.
O'Reilly: Okay. Fine. Oh my God. You know that founder went to M.I.E.T. College, right?
Lewis: Yeah. He was your commencement speaker.
O'Reilly: He showed up in sandals and -- anyway.
Lewis: That's very tech. So, Google rolled out this Place and Order feature. So, searching Google for food, drinks, something like that on your phone you'll see an option to place an order. Just a button you can hit. The idea here is, rather than have that extra step of hitting 'call' and making the call on your phone and being off the data of Google's service, you would be still in their full suite of functionality.
They're partnering up with Seamless and GrubHub and a couple of other companies to deliver that. So, another interesting thing to note here is -- this is something they're offering on mobile, not desktop. So, if you want more information on that, look back at our show archives and you can hear a bit more.
Then most recently -- last week -- Wall Street Journal reported that Google was interested in rolling out a 'buy' button on some of the shopping results that they're showing.
O'Reilly: They really want to go after Amazon. That has always stuck with me. They consider Amazon their biggest competition.
Lewis: It seems like this is directly going after Amazon and eBay (NASDAQ: EBAY).
O'Reilly: Yeah.
Lewis: Starting to notice a trend here. The interesting thing is, this is mobile exclusive. So, the button -- the 'buy' button -- will accompany sponsored, or paid results, not organic search traffic. If shoppers choose to click on the 'buy' button they'll be taken to another product page that's operated by Google to complete purchases.
Google is allowing shoppers to input payment credentials -- such as a credit card number, things like that -- and then they will store all of that data and allow it to be auto-loaded for future purchases.
O'Reilly: Much like Amazon. I was just thinking, if they consider Amazon their competition why are they just doing this mobile? But I think maybe they're throwing the towel, acknowledging "If you're looking for a product, and you're looking for the price, and you're on a PC you're probably going to go to Amazon. There's nothing we can do to change that." So, this is a punt toward the future of mobile, or something.
Lewis: Yeah, and I think when you look at these three developments what you see is, all of them are extremely mobile oriented.
O'Reilly: Man.
Lewis: There's a reason for that. It seems like -- for all of Google's strength and you see these growing revenue numbers quarter over quarter -- mobile might start to be an issue for them.
O'Reilly: Yeah. It's actually interesting you bring that up. I popped over to ComScore (NASDAQ: SCOR) that has a bunch of awesome data on how many users there are on the Internet, basically. Fun fact: The human species is about 7.5, 8 billion people? Less than 2 are online. It's very sad.
Lewis: Really?
O'Reilly: Yeah. So, according to them, last year mobile caught up big time and last year was an inflection point where they both matched each other with 1.7 billion active number of global users. Mobile's just kept on trucking and we don't even know -- at exact data as of late May 205 -- but it's just under 2 billion people that are using the Internet on their smart phones.
Desktop's still hanging out at 1.7 billion. Then you head over to Google's latest quarterly results that came out a few weeks ago and -- I love this because it's so funny. I'm going to preface this. Their revenues were up 19% over the same quarter last year. They're still killing it.
Lewis: Right.
O'Reilly: But if you look to the quarterly release there's this nice little chart, and aggregate cost per click down 7% over the same quarter last year, cost per click on Google websites down 13%, and cost per click for Google network member's websites up just 2%. So, they're making it up on volume big time because their revenues were up 19%. But the cost to people that advertise on Google is going down. That's pretty much due to mobile.
Lewis: Yeah. I think an important thing to note here is, this isn't a one-off. If you look at the previous quarter CPC was down 3%.
O'Reilly: Yeah. This has been going on for, what, a year? I don't know.
Lewis: Yeah. So, it's just something that's ongoing and definitely something to be concerned about. So, you look at what Google said in their conference calls and they're saying this is related to YouTube primarily. So, CFO Patrick Pichette said "So many commentators are incorrectly assuming that the growth trends in our sites, clicks, and CPCs are primarily due to difficulties monetizing search on mobile. That's just not the case."
According to him, CPC is actually rising overall. However, he thinks analysts are overlooking the variable of advertising on YouTube.
O'Reilly: How did they know I skip all the ads?
Lewis: Yeah. They've been rolling out something with, I think, their top 100 YouTube advertisers called TrueView. So, I believe the payments only work out if the full 30 second spot is viewed.
O'Reilly: Interesting.
Lewis: So, he's attributing the drop off to that. However, all the analysts that I'm reading are saying "We think it's mobile related."
