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.