Google looks for mobile search gains, misses estimates

The company is still making billions, but some analysts fear Google's cash cow -- desktop search -- is becoming outdated. Can the company kick its mobile search business into high-gear? Google says it already has.

Richard Nieva Former senior reporter
Richard Nieva was a senior reporter for CNET News, focusing on Google and Yahoo. He previously worked for PandoDaily and Fortune Magazine, and his writing has appeared in The New York Times, on CNNMoney.com and on CJR.org.
Richard Nieva
4 min read

Google is looking to up its game in mobile search. Justin Sullivan, Getty Images

Does Google have a mobile problem? It says no.

If you're searching for something from your desktop computer, Google is the undisputed king. But when it comes to searching on mobile phones and tablets, more of us are going to other places.

And that's not good for Google.

To fend off rivals like Amazon, Yelp and TripAdvisor, the company has in recent weeks been trying to refine its mobile search service.

Exhibit A: Google has used its power as the most-visited website in the world to force other sites to rewrite their code to work with mobile devices. If they didn't, Google would knock them down a few pegs -- literally penalizing their ranking when showing search results. The move, which was implemented Tuesday, was called " Mobilegeddon."

That's not all the company has done. Last week, Google also said it would prompt people who use its service on smartphones running Google's Android operating system to download specific apps when content in those apps was relevant to their searches.

Why do all of this? Google wants to make more money off mobile devices, and do it quick. Google is still the leader in mobile search ad sales, but compared to the amount of money the company makes on desktop computers, its mobile business is small. Facebook, by comparison, says ads sent to mobile devices represented 73 percent of all advertising on its site. In addition, more than 85 percent of the people who log into Facebook's service each day now do so from a mobile device.

Google has good reason for that goal -- the growth of its desktop search business has been slowing. For the quarter ended March 31, sales, excluding the cost Google pays to partners to drive traffic to its sites, were $13.9 billion and profit, minus some costs, was $6.57 a share. Analysts had estimated $14.1 billion in revenue and earnings of $6.61 per share.

Still, Google said its mobile business is headed in the right direction.

Google Chief Financial Officer Patrick Pichette said on a conference call with investors that he wanted to "make sure so that people don't continue to hound on this issue of, 'It's all about mobile that has terrible monetization.'"

Pichette pointed at the price of ads on other Google-owned sites like YouTube, which turned 10 years old today. The number of advertisers who placed so-called TrueView ads, which appear before a video plays and a user can skip, grew 45 percent in 2014, Pichette said.

"It's a journey that we are all on," he said. "We are looking forward to doing a better job and monetizing well."

From top-of-the-world to battling in the fray

Google's desktop search and advertising operation is still the most dominant in the world, but analysts fear the business is becoming outdated. Google is still the leader in mobile search ad sales, but unlike on the desktop, Google isn't as untouchable. The company's chunk of mobile search revenue fell to 68 percent in 2014, from 82.8 percent just two years earlier, according to eMarketer. That's because mobile users tend to go to specific apps when searching for things on phones. For example, someone shopping for shoes may go directly to Amazon's app instead of Google's search app.

Google doesn't break out sales specifically derived from mobile. But the growth of aggregate paid clicks -- an important metric for Google because it gets money every time someone clicks on an ad -- has slowed. The metric grew 13 percent from the year before. In 2014, it grew 26 percent year over year. Aggregate cost-per-click, the amount of money Google gets each time you click on its ads, continued its downward trend, falling 7 percent year over year.

To give a better sense of the picture, the company for the first time broke out more of the figures relating to paid clicks. While the growth of aggregate paid clicks was slower than last year, paid clicks on Google's sites grew more, at 25 percent from the year before.

Mobile is clearly a big part of the company's future. Android already powers more than 80 percent of the world's mobile devices. But throughout the last year, Google has also announced several initiatives around the software's reach, including expanding it to power everything from smartwatches to televisions to car dashboards. Google on Wednesday unveiled a new wireless service, which combines both cellular and Wi-Fi connections.

But while Google looks toward expansion, its businesses could take hits in Europe. The European Commission earlier this month hit Google with formal antitrust charges. The commission has charged Google with unfairly displaying search results to give its products -- notably its shopping service -- priority over those of competitors.

The charges mean Google could face a fine of more than $6 billion, or 10 percent of the company's annual global sales. Investors haven't been worried about the potential fine -- the company is wealthy enough to fork it over -- but the underlying concern is in Google being forced to change its lucrative formula around search results.