Google Grows Non-Ad Revenue Part of Business [UPDATED]
Google’s financial performance in the second quarter of the year was most impressive, and there are many places you can read about it. So let’s look at some things that most people haven’t, like non-ad revenues. One of Google’s big weaknesses, perhaps its largest, is the utter dependence on advertising revenue. The first six months of 2009 actually showed that non-ad revenue grew faster and became a slightly larger part of the greater whole. Here is the data from yesterday’s release:
The relation of ad and other revenue seems static, but that’s not the case once you stop rounding the data at whole numbers. Here’s the story comparing the first six month period of 2008 and 2009, shown to one significant decimal place:
| Revenue | 2008 | 2009 |
| Advertising Revenue | ||
| Google web sites | 65.7% | 66.6% |
| Google Network web sites | 31.7% | 30.1% |
| Total advertising revenue | 97.3% | 96.7% |
| Licensing and other revenues | 2.7% | 3.3% |
A couple of interesting patterns emerge. One is that non-ad revenue — licensing and other — climbed by 0.6 percent of total revenue. Given the historic overwhelming dominance of the ad side, that’s significant, given that the economy has not been exceedingly kinder to tech companies than to advertising-based media firms.
The second is the split between ads from Google web sites and those owned by others. Ad revenue continues to shift into Google’s own sites, which means that it doesn’t have to split the results with third parties. That explains why traffic acquisition costs dropped from 28 percent of total advertising revenue in the second quarter of 2008 to 27 percent in the same period in 2009. One percent of total ad revenue is about 0.97 percent of total revenue, so that switch alone was worth almost a full point at the bottom line.
[UPDATE: There seems to be significant concern among investors that revenue growth rate has declined for seven quarters. I wonder if this is an issue of that dependence on advertising and the quick uptake of the medium. If so, it would underscore the need for the company to diversify into other areas, a task that it's done poorly compared to many other tech companies, including Microsoft. That's why I've suggested that it ultimately may be one successful failure.]
Erik Sherman is a freelance journalist whose work has appeared in Newsweek, the New York Times Magazine, Technology Review, the Financial Times, Chief Executive, and other publications. Follow him on Twitter.
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