Is Google’s Ad Biz Beginning to Unravel?

Josh Catone
Josh Catone

The prevailing wisdom at Google is that their ad-centric business model is recession proof. As advertising budgets are squeezed, some pundits have suggested that ad dollars will move online to advertising methods where it is more easy to measure return on investment. That means advertising models such as Cost Per Action, and Google’s bread and butter, Cost Per Click ads, would see growth while other advertising methods hit the skids.

Further, Google believes that as consumers become more budget conscious, they’ll turn to online search engines to scout out new deals. “One thing that we think at Google is that when there is a recessionary environment, people are counting their pennies, are going to be researching their purchases, looking for bargains, and this potentially has something of an upside for Google, where we referred to this last time I called it the Wal-Mart effect,” said Google’s chief economist Hal Varian during a conference call last month.

But Wal-Mart effect or not, the economic downturn has to catch up to Google eventually, and WIRED Epicenter reports today that is might just be starting to.

“Sponsored ad sales — or Cost-per-click ads that are paid for by advertisers only when people click on them — are softening, according to Collins Stewart analyst Sandeep Aggarwal,” writes Epicenter’s Betsy Schiffman. “[Aggarwal’s] research suggests that CPC ad rates have held up so far because of the number of advertisers bidding on keywords and quality scores demanded a minimum bid for low-quality key words.”

Unfortunately for Google, it looks like the number of bidders per keyword is starting to flatline. As a result, Aggarwal gave his outlook for Google’s Q4 revenue a $110m haircut today. Google had an off day on the stock market as well, closing at a 52-week low of $291 per share.

Image via Rizza.