Google: Desktop Ads Are Powering Mobile Search on iPhones, Android Smartphones

Google CEO Eric Schmidt claims online ads created for the desktop are powering mobile search ads and click-throughs. However, Google does not see mobile search eating up desktop ad share in the future. Also, YouTube is approaching profitability for the search engine. How? Pre-roll and home page branded ads.

Lost in all the hullabaloo over YouTube's approach to profitability following Google's second-quarter earnings call last week was that desktop ads that Google tailored to the mobile search performance do better than ads created specifically for mobile devices.

That's what Google CEO Eric Schmidt told financial analysts during the second-quarter conference call July 16, when Google revealed a 19 percent profit from the second quarter 2008.

"When we showed desktop ads on mobile browsers of iPhone and Android phones, all of a sudden we started seeing a tremendous number of searches and very good click-through rates, so they monetize at a similar level if they're desktop-based ads," Schmidt said. It's also clear to Schmidt that Google isn't exploiting this the way it could.

"It makes sense over time that these ads should perform better [on mobile phones] than on PCs because on a mobile device we know more about the person and have more targeted ads. But we don't do that today."

One analyst asked whether the company was concerned mobile search would one day cannibalize Google's desktop search, a lofty position the company holds to the tune of 65 percent worldwide, according to comScore.

No, the two are complementary, said Jonathan Rosenberg, senior vice president of product management at Google. Rosenberg explained that desktop ads are higher during the week, with many professional knowledge workers searching from their desktops or laptops. Conversely, mobile search volumes soar on the weekends, when people are away from their desktop or laptop computers.

Google also expects display ads will be the next billion-dollar business for the company. Specifically, display ads did well on mobile devices and on YouTube, which Google executives were quite enthusiastic about on the call.

Google acquired YouTube for $1.65 billion in 2006, but the video-sharing site, on which 15 hours of video content are now uploaded by users every minute, has been losing millions of dollars for Google. Financial analysts have been increasingly questioning the viability of the subsidiary as a business.

Google CFO Patrick Pichette said on the call he anticipated YouTube to reach profitably in the "not-too-distant" future. Though he declined to be more specific with dollar amounts, Rosenberg said YouTube is now monetizing billions of views of partner videos every month, and actively promoting featured partner videos on home watch and search pages.

Nikesh Arora, Google's president of global sales operations and business development, said on the call that YouTube has established itself in the ad space now that the YouTube home page is relevant for customers. Accordingly, Google is seeing "significant sell-through" in most markets where Google sells ads for the YouTube home page.

Arora also said he is seeing success in pre-roll advertising on short clips acquired from partners such as Disney. He added that Google is in the process of doing various deals with partners for long-term video.

YouTube's relative success and Google's overall positive earnings news sparked bullish analyst estimates after the call. BroadPoint AmTech analyst Benjamin Schachter raised his firm's 2009 earnings-per-share estimate for Google to $22.21 from $21.00.

"The bottom line is that post the quarterly results we are more optimistic than before that Google is benefiting from a stabilizing macro while improving margins, as well as making progress in some of its key emerging businesses," Schachter wrote in a research note July 17.