Today's WSJ (http://online.wsj.com/article/SB120665517932869745.html?mod=hpp_us_whats_news) pointed to a research report showing that Google, the current king of online paid search advertising, suffered from a 3% decline in the number ad clicks it generated in the month of February, marking the second consecutive month of weakness for the firm. Considering that this business is the company's main cash cow, investors have reacted by putting downward pressure on the stock price.
Could this be an indication of a broader downtrend in online advertising? The cause(s) for the decline is still in debate, but there are two likely possibilities. First, we are witnessing some clearly difficult economic times and lower click rates could be an obvious indicator that consumers are less inclined to spend their discretionary income (we've already learned in class that research shows people who click on the paid advertising links tend to be buyers rather than just "window shoppers" or researchers). A second reason could be that declines in ad clicks are a direct result of the company's improvements in its advertisement measuring system. For example, the firm recently took measures to help prevent errant or inadvertent ad clicks by web surfers, which have contributed to overstated measures and statistics.
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