Silicon Valley Watcher - Former FT journalist Tom Foremski reporting from the intersection of technology and media

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

Posted 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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