The deal made by Google (Nasdaq:GOOG) guaranteeing a minimum payment to social networks, has come back to haunt them this quarter, as they cite slow ad results from them as the key reason for their declining growth in the latest quarter.
“We have found that social networks are not monetising as well as we were expecting,” said George Reyes, chief financial officer.
Evidently Google felt they could overcome what most of us online marketers knew, that social networks aren't a good place to put your advertising, not as long as the networks aren't able to guarantee safe content they can place their ads against.
That should have been obvious to the company, but evidently they had to learn the hard way. That wasn't the only problem either, the company also experienced a sharp decline in clickthroughs on its Internet ads, causing even more of a concern for investors.
What's happening with Google, is investors are starting to wonder if the eventual slowdown in growth that inevitably will happen, is in the early stages of that possibility. Their response to the current slowdown by ditching the stock shows they are starting to believe so.
On a side note, it also shows how smart Rupert Murdoch remains, as he secured the deal with Google which brought MySpace (NYSE:NWS-A) such great revenue through the deal. It also bought him time to experiment with it under that secured income.
Another possible problem nobody talks of much, is whether YouTube will become another bain to the company, as it continues to grow tremendously in use, but not in generating revenue. It has similar advertising/content problems that social networks have, in that it's not considered completely safe to put your ads against.
Google will continue to grow, but their true testing of mettle has probably already began.
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