Another indicator that the US may be slipping into a recession: even powerhouse companies like Google Inc. are feeling the heat, as the company’s so-called pay-per-click search engine advertising service faces setbacks.
Experts say that one reason for the decline in Google stock shares this quarter is the lackluster performance of the company’s AdWords online advertising service. In the United States particularly, fewer web surfers are clicking on Google’s Internet ads, resulting in a weaker bottom line for Google, and causing the company’s stock to slide somewhat on Wall Street.
The Internet research firm ComScore has just completed a study which indicates that American Internet users are “tuning out” online advertising to a greater and greater extent. Word of the report reached Wall Street — already shaky from a series of poor financial indicators over the last few months — and caused Google’s stock price to sink to it’s lowest position in nearly a year.
The downturn in Google’s search engine advertising is not really a surprise to many online companies. Not that many years ago, the Internet was littered with flashing, neon-like graphic banner advertisements; and for a while they were effective. But eventually, surfers began ignoring the intrusive banner ads, and in many online communities, resenting the “spammy” commercialism of the banners.
Consequently, the value of banner advertising online began to fade, and is now less effective than ever. The same thing appears to be slowly happening to Google’s search engine advertising. As web surfers become savvier, they increasingly ignore text links they perceive to be paid advertisements, favoring unadvertised content rich web sites that provide good information.
Unless Google is able to put a new spin on their online ads, experts predict that the trend toward lower click-through rates on Google advertisements will continue. More and more, online consumers are turning to social networking sites such as MySpace or FaceBook when seeking out recommendations for products.
Web analyst Clayton Moran of the Stanford group says “we don’t see a compelling reason to buy…[Google]…stock right now, noting that the company is bound to have some rough months ahead in 2008.
But according to Wired.com, other analysts see the downturn in Google’s revenue as a short-term “blip,” not a sign that their best days are behind them. They point out that Google has recently instigated several new policy changes in its search engine advertising program in an attempt to weed out poor quality web sites, and those that do not comply with Google’s terms of service.
Google Chairman Eric Schmidt sees the downturn as a necessary step which will pay off in the long run. Let’s hope the market agrees.
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