AdSense Revenues Increase But Publishers Keep Less

Today, January 22, 2009, Google filed their 2008 Annual report which includes information for the 4th quarter of 2008. In it is information that AdSense publishers will find interesting.

Google reported that they received 18% more clicks in 4Q08 than they did in the fourth quarter of 2007 and 10% more than the third quarter of 2008. That's total clicks across Google's own sites and sites within the AdSense network. Combined ad revenue increased 15.71% compared to 4Q07 and 2.85% compared to 3Q08. Unfortunately they don't break down clicks between Google's sites and AdSense publisher sites.

Many publishers have been complaining that there was a drop in AdSense revenues last quarter, even though click-through rate (CTR) and impressions remained the same. As we can see in the published SEC documents, even though Google received a lot more clicks last quarter, the increase in revenues only rose slightly. The cost per click (CPC) has declined, which Google has consistently stated in their quarterly reports.

AdSense publishers seemed to have taken the brunt of the hit caused by the economic downturn and US recession. While the Google earnings conference call said that AdSense revenues increased, that was misleading, AdSense publishers actually made less in Q4 than they did in Q3.

During the Q&A, an analyst from JP Morgan asked about slowing AdSense revenues and lower cost per click and asked if Google could give more details. Google responded by saying AdSense for Content had a strong quarter but AdSense for Search didn't do as well. Part of it was due to the efforts to eliminate the practice of AdSense Arbitrage. That clean up lead to lower cost per click in some areas. Google also improved some features for AdWords publishers to make it easier for them to find lower paying keywords in the same niche. Because of the economic downturn, advertisers are taking a closer look at their conversions and ROI and adjusting their bid prices accordingly. Consumers are spending less which means many of the clickers are just "window shopping".

They did mention that traffic acquisition costs decreased (TAC) but many people may not realize, TAC is what AdSense publishers make and AdSense revenues is the total paid by advertisers into AdSense. It's good for shareholders, not so good for publishers.

They also explained how the pricing and auction dynamics in the AdSense network is not the same as it is for the bidding process on Google's own sites. This wasn't a tech call so there weren't any details on how it differs, but as you can see from the charts, AdSense revenues have been flat but Google's advertising revenues are still growing.

On Google's own sites, there was an increase in ad revenue of 22% compared to 4Q07 and a 3.79% increase compared to 3Q08. AdSense publishers didn't do that well. AdSense Revenues increased only 3.52% compared to 4Q07 and a meager 0.8% compared to 3Q08. AdSense revenues accounted for 30% of Google's total revenues, but 87.4% of those AdSense revenues were paid back to AdSense publishers. In the previous Quarter Google's share of AdSense revenue was only 11%. For the past couple of years, Google has been taking a smaller cut of AdSense revenues. For the 4 quarters previous to last, Google was giving back 88-89% to AdSense publishers. Last quarter, they decided to keep an extra 1.6% compared to 3Q08.

Factoring what AdSense publishers actually keep, last quarter AdSense publishers made 1% less than they did in the third quarter of 2008. Even though the ad revenue increased, the amount Google kept was greater. Compared to 4Q07, there was only a 2.8% increase. I'm not usually one to agree with those that believe Google is being unfair but looking at these number you have to wonder... Is Google being fair to AdSense publishers?. I haven't made up my mind. For the last year they've been taking a smaller cut, maybe they were hoping things would turn around, but since they didn't they have to go back to normal. They're still taking a smaller cut than they did when they started. I addressed some of the concerns about Google being fair to AdSense publishers in a previous post. It has some more charts up to 3Q08.

The following two charts show the growth in revenues for Google's owns sites as well as the growth in AdSense revenues for AdSense publishers. They show a drastic decline in the growth rate starting in 2007.

The yellow series is the change in AdSense revenues that publishers actually keep. The quarterly change has only been negative in 2 quarters. The first was in 2Q07 when AdSense revenues dropped almost 2% but Google made up 1% by taking a smaller cut. Last quarter however, There was actually a 0.8% increase in AdSense revenues but Google took a bigger cut which turned it into a decrease of just over 1%.

For the first few years, quarterly growth for Google's sites has been in the double digits and year over year (YoY) has been in the triple digits, but since 2007 there has been a steady decline in ad revenue growth for Google. It's been even worse for AdSense publishers. Last week I was wondering if Google would terminate AdSense as a whole since they're seeing very little come in. The Google Float might make that difficult.

The Google Float is the amount AdSense publishers have accrued in earnings but have not yet been paid. You know, all those people who haven't reached the $100 mark that triggers a payment. The figure is currently at $532,547 million. That's over a half billion dollars. If Google killed AdSense, they would have to pay that all out.

One interesting thing about the AdSense float is that it increased last quarter by 3%. In the 2 previous quarters it decreased. I wonder if this was due to all the AdSense accounts that were disabled recently.

Things haven't been good for AdSense publishers, or Google lately, and if the economy doesn't turn around quick, or Google doesn't come up with some miracle, things might stay the same for quite some time. Basically, don't count on AdSense revenues to grow unless you can significantly increase traffic and clicks.