Jul 15, 2011 4:16 PM

Is Google Panda Munching On Ad Revenues?

Google recorded a record $9 billion in revenue last quarter, pleasing Wall Street, which had been jittery on the search and advertising giant after it didn’t meet their expectations for the first part of the year. But as Silicon Valley Watcher’s Tom Foremski pointed out, there’s an oddness in Google’s results. The growth in revenue […]

Google recorded a record $9 billion in revenue last quarter, pleasing Wall Street, which had been jittery on the search and advertising giant after it didn't meet their expectations for the first part of the year.

But as Silicon Valley Watcher's Tom Foremski pointed out, there's an oddness in Google's results.

The growth in revenue for sites that run Google ads (the AdSense program) increased 20% from the second quarter results in 2010 and 2% since last quarter. Usually the revenue from those ads grow at about the same rate as the revenue from ads Google gets from its own properties, such as its search engine.

But revenue from ads on Google's own sites jumped 39% since the same quarter 2010 and 6% since last quarter.

That's odd, Foremski says.

This huge disparity between the growth rates of Google sites and partner sites is without precedent for most of its history. For example, in 2010, Google sites never exceeded the growth rate of partner sites:
- In Q1 Google sites grew 20% and partner sites grew 24%
- In Q2 Google sites grew 23% and partner sites grew 23%
- In Q3 Google sites grew 22% and partner sites grew 22%
- In Q4 Google sites grew 22% and partner sites grew 24%
Yet in Q1 2011 Google sites’ growth jumped suddenly and without any explanation: Google sites grew 32% and partner sites grew 19%.

Google gave no explanation in its earnings call yesterday, and no one seemed particularly interested, except Foremski.

UPDATE: Google's head of webspam and de facto spokesman Matt Cutts disputes Foremski's contention that Google hasn't been forthcoming about Panda eating AdSense, in a comment on Hacker News.

So Foremski claims that "For some strange reason no one has picked up on this or noticed this huge change in its business model. There is no explanation from Google or Wall Street analysts that I could find." I would contend that Google has actually been quite clear about the reasons for the change in network revenue in its earnings calls. In particular, Google has been clear in that it's willing to accept an impact in our revenue in order to improve the quality of our search results.

/UPDATE

But there may be a one word explanation for why revenue from millions of websites slowed and Google's own rose -- Panda.

That's the code-name for Google's recent revamping of its search algorithms to weed out content factories and low-quality sites from its top rankings (not without much controversy). Content mass manufacturers, such as Demand Media and eHow, as well as less well known operations rely on Google Adsense ads to make money off their webpages. That's because AdSense is easy to drop in and can be used to fill advertising slots that can't be filled with higher paying ads.

So is it possible that we are now seeing Google's anti-web spam team accidentally punishing the AdSense programs revenues by promoting sites that don't rely heavily on AdSense and demoting many that do?

The theory doesn't explain the giant jump in Google's own revenues on its own sites -- since I don't see how Panda's changes would drive more people to click on the search ads instead.

But it's possible that's a small contribution and Google ad revenues on its own sites are just getting more profitable either from better algorithms, better rates on ads in YouTube or even rising mobile ad revenue.

UPDATE: Reader J.N. adds via e-mail:

What you're seeing is Google cutting out the middleman. There's no reason for Google search to send users to made-for-Adsense pages, where Google shares revenue with the external site, when Google can get the revenue from an ad on
the search result page.
From Google's perspective, Adsense sites are only worthwhile if they have their own organic traffic. If they get their traffic from Google search, they're competition for Google's own ads. It's thus in Google's interest to down-rate sites with ads in Google's own search results.
This reasoning may, over time, cut off the air supply of the "content farm" industry. They need Google, but Google no longer needs them.
Advertisers with effective metrics generally observe that a click-through from a search page, when users are looking for something, is far more likely to result in a sale than a click on an ad on a third-party page, where the ad is an interruption.
The smarter advertisers turn off Adsense when buying Google ads.
This is party why Adsense ads are generally from rather low-rent advertisers. We measure that, and find that 36% of AdSense advertisers, by domain name, are what we call "bottom feeders", with no valid business behind the web site.
All this is well known in the SEO community. If anything, the surprise in the quarterly results is that Adsense revenues are up at all.

It's just a theory, and would love to hear your thoughts about whether the Panda is munching on Adsense. I asked Google's press office if there was someone to talk with about this, but haven't heard back.

Photo: A panda eating bamboo (Amy Gwen)