Google announced their profit for the first quarter have increased by 30% to $5.19Bn. A huge amount in anyone’s eyes but is it well deserved?

This boost in profits has been assisted by the innovations in the Google Apps systems and no doubt helped by the push of sponsored links on Google properties such as Maps and You Tube. The worry is that the growth in traffic on the sponsored links has slowed and is to less than 2%, a figure dwarfed by the growth in revenue and profits. How can this come about?

Google have openly said that they are serving less pay per click (PPC) ads per page in a bid to increase relevance, but this would certainly appear to have had a knock on effect to the cost per click (CPC).

Google Adwords serves between 7 and 11 pay per click (PPC) ads per search engine results page (SERP). If this was reduced to 7 for every page, those PPC advertisers bumped off the bottom will need to increase their bids to get back on the first page. Add that to all those other advertisers that have been nudged down the list and competition is growing. Cost per click (CPC) bids will have to increase to defend those top spots and before you know it so does the advertising bill! Hey Presto! Google can dip the traffic yet boost the value of sales to appease the very nervous share holders.

The most shrewd advertisers can avoid this bid hike as the maximum cost per click (CPC) is not the only attribute that affects the positions. By making the ads as relevant as possible not only improves the quality of your traffic but will also reduce your cost per click.

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At the start of the year there were a lot of reports foretelling the death of Google’s Pay Per Click (PPC) Platform, Adwords and Google have silenced all those doubters. Last quarter (ending 31/03/08) profits for the search engine giant were up 30% from the previous quarter.

Profits have been announced at $1.3 bn, with pay per click sales up a huge 42% to $5.2 bn. The volume of clicks on the PPC links has slowed in growth from 25% growth at the end of 2007 to only 1.8% growth in this first quarter. This announcement from Google is also the first occasion that more than half it’s PPC revenue comes from sources outside the US. This demonstrates that the European pay per click markets and competition are growing faster than the US. It would also point to some strong growth in some of the developing e-commerce market, as more businesses take up PPC campaigns and realise the potential of qualified traffic from pay per click.

The strong last quarter performance could shake Microsoft in to taking swifter action in their potential Yahoo take over. If Google’s dominance in PPC advertising continues, Microsoft may find themselves frozen out of the pay per click market completely.

Yahoo are continuing to hold out on the Microsoft bid, serving Google ads for some of their searches. While most see this a toying with Microsoft, proving they do have other options, it is still putting more pay per click sales and revenue in Google’s bulging pockets!

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