Google UK not immune to economic downturn
Google's UK turnover fell in the second quarter, its first decline since it began reporting as a public company in 2004, as the dominant internet search engine showed that it was not immune to the impact of the economic slowdown.
A fall in spending by estate agents and other property advertisers helped to push revenues down to £392.4 million between April and June - compared with the record £405.9 million generated in the first quarter.
Hal Varian, the company's chief economist, said that the crisis in the housing market was the principal source of weakness. In a conference call to investors Mr Varian said: “In the UK we had across-the-board year-to-year growth in both revenue and queries with the sole exception being real estate.”
He did not give a comparison between the first and second quarters, but with revenues from UK search advertising improving by 29.8 per cent overall compared with the same period in 2007, the property downturn was all the more significant. Google's performance remains far ahead of traditional media, with Trinity Mirror indicating that advertising at its newspapers fell by 12.6 per cent in May and June and ITV1 bookings for September down by 13 per cent.
The quarterly reversal shows that the search engine is unable to defy the prevailing economic climate.
Dan Calladine, research director with Isobar, the digital advertising agency, said: “Search advertisers are typically looking for a direct relationship with consumers, like banks and travel companies, who can sell you products without people leaving their desks. But they are not immune to macroeconomic trends.”
Google, though, said that the downturn reflected a seasonally weaker second quarter, which had been previously masked by the company's success in gaining market share from Yahoo!.
Its share of the internet search market in the UK was 87 per cent in May according to measurement firm Hitwise. Yahoo! had 4 per cent, slightly more than Microsoft's MSN search.
Jonathan Rosenberg, the senior vice president for product management, said: “We have a very very high market share in the UK, and as our market share grew in the past few quarters, it has masked the seasonality in the business.” Google says that use of its search engine, and hence advertising opportunities, increase sharply when the academic year comes to an end.
Google's UK revenues increased by only £6.5 million to £302.2 million in the second quarter of 2007, the slowest pace of sequential quaterly growth in the year. The UK represents Google's second-biggest source of revenues worldwide, accounting for one dollar in seven that the internet giant makes.
Despite the unexpected reversal, Google is still expected to overtake ITV plc as Britain's biggest recipient of advertising in the next two years, because the second quarter hiatus is not expected to be repeated.
Google reported £797 million of gross revenues in the first half of the year, and would be on track to generate about £1.25 billion for itself after it pays out commission - which amounted to 28 per cent in the second quarter. ITV is expected to generate £1.45 billion net of all commissions in 2008, and £1.35 billion in 2009 as the economy deteriorates further.
Source: The Times Online
Author: Dan Sabbagh (Media Editor)
Date: 19th July 2008