Thursday, April 3, 2008

A Google Reality Check

APRIL 3, 2008

David Hallerman, Senior Analyst

Last week, MarketWatch quoted comScore data showing a second straight month of slower growth in paid clicks for Google's main ad-serving business.

A note from Bank of America (BofA) analyst Brian Pitz pointed out that the comScore data showed a mere 3% growth in Google's paid clicks in February compared with the same month a year earlier.

MarketWatch also noted reduced growth in Google's paid clicks in January, again reported by comScore, and concluded that these results could cause concern about the company's economic health.

Pause for a reality check. Growth in US online ad spending is indeed slowing. However, let's remember that this means smaller increases but still increases. Slower growth is a world away from a fall.

It would be very hasty to infer from slower growth in the number of paid clicks that Google is in an economically weak position. Relative to the three other major portals, Google's position is one of great strength even with slightly reduced growth this year.

The paid click measurement is critical for Google because the company's business is dominated by search advertising services.

Looking at data from five key researchers reinforces confidence in Google's short-term prospects. There is a robust degree of consensus that US spending on search advertising will increase by more than 20%, despite a temporarily weak economy.

eMarketer's online ad spending projections factor in a US economic slowdown in 2008. Learn more in the US Online Advertising: Resilient in a Rough Economy report.

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