Aqueous Digital

Did Google’s profits increase despite the recession?

There has been a lot of speculation and column inches today about Google’s latest quarterly revenue results, which have now reached the giddy heights of $9.72bn. That’s just under ten billion dollars in a single quarter.

It’s an immense number and for a company that wasn’t even around fifteen years ago, it’s nothing short of miraculous. The bulk of the growth we’re told came from the volumes of clicks on their pay per click advertising, up 28% from the same period last year and the amount people pay per click which was up 5% on this time last year.

So really a double whammy from a business point of view; more clicks and more revenue per click. But how has this been achieved when the world is in the throes of the biggest recession it has ever seen?

People have been quick to jump on the obvious bandwagon this morning and claim that they have done this because they have a recession proof model and that there is more of the same to come. But is that really true?

Logically there is only a finite amount of money in the world, and despite the banks printing trillions of dollars more, there’s not an inexhaustible pot. When businesses choose to spend money on things like Google’s PPC advertising then they are actually choosing not to spend money on other media. In fact, if you look at the recent wretched performance of the traditional media darlings such as Newspaper groups and Yellow Pages companies, you can see that they are struggling to cope in the current environment and in the light of these results you can see why.

So from a Marketing theory point of view does this mean that Google are increasing the value of the total market with what they are doing, or are they simply taking a bigger share of what’s already there? Granted they are expanding into new areas such as mobile and that is beginning to drive significant revenues, but in the core advertising market, has the overall market really got any bigger?

Our experience with clients has shown us that the current trading environment is tough and if anything the client base that people are going after has shrunk, not grown. So where is Google’s growth coming from?

We suggested at the top of this article that they might be growing despite the recession rather than because of it, and when you consider the environment we are currently in that might be a fair assessment. It would seem that recessionary fears are driving more and more businesses to consider every penny they spend on advertising, and whereas traditional offline media have worked well in the past, their decreasing usage means the returns from them are drying up. Businesses are now demanding and getting greater transparency on their results and by switching online they can not only control how much they spend every day but monitor, measure and react to changes in the market place.

So it could be that recessionary pressures are driving businesses into a position where they have to go online to advertise, as that also seems to be where the consumers are looking. And is this good for long term consumer choice? It’s unlikely that it is, as when you have one company with a dominant ‘quasi-monopoly’ position in the market then ultimately you are reliant on their good will to allow everyone else to survive.

Google are in a strange position right now. The darlings of the stock markets, consumers love them and with a company motto of ‘do no evil’ what could possibly go wrong? Their competitors in traditional media cannot keep up and Google effectively controls the supply and demand sides of the curve in the online space.

So to answer the original question, our take on all this is that Google’s growth has little to do with bucking the recessionary trend, and all to do with the lack of competition.

The total pool of available cash hasn’t increased it’s just that businesses are being forced to spend it on Google’s advertising options. Sure it gets a return, but for how long?

We don’t know but one thing is for sure, as we head towards 2012 we’ll be making sure that our clients are fully optimised for natural search as SEO is the one thing that currently Google doesn’t charge for!

More Articles