As Google tallies up record-breaking profits from Q4 2018, the threat of rising costs casts a shadow of doubt for its stockholders.
Advertising Ascension
Google’s digital advertising program continues drive heightened profit gain, as the company recently revealed their Q4 earnings in a press release stating that advertising revenue climbed from $27.2 billion in Q4 2017 to $32.6 billion in Q4 2018, translating to roughly a 20% jump.
The revenue gained lead to an overall profit growth of 22% for Alphabet Inc. in the fourth quarter of 2018, which ultimately contributed to a total of $136.8 billion for the entire year of 2018.
Interestingly, despite the surge in new revenue, Google’s cost-per-click rate dropped by 9% in Q4 versus Q3, and even more substantially for the full year at a staggering 29%. Still, the company had some assistance with the amount of people actually clicking on CPC ads, as that experienced an increase of 22% quarter-over-quarter and 66% for the year.
Rising Costs & Mobile
While Google has had arguably more success than any other digital platform with its ability to target mobile devices, the cost of doing so is rising.
As the platform becomes increasingly more dependent on mobile ad revenue, traffic acquisition costs (TAC) - payments required to be made to wireless network carriers - rose by 14% in Q4 2018, which accounted for $7.4 billion in payments.
Looking into 2019, these additional costs are only expected to increase. Google will likely pay Apple $12 billion in 2019 (a 33% increase year-over-year) for the rights to be the default search engine on its Safari browser.
It still remains to be seen just how exactly this will impact CPC bids for advertisers.
Losing Ground
If rising mobile payments isn’t the elephant in the room for Google, than it’s likely the rate in which its competitors are gaining momentum with its share of the market.
Shortly before releasing their earnings, Google’s 20% quarterly profit gain announcement was exceeded by Facebook, which managed to achieve 30%. Even more worrisome for the search behemoth was the strong push that Amazon made in Q4 2018 – which found its ad revenue skyrocket to 95%, thanks largely in part to its new Ecommerce Channel Advertising program (ECA), a popular new advertising format that propelled the company to becoming the third largest digital ad seller in the United States last year.
It’s quite probable that the dropping CPC rates highlighted above are due to new formats, like Amazon’s ECA format and Facebook’s Stories ads, capturing more of the market and drawing more advertisers away.
Seek the Opportunities
We’ve seen a lot of interesting findings being published recently that are really starting to paint a clear picture on what 2019 has in store. Expect there to be more disruption than ever as the major players release new functionality and new players enter the fray.
What was once a no-brainer in terms of where to put your marketing chips now seems to require deeper consideration.
For advertisers who are continuously getting results on Google, there’s really no reason to stop. CPC costs – despite the fact that Google is paying more than it ever has been to offer its services – are dropping, which means you’re now able to drive more traffic at a lower cost. Additionally, as platform competition intensifies, that simply means you have even fewer companies to worry about and even more of the real estate to control.
If you haven’t been finding success lately with Google, start tinkering around with some of the other digital realms. There’s never been a better time to jump ship for a future-ready vessel.
Any questions about the insights above? Feel free to contact our affiliate management team. They’ll happily work with you to help you maximize your advertising ROI!