First Take: Google gobbles up online ad business

SAN FRANCISCO — Google's latest financial results, released late Wednesday, suggest the Internet search giant is doing to other online ad sellers what it's already done to the print publishing industry: wrestling away an ever-larger share of advertising growth and driving ad rates inexorably lower.

The company's quarterly net income and profit margin show that the nascent-but-exploding trend of so-called programmatic display ad buying is helping to pour cash into Google's coffers like a fire hose.

The company generated a staggering $4.1 billion in operating income and $3.45 billion in net profit for the three months ended March 31, as revenue rose 19% and Google's number of paid search clicks surged 26% from a year earlier.

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At the same time, its so-called cost-per-click metric, which measures the price trajectory of its search ads, fell 9%, continuing a multi-year trend.

The CPC decline once spooked those on Wall Street who asked how long Google's double-digit revenue growth could last if the price of its core product falls from 5% to 10% every quarter.

John Shinal, technology columnist for USA TODAY.(Photo: USA TODAY)

The answer is that Google can make up with massive volume whatever price efficiency its own algorithm can wring out of the online ad business.

Now, the search-software leader is applying its ad-software expertise to the buying and selling of so-called display ads, including text and video ads shown on Android-powered mobile devices.

The resulting price pressure is ! pinching revenue growth at other Web publishers, even as growth on Google's own sites hums along.

In the first quarter, ad revenue on the company's own Web pages rose 21% from a year earlier, while revenue at its network partners rose a mere 4% on that basis.

It was the third-consecutive quarter in which Google's own year-over-year ad revenue growth was more than 20%, while its network partners' growth was less than 5%.

No surprise, then, that the cost Google pays to acquire Web traffic from others fell to 23.3% of revenue — the lowest percentage in at least three years, according to the company's securities filings.

Meanwhile, Yahoo CEO Marissa Mayer said Tuesday her company's traffic-acquisition costs are expected to rise this year.

It's hard to compete with software that gives online advertisers more clicks per ad and more ads per dollar every year.