24 Nov

Why is Google looking to change its mobile search product?

WRITTEN BY Puneet Sikka FEATURED IN Industry Overviews

Mobile ads are less valuable than desktop ads

In this series, we’ve seen how Google (GOOG)(GOOGL) is benefiting from the fast growth of the mobile search market. Google announced its third quarter results recently. It reported that although the number of paid clicks on its site increased by 24% year-over-year, the cost per click or advertising rate declined by 4%. The main reason that Google gave for the cost-per-click decline was the increase in the number of searches happening on mobile devices.

Why is Google looking to change its mobile search product?

In general, mobile ads are less valuable than desktop ads because of a number of reasons. Firstly, people haven’t yet become comfortable processing transactions on mobile devices because of security concerns. This issue is something e-commerce players like eBay (EBAY) have also faced in the past. This is the main reason why mobile penetration for eBay is only 21%. Secondly, not all merchants have optimized their sites for mobile devices, keeping in mind screen size, as they have for desktop devices over the years.

Google made a few product changes to boost mobile ad rates

During its earnings conference call, Google’s management mentioned that it made a few product changes in the last quarter that helped slow down the decline in its ads’ cost-per-click rates.

To address the concern about optimum screen size for mobile devices, Google rolled out a product change for mobile users. It will add a “mobile-friendly” label to its mobile search results, according to a Google blog post on November 18.

To address the first concern about security, in August this year, Google started to rank web pages that are encrypted higher, showing that it wants to reward websites that are more secure.

Google’s losing share in the mobile search market

These product changes are also motivated by the fact that Google is slowly losing its share in the mobile search market. According to a report from eMarketer and as the chart above shows, Google’s share in the mobile search market could decline from 82.8% in 2012 to 65.7% in 2014. Niche mobile apps like Yelp (YELP) and Amazon (AMZN) are becoming important alternatives for users. To understand why Google is losing share in the mobile search market, please see Market Realist’s article titled Why is Google losing mobile search share to mobile apps?

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