Google Cuts Payments to Publishing Partners by $24m, Beats Analyst Estimates

By Tom Foremski - October 18, 2007

Foremski's Take: In the third quarter Google AdSense network partners lost $23.99m in revenues because GOOG kept a larger share of AdSense revenues compared with the second quarter.

Here are the numbers:

The percentage of revenue from GOOG's publishing partners fell in the third quarter of 2007 to 34% of total revenues compared with 35% of total revenues in the immediately prior quarter.

Google's publishing partners operate web sites that are enrolled in its AdSense advertising network. Google's AdWords network serves ads on its own web sites, and that has continued to outpace AdSense growth.

Google has to split revenues with its AdSense partners but keeps all revenues from AdWords. When it went public Google's revenues were about evenly split between its own sites and partner sites. Now 65% of revenues come from its own sites and only 34% from partner sites.

Google reports AdSense payments to publishers as part of its Traffic Acquisition Costs (TAC) which was $1.22bn or 29% of total revenues in the most recent quarter. TAC in the second quarter of 2007 was 30% of total revenues.

In the second quarter Google paid out 78.62% of AdSense revenues to publishing partners or $1.063 bn.

In the third quarter Google paid out 76.70% of AdSense revenues to publishing partners or $1.116 bn.

By reducing the percentage paid to publishing partners Google boosted its financial performance and exceeded analyst estimates. AdSense publishers lost $23.99m

This is a significant amount of money, especially for already troubled media companies who are struggling to build revenue from their online sites.

The Google AdSense business represents a potential "cookie jar" for Google. It could continue to change the percentage of revenue it keeps to help boost quarterly results.

GOOG risks one third of revenues

But his practice risks more than one third of its revenues since AdSense partners could leave and join a competing ad network. How far can Google go in increasing its share of AdSense revenues and still hold onto its partners?

Did Google deliberately change the percentage pay out to improve its financial performance? It is possible that the numbers changed because Google has an agreement to pay some of its larger publishing partners a higher percentage than for smaller publishers. If some of those larger publishers are under-performing while smaller publishers are increasing their performance, Google would pay out less as a percentage of total revenues.

However, there has been no indication that there is a slowdown in traffic at large web sites carrying AdSense ads.

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Why doesn't Google release its financial reports on Google Docs as a spreadsheet? Doesn't it trust its own technology?

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By Tom Foremski - October 18, 2007 | Permalink | Comment | Category: Google [GOOG]
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Comments (2)

Dave (The Other One):

Brilliant article Tom. Actually, you might want to look into some forums like DigitalPoint or Code4Gold that are geared towards webmasters and affiliate programs. Right before the Q3 announcement, hordes of Adsense publishers were screaming bloody murder about being banned from Adsense and their earnings confiscated.

Search the net for "Banned by Adsense" and you'll see it was happening to some well known and respected people, including myself. Although I was wise enough to appeal my ban, and Google re-instated my Adsense account, they still kept all my earning which was several hundred dollars.

My friend who runs a huge network of forums was banned and Google conficated over $20K of his earnings (he posted the info on DigitalPoint), and a huge internet publishing company in Korea was supposedly banned and lost over $200K.

Anyway, great article.

Posted: November 24, 2007 9:44 PM

Tom Foremski:

Thanks Dave. Out of thousands of journalists covering Google's financial results I was surprised when I was the only one to discover the change in its AdSense payments. It made for a great scoop.

Since this article was published I have had several people send me details of their adsense payments being cut, and further leads. I guess GOOG can get away with this because none of the other publisher networks such as Yahoo are able to compete. But, it seems as if GOOG could lose one third of its revenues very quickly if a decent competitor was around.

Posted: November 25, 2007 1:10 PM

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