On yesterday's earnings call, Google revealed that ad revenue from its own sites -- mainly search -- was up 39%. But ad revenue from partner sites -- AdSense -- was up only 20% from last year.
This is a huge disparity. It's also a relatively recent change -- for the first three (not four) quarters of 2010, Google's ad revenue grew in lockstep with or slightly SLOWER than its partners' ad revenue.
Plus it just seems weird. As a general rule, if overall Web activity and ad rates are going up, it seems logical that the growth rates should be about the same.
This caused Tom Foremski at Silicon Valley Watcher to question what was going on.
Three possible answers:
- Spam prevention. On both of Google's last two earnings calls, the company mentioned that it began cracking down on search spam in results. A lot of these low-quality sites used Google's AdSense to try and monetize the users they were getting from gaming Google Search. When Google turned off the spigot, these sites got less traffic, so AdSense revenue went down. Google started cracking down on spam in Q4 of last year, but accelerated it with a program called Panda that kicked off toward the end of Q1.
- Distribution deal loss. On Google's Q1 earnings call, ads VP Susan Wojcicki also mentioned that Google had lost a search distribution deal recently, and that had affected Network revenue. She was probably referring to the toolbar and app deal with Conduit, which Bing took away from Google in December 2010.
- Actually, this is a reversion to normal. If you go back a little farther (see chart below), Google Sites revenue has usually grown faster than Google Network revenue. It was really ONLY during late 2009 and early 2010 where that trend was reversed. That's probably because the recession caused a steeper dropoff in traffic to partner sites than in traffic to Google. So the partner sites showed a greater percentage rebound when the recession ended. Now we're far enough out of the downturn that the year-to-year comparables are going back to normal.
Here's a chart of ad revenue and annualized growth rate for Google Sites and Google Network stretching back to Q1 2008. The bold-faced quarters are the only ones where Google Network revenue grew as fast or faster than Google Sites revenue.
| Google Sites | Growth From Year Ago | Google Network | Growth From Year Ago | |
| Q2'11 | 6,232 | 38.52% | 2,484 | 20.41% |
| Q1'11 | 5,879 | 32.44% | 2,427 | 19.20% |
| Q4'10 | 5,672 | 28.30% | 2,495 | 22.06% |
| Q3'10 | 4,833 | 22.17% | 2,199 | 22.10% |
| Q2'10 | 4,499 | 23.16% | 2,063 | 22.51% |
| Q1'10 | 4,439 | 20.20% | 2,036 | 24.30% |
| Q4'09 | 4,421 | 16.01% | 2,044 | 20.73% |
| Q3'09 | 3,956 | 7.73% | 1,801 | 7.20% |
| Q20109 | 3,653 | 3.48% | 1,684 | 1.75% |
| Q1'09 | 3,693 | 8.62% | 1,638 | -2.85% |
| Q4'08 | 3,811 | 22.11% | 1,693 | 3.48% |
| Q3'08 | 3,672 | 34.26% | 1,680 | 15.46% |
| Q20108 | 3,530 | 42.00% | 1,655 | 22.41% |
| Q1'08 | 3,400 | 48.99% | 1,686 | 25.35% |
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See Also:
- Google's Q2 Earnings Blow Past Expectations -- Stock Up 12%
- Will Larry Page's Second Earnings Report Be Better Than His First?
- THE GOOGLE INVESTOR: Wall Street Weighs In On Google Earnings Before The Bell
MYSTERY SOLVED: Here's Why Google Sites Revenue Is Growing Faster Than Google Network Revenue (GOOG)
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