New data from ComScore Inc. shows that Google’s click-through rate growth has almost slowed to a stop. The rate increase for January was zero when compared to January 2007 and only a 3 percent year over year increase in February. These rate increases are abysmal when compared to prior rate increases only a few months ago that were showing double digit percentage growth. In web advertising money is made on the number of times consumers click on advertisements. Different advertisements at different places on the web page have different click-through rates because of location and prominence on the page. Using our models from class, smaller click-through rates will result in decreased values from the advertisers and resulting smaller profits for Google. Google needs to maintain increasing click-through rates to keep on pace with its forecast revenue and profit growth. Hence, these stalling click-through rates spell trouble for Google.

Google has responded to this data by stating that these decreased click-through rates are because they are working on creating more value from each click. For example, Google has decreased the space around a word that would create a click, thus making sure more of the clicks are actually intentional. Google hoping that advertisers will be willing to pay more for advertisements with smaller click-through rates because of this increased value. However, financial analysts are unsure how long it will take for Google’s per click revenue to adjust to their new value added advertisements. An advertiser will be unlikely to pay more for an advertisement unless the new value is apparent. Google will have to prove this to their clients.

However, Google’s new value scheme may not be the whole story in their decreased click-through rates. If consumers are spending less, it is reasonable to assume they will be clicking less on advertisements. An advertisement for a vacation will have more responses when they economy is at a point where consumers have excess cash to spend and are not worried about a recession. A recession will also mean that advertisers may cut their budgets. This was the view of one Lehman Brothers analyst who cut his 2008 profit targets for Google citing decreased click-through rates as well an impending recession.

http://www.msnbc.msn.com/id/23831823/