Google 2009 Annual Report Download - page 60

Growth in our revenues from 2008 to 2009 resulted primarily from growth in advertising revenues generated
by Google web sites, and to a lesser extent, Google Network members’ web sites. Our advertising revenue growth
for Google web sites and Google Network members’ web sites resulted primarily from an increase in the number of
paid clicks through our advertising programs, partially offset by a decrease in the average cost-per-click paid by
our advertisers. In addition, the growth in advertising revenues benefited from more hedging gains recognized
under our foreign exchange risk management program. The increase in the number of paid clicks generated
through our advertising programs was due to an increase in aggregate traffic, certain monetization improvements,
and the continued global expansion of our products, our advertiser base and our user base, as well as an increase in
the number of Google Network members. The decrease in the average cost-per-click paid by our advertisers was
primarily the result of the general strengthening of the U.S. dollar relative to foreign currencies (primarily the British
pound and the Euro), as well as changes in geographical mix due to traffic growth in emerging markets, where
average cost-per-clicks are typically lower, compared to more mature markets. In addition, the decrease in the
average cost-per-click was due to changes in how we believe advertisers managed their advertising costs in
response to the uncertain economic conditions. Specifically, we believe that, as a result of the economic downturn
and continuing economic uncertainty, advertisers, in aggregate, lowered their bids for keywords in response to a
decrease in sales they were able to make per paid click.
Growth in our revenues from 2007 to 2008 resulted primarily from growth in advertising revenues for Google
web sites, and to a lesser extent, Google Network members’ web sites. Our advertising revenue growth for Google
web sites and Google Network members’ web sites resulted primarily from an increase in the number of paid clicks
through our advertising programs, and to a lesser extent, an increase in the average cost-per-click paid by our
advertisers. In addition, the growth in advertising revenues benefited from hedging gains recognized under our
foreign exchange risk management program in 2008. We recognized no such gains in 2007. The increase in the
number of paid clicks generated through our advertising programs was due to an increase in aggregate traffic,
certain monetization improvements, and the continued global expansion of our products, our advertiser base and
our user base, as well as an increase in the number of Google Network members. The increase in the average
cost-per-click paid by our advertisers was partially the result of the general weakening of the U.S. dollar relative to
foreign currencies (primarily the Euro and the Japanese yen).
Improvements in our ability to ultimately monetize increased traffic primarily relate to enhancing the end user
experience, including providing end users with ads that are more relevant to their search queries or to the content
on the Google Network members’ web sites they visit. For instance, these improvements include, providing end
users with multiple site links for certain web search results, reducing the minimum cost-per-click resulting in the
display of more relevant ads, changing the formula used to determine which ads appear at the top of our search
results pages, and changing the clickable area around our AdSense for content text-based ads to only the title and
URL to reduce the number of accidental clicks. In addition, we have further enhanced the accuracy of our quality
scoring, which is our measurement of an ad’s click-through rate and other relevancy factors.
Aggregate paid clicks on Google web sites and Google Network members’ web sites increased approximately
15% from 2008 to 2009 and approximately 18% from 2007 to 2008. Average cost-per-click on Google web sites
and Google Network members’ web sites decreased approximately 7% from 2008 to 2009 and increased
approximately 7% from 2007 to 2008. The rate of change in aggregate paid clicks and average cost-per-click,
and their correlation with the rate of change in revenues, has fluctuated and may fluctuate in the future because of
various factors including the revenue growth rates on our web sites compared to those of our Google Network
members, advertiser competition for keywords, changes in foreign currency exchange rates, seasonality, the fees
advertisers are willing to pay based on how they manage their advertising costs, and general economic conditions.
In addition, traffic growth in emerging markets compared to more mature markets and across various advertising
verticals also contributes to these fluctuations. Changes in aggregate paid clicks and average cost-per-click may
not be indicative of our performance or advertiser experiences in any specific geographic market, vertical, or
industry.
We believe that the increase in the number of paid clicks on Google web sites and Google Network members’
web sites is substantially the result of our commitment to improving the relevance and quality of both our search
results and the advertisements displayed, which we believe results in a better user experience, which in turn results
in more searches, advertisers, and Google Network members and other partners.
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