Google parent shifts basis of revenue metrics to cost-per-impression instead of clicks
- Alphabet, Inc. announced in a statement that it will shift its Google Network members' revenue metrics from a cost-per-click (CPC) basis to a cost-per-impression basis. The news comes ahead of Alphabet's Q1 2018 earnings report on April 23, which will include both the percentage change in impressions and cost-per-impression for Network revenues for all quarters in 2017 but will be the last time it provides a percentage change in paid clicks and cost-per-click.
- Alphabet attributed the change to impression-based revenues becoming a major factor in Network revenue growth. The percentage change in paid clicks and cost-per-click cover less of the total Network revenues. Monetization metrics for Google properties revenues won't change, the company said. Additionally, Alphabet will report sales from its connected home device division nest Nest under Google rather than the "Other Bets" section of its Q1 earnings, having brought Nest into Google's hardware team in February 2018.
- The shift from cost-per-click to cost-per-impressions will enable Google to more accurately report the revenue from its ad business but also potentially make its reported income more volatile, according to Bloomberg. Most marketers already purchase ads based on impressions instead of clicks. Pivotal Research Group analyst Brian Wieser also told Bloomberg that "CPC is a meaningless number."
Alphabet's changes to how Google handles key digital advertising metrics feel like they've been a long time coming, and signal how the tech company's priorities are realigning both as the space evolves and as the original pillars of its business start to show some vulnerabilities. CPC figures have been a weakness for Google in recent years: In 2017, it reported several declines in cost-per-click rates in its earnings reports, including a 23% drop in Q2. In some cases, paid clicks were up, but the company was earning less per click. The company has struggled to explain the decline in CPC rates, attributing it to a variety of factors over time. This hasn't necessarily harmed its overall business, as the company posted revenues of $32.2 billion, a 24% year-over-year gain, in Q4 2017.
In general, clicks have lost relevance in digital marketing as more content becomes available online, including more sophisticated ad formats like shopping ads. While there has been a movement toward impressions, this metric isn't without issues — for example, what constitutes an impression can vary between platforms and marketers.
It will be interesting to see what Alphabet puts a focus on in its earnings report later this month. Google's video platform YouTube has been a darling of the company and a considerable revenue driver but has also in the past year weathered a slew of controversies related to brand safety and toxic content and creators on the platform. For its Q4 earnings in February, Alphabet emphasized Google's expanding line of Home hardware products, which are powered by the digital Google Assistant and compete closely with Amazon's Echo devices. The inclusion of Nest outside of Other Bets could bolster this area as well.
Google has in the past several months introduced initiatives to court publishers and improve the overall user experience on products like its web browser Chrome, which in February introduced a native ad blocker for intrusive advertising formats. Google also recently announced a solution to support publishers that want to only display ads that are not personalized for consumers who opt out of data collection for ad targeting purposes. The move is intended to help publishers comply with General Data Protection Regulation rules from the EU, which go into effect in May.
- Alphabet Investor Relations A few new accounting, reporting, and disclosure items in our Q1 earnings
- Bloomberg Google Changing a Closely Watched Metric of Its Ads Business
- Marketing Dive How Google's ad-blocking push could be self-serving