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Google Tries To Tell Us They Are Not A Search Engine
[Image: a3c4057e7d804c79b4bfb3278f4afced.jpg?w=738]

Google (or Alphabet, if you prefer) has long been plagued with a problem with its advertising business: while the number of ads people are clicking on has been growing, the value of those ads has been constantly dropping. Google has always excelled at showing the best ads against a search result, but that business may not last forever as the way people interact with technology starts to change rapidly.
That’s all fine as long as Google can keep those clicks growing and coming along, but as we’ve seen in the case of Apple’s smartphone market share topping out, there are only so many eyeballs to get ads in front of people. And for now, it might be able to keep its stock price in a good place. Google has to keep padding those impressions, or get creative around the way it advertises to its users. Wall Street, as usual, is looking for growth — especially in the largest companies in the world. Apple has more or less been punished (or at least, not rewarded) for its slowing smartphone sales and so far lack of dramatic new growth engines.
And that’s just what the company has been doing. This year, Google unveiled two major new hardware products: the Pixel smartphone and the voice-driven living room assistant Google Home (in addition to a few smaller launches like Google Wifi and an updated Chromecast dongle). These more or less fit into the vision of getting people to engage with Google’s search engine in some active way with the hope that if Google figures out how to get it right, it’ll be able to monetize it down the line.
Whether that will convince Wall Street that Google is able to get beyond the search engine by diversifying its touch points — whether that’s voice, phone, VR or any other new interactive medium — is still yet to be seen. Google’s core competency has always been advertising, and while it might be able to build a business on cloud services (as we’ve seen with Amazon is becoming very successful) or new hardware, Google still has so much data that if it can figure out next-generation advertising products on new mediums it might have a new fantastic growth story for Wall Street.
It needed to at least show that intent to Wall Street. A healthy stock price — and also a story about innovation and looking forward — is important to keep attracting the best talent. Google’s problems are some of the hardest in tech, and it needs to be able to tell a story to not only investors but prospective employees that they can work on those hard problems and also be well-compensated for doing so.
Google is trying to flex the power of its machine learning algorithms, which given the data it has may arguably be the most powerful in the world. That helps Google understand complex queries from products like the Google Assistant — and get people to stick to Google’s voice interface versus Apple’s. Amazon exposed latent demand for a voice-driven interface with the Amazon Echo, and Google is essentially hoping to perfect the experience.
As such, while Google has shown that its advertising business isn’t so challenged, it’s showing that it’s already looking toward the future. And that’s been largely reflected in the company’s share price from Wall Street. Despite some bumps in the road, Google at the very least looks on track to hold steady or end the year up a bit from where it was around a year ago today:
All of Google’s efforts to figure out what the next-generation “search” interface will be will have to eventually play out. The way it works is this: Google’s paid clicks are going up, but the cost-per-click — which is the key metric Wall Street is looking at when it’s looking at the health of Google’s business — is still on the decline. That’s because mobile ads are generally less valuable than the company’s desktop search ads.
Here’s a look at the decline, from the company’s last earnings report:

[Image: screen-shot-2016-12-11-at-1-22-19-pm.png?w=680&h=446]
And meanwhile, the paid clicks, also from the last earnings report:

[Image: screen-shot-2016-12-11-at-1-23-18-pm.png?w=680&h=449]

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