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

Google's Ad Partners Suffer As It Pursues An Apple-like Business, And Cuts 5400 Jobs

Posted by Tom Foremski - July 18, 2013

Revenue growth for Google's ad partners slowed sharply for a second consecutive quarter as the search giant reported quarterly results that missed Wall Street estimates.

[Please see full Q2 earnings report: Google's Q2 falls below expectations with EPS of $9.56 | ZDNet]

2013 is shaping up to be a tough year for Google's advertising partners. They represented 27% of Google's revenues in 2012 but just 24% in the second quarter. Growth of 12% in the first quarter, fell further to 7% in the second quarter, considerably lagging the 18% growth for Google's sites.

Management offered no explanation for the large difference in performance of its two largest revenue streams. The difference is especially noticeable since its partners outperformed Google's sites in 2012.  

Google says it shares about 80% of AdSense network revenues. It keeps all the money from its AdWords sales. Together they generate 92% of total revenues.

A lot of media companies are members of the AdSense network and the slowdown represents lost income.

Google's management has been focused on growing its smartphone business, which reported accelerating losses despite slashing 5383 jobs in the second quarter, representing 54% of its Motorola Mobility workforce. The savings in labor costs will help finance a reported $500 million in marketing for new smartphone models.

Google's pursuit of an Apple-like business carries considerable challenges because hardware is less profitable than its core business, which means earnings per share will suffer — as they have in the second quarter. 

The more Google tries to be like Apple, the more it risks alienating its shareholders. If its investors wanted to own a hardware company stock they would have bought one.  

$GOOG shares fell 4% in after hours trading.

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