News Analysis - Google Posts Record Profits: Online Advertising Alive and Well


Google posted record third-quarter revenues of $5.94 billion, up 8% over the second quarter, due mostly to strong online advertising revenues. Earnings per share were an astounding $5.18. It ended the quarter with $22 billion in cash as well, increasing the likelihood the company will go on a buying spree.

“I’m not surprised that the online advertising market is rebounding faster than it did after the dot com crash at the start of the decade,” said Tim Hickernell, Lead Analyst at London, Ontario based Info-Tech Research Group. “The online advertising market in 2000 was highly dependent on the high tech market itself, such that the dot com crash created a domino effect of declining demand across the entire technology sector, including online advertising,” he added.  “Today, the online advertising market is far more diversified, with advertisers distributed across many industries, so we didn’t see the same domino effect as earlier in the decade. Today’s online advertising market is more diverse, beyond the high tech early adopters, because non-technology companies understand the value of online advertising better and firms like Google and Yahoo are doing a much better job of providing advertisers with analytical tools, allowing firms to manage and optimize their online advertising investments as a real portfolio. Companies are not going to simply stop investing in online advertising during bad economic times, as we saw in 2001 and 2002. Instead, they are simply optimizing their advertising across all channels and media, now that ROI models for online advertising are more mature.”

Hickernell recommends that smaller companies take full advantage of self-service analytical tools offered by firms like Google and Yahoo, to ensure their online advertising investment is performing as desired, and should ensure advertising leads are integrated with internal lead management processes, to prevent dropping leads due to hard process hand-offs. Larger firms should regularly work with assigned account representatives from the online advertising firms and should automate all online lead identification with their sales and marketing automation systems. Dedicated brand and product line managers may opt to work with intermediate buyers and advertising networks, such as the Rubicon Project, Pubmatic or Yieldbuild.

As for a Google shopping spree, Hickernell predicts the company may branch out a bit from the type of purchases they have made in the past.  “Google has traditionally acquired small companies without necessarily having a clear impact on company strategy and direction,” said Hickernell.  “This time though their acquisitions may be more pragmatic. They will likely acquire technologies that accelerate achievement of their cloud-computing platform goals, their Web 2.0 client application delivery goals and their mobile computing goals. Convergence of Chrome, Chrome OS and Android into a single application delivery strategy must take priority over making acquisitions just because someone at Google has the technology wanderlust. ”

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