O'Reilly: Yeah. I get that, and YouTube in and of itself -- as I understand it -- it breaks even as a business. It's cool to own, and lots of fun, and lots of people use it, but they just pay these people a penny per view. I noticed they don't parse out their mobile search results in these reports. So, it's kind of annoying.
Lewis: Yeah. That's kind of damning.
O'Reilly: It is. It's like "If you're not talking about it, what does that mean?"
Lewis: Yeah. Anytime something's behind the curtain -- like, "If this was a good thing you'd be putting it up on a pedestal."
O'Reilly: Pay no attention to the mobile results behind the curtain.
Lewis: Yeah, exactly. The company said recently "Search on mobile devices now outnumber those on personal computers in 10 countries, including the U.S. and Japan."
O'Reilly: Geez.
Lewis: So, it's obviously an issue. Now, you look at these three things we highlighted. The Google 'buy' button, Google Place and Order, and the mobile update and say "How do these updates, how do these features get at that? How are they addressing this issue?" In my mind, they all drive at simplifying and streamlining the experience.
One of the biggest criticisms of mobile browsing and why people generally don't see the payoff with their ad dollars is it's wonky to use. So, you don't really want to put in your credit card payment information on a tiny screen.
O'Reilly: Right.
Lewis: And people are generally able to quick scroll through things with a thumb. So, I think one of the things I really like about the 'buy' button is that Google's storing payment information.
O'Reilly: Which is a big advantage for me with Amazon. I don't have to do this whole dance of entering my credit card information online. They know I'm Sean O'Reilly, I've logged in with my email, it remembers me as long as I don't kill all my cookies, and I can -- I bought a bike helmet the other day. It took me, like, 30 seconds. It was no problem.
Lewis: And that's incredible. I think it's a much better value proposition for advertisers to say "We're eliminating as much friction as we possibly can in the customer experience."
O'Reilly: And we are considered the Internet in some countries. So, there's that.
Lewis: Yeah. So, we'll see what that -- it'll be kind of interesting.
O'Reilly: So, what's the end game here for Google investors and shareholders and everybody? Is this...
Lewis: I think you have to be happy that they're...
O'Reilly: They're trying?
Lewis: They're setting these things out there. You look at what they did with the mobile update. Google is -- more or less -- the Internet standard.
O'Reilly: Yeah.
Lewis: Especially when it comes to search. So, they're able to say "This is what we want from sites."
O'Reilly: Yeah.
Lewis: And sites -- more or less -- have to follow.
O'Reilly: Right.
Lewis: They have a lot of clout there, but it is a little concerning.
O'Reilly: I wonder how the 'buy' button and the credit card stuff will work. Because a lot of the mobile growth, obviously, is developing nations leap frogging the Internet infrastructure that we have here and just using their phones. That's why they made the iPhone 6 Plus so big; because a lot of people in Southeast Asia, for example, are using their iPhone 6 Plus as their computer.
So, I'm wondering how that will fit into that because -- I don't know. You kind of need a credit card for that situation.
Lewis: Yeah. I think it's a good thing to continue to watch. I know Google's going to be switching out their CFO. Pichette's stepping down. I think he's retiring. He's an older guy. So, it will be interesting to see if their addiction changes at all.
O'Reilly: Yeah.
Lewis: In their conference calls, or if that stays the same, the company line is still -- this is YouTube and we're not going to get too into mobile's financials, but if you start to see them parse that out, then...
O'Reilly: Well, they'll only do that if it turns out well. It will be like AWS with Amazon. They said "Oh, yeah! We haven't had cash flows from this." Boom! Stock goes up.
Lewis: Yeah. So, we'll see.
O'Reilly: Man. Very good. Well, thanks for your thoughts Dylan.
Lewis: Mm-hmm.
O'Reilly: Thanks for listening, Fools. That is it for us. Before we go I want to make our listeners aware of a special offer for all Industry Focus listeners. It is a subscription to Motley Fool's top performing, Stock Advisor newsletter.
You will get two stock picks a month from our team of analysts. Head over to focus.fool.com to learn more about this special offer. Once again that is focus.fool.com. As always, people on this program may have interests in the stocks that they talk about, and the Motley Fool may have formal recommendations for or against those stocks. So, don't buy or sell anything based solely on what you hear on this program. For Dylan Lewis, I'm Sean O'Reilly. Thanks for listening, and Fool on!
