Google sees growth in third quarter, but headwinds from rivals loom

By Published on .

Sundar Pichai, chief executive officer of Google Inc., speaks during the company's Cloud Next '18 event in San Francisco, California, U.S., on Tuesday, July 24, 2018.
Sundar Pichai, chief executive officer of Google Inc., speaks during the company's Cloud Next '18 event in San Francisco, California, U.S., on Tuesday, July 24, 2018. Credit: David Paul Morris/Bloomberg Finance

Google generated advertising revenue of $29 billion in the third quarter, up 18 percent year-over-year. Income, meanwhile, came in at $9.5 billion, up nearly 10 percent when compared to the previous year. Even so, the company continues to get squeezed by payouts to partners such as Apple for making its search engine the default choice within browsers.

Here are four takeaways from today's Google earning call:

Search isn't cheap

Google pays a king's ransom each year on traffic acquisition costs, or TAC, to outfits such as Apple and FireFox for the privilege of being the default search engine within their respective browsers; it reportedly pays Apple $9 billion a year, for example. Google said Thursday that it spent some $6.6 billion in TAC fees in the third quarter, up 18 percent year-over-year.

Apple is proving to be a critical ally while also an opponent for Google

Apple's Safari browser, which is used by nearly half of all consumers in the U.S., is making Google's life increasingly difficult thanks to a recent update to its Intelligent Tracking Prevention initiative, which debuted last month. The feature significantly limits how frequently users are tracked and as a result, marketers are less capable of targeting them through search.

According to digital agency Merkle, Apple's ITP2 disrupted advertisers' ability to use Google's remarketing lists for search ads (RLSA), which allow marketers to customize search ad campaigns for people who previously visited their sites. RLSA click share dropped soon after ITP2 came into effect, Merkle says, hitting a seven-month low for the month of September.

On Wednesday, Apple CEO Tim Cook leaned in hard on Google, calling much of their practices around data collection "surveillance."

Amazon gnaws at Google

Monica Peart, an analyst at eMarketer, says Amazon is eating into Google's ad business.

"We're seeing a larger-than-expected slowdown in Google properties' revenue, representing its core search business," Peart said in an email. "This is likely related to the ramp-up in competition from Amazon, as consumers increasingly turn to the e-commerce giant for their product searches."

Amazon is now the third-largest ad business and is only behind Google and Facebook, eMarketer says.

Overall, revenue from search was largely driven through Google Shopping Ads, which show images of products consumers search for; that segment generated 87 percent of all search ad clicks during the third quarter, Merkle says.

Direct response comes to YouTube

Google intends to roll out direct response ads on YouTube, with Google CEO Sundar Pichai hinting that the company can attract travel marketers to capture consumers interested in flights or hotels.

The company announced its TrueView Actions Format, which allows users to take action directly within YouTube, during Advertising Week early this year. Pichai says in the future, viewers will be able to download apps, book a hotel or trip in similar fashion.

"We always felt direct response would do well on YouTube and our instinct is bearing out," Pichai said Thursday.

Most Popular