The downbeat report on click-through rates that sent Google’s shares down 4.6 per cent on Tuesday is sure to rub salt in the wounds of shareholders who were already stinging from a sharp drop in the search group’s share price this year. Many will be anxious to determine whether the data from ComScore, which showed flat growth in the rate at which web surfers click on Google’s ads in January, is merely a blip or a sign of something more ominous.

Setting aside the very real possibility that ComScore’s report was a statistical anomaly, there are two scenarios that might explain a fall-off in the click-through rate for Google ads. Neither of them is encouraging.

The first scenario is that the apparent drop in click-through rate is due to Google’s recent attempts to boost ad quality by cutting down on the number of ‘accidental’ clicks made by users. Google said earlier this month that its crackdown on unintentional clicks had contributed to its disappointing results last quarter. But the magnitude of the drop reported by ComScore - from 27 per cent growth in November to 13 per cent growth in December to decline of 0.3 per cent in January - suggests that the trend could be more severe than previously thought.

A second - and probably less likely - scenario is that the decline was caused by a change in the shopping habits of online consumers. The reasoning is that consumers who are worried about a recession might be less inclined to click on Google’s ads because they have decided to delay online purchases. If this were the reason behind the flat click through rates, it would suggest that Google is more vulnerable to a recession than some have predicted.

With Google’s shares already off almost $300 per share from their November highs, investors are surely hoping there is another explanation for the ComScore numbers - one that leaves them a little more room for optimism.

Tags: google, Internet

February 27th, 2008 in Internet | Permalink