Google’s mobile advertising problem

A premature drop in the Google (GOOG) share price has been attributed to a realisation that the growth in mobile usage has led to overall lower CPCs, cannibalizing desktop revenue growth. Advertisers who have taken advantage of bringing their ads on to mobile have enjoyed the lower mobile CPCs for years now. Taking into account mobile growth and the lower costs, its impact on Google and Facebook could be significant if advertisers continue to lag in mobile advertising whose growth has been much slower than the accelerating uptake of smartphones.

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The problem for Google and advertisers is the quality of mobile clicks tend to be much lower than desktop. But the good thing for advertisers is that there is less competition than desktop, making the CPC cheaper than desktop right now.

Google has been quick enough and proactive in making advertisers aware of mobile usage. However, many advertisers have not been so quick to upgrade to mobile-friendly sites, presenting no reason to advertise on mobile.

Lower CPCs are not enough to convince advertisers either. Those with smartphones are all-too-familiar with our fat fingers touching ads unintentionally and how annoying this is. Those who know how these ads work will be acutely aware that a wasted click has just been charged to the advertiser. Getting these placements to convert into revenue for advertisers is another big barrier to placing higher bids.

Google’s double-tap ad feature for app ads is a step in the right direction. Google and especially Facebook still have a lot of work to do to improve the delivery of mobile ads and bring the competing advertisers to the new and rapidly evolving mobile format.