Tuesday, 25 July 2017 10:12

EU fine, traffic acquisition costs a drag on Google Featured

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Second-quarter profits have been affected at Google and its parent company Alphabet, with the hefty European Union fine levied on the search giant and traffic acquisition costs being two factors responsible.

Alphabet's second-quarter profit came in at US$3.52 billion compared to US$4.88 billion in the corresponding quarter a year ago. Revenue was US$26.01 billion, which exceeded the forecasts by analysts, according to The Wall Street Journal.

In June, the European Commission announced that it was levying a fine of €2.42 billion (US$2.7 billion) on Google for alleged abuse of its search engine dominance to give its own comparison shopping service an advantage.

Google paid out US$5.1 billion in traffic acquisition costs for the quarter, a rise of 28% compared to the corresponding quarter in the previous year.

These costs are paid to other companies for sending users to ads on Google's network; as an example, it pays Apple when iPhone users use Google search. This was the first time in five years that the rise of these costs had been more than the growth in revenue.

Paid clicks, the frequency with which Google users click on ads, rose by 52% year-on-year. But advertisers paid 23% less for each click on an ad.

There may be more EU fines to come, with reports that the EC is contemplating another record fine against the search behemoth over how it pays and limits mobile phone providers who use its Android mobile operating system and Play Store.

A third investigation, into Google's Adsense advertising service, may also bring a fine; the EC is said to have made a preliminary determination that Google has abused its dominant position.

The second-quarter results indicate that the hiccup in March, when several prominent advertisers pulled their ads, after they were reported to be appearing on YouTube videos that contained racist, terrorist and anti-Semitic content, did not affect the flow of money into Alphabet's coffers.

A new stream of revenue for the quarter was from Google's cloud services which grew by 42% to US$3.09 billion. Google has said that revenue from this part of its business could one day exceed what it receives from advertising which comprised 88% of the US$90.27 billion it took in last financial year.

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Sam Varghese

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Sam Varghese has been writing for iTWire since 2006, a year after the site came into existence. For nearly a decade thereafter, he wrote mostly about free and open source software, based on his own use of this genre of software. Since May 2016, he has been writing across many areas of technology. He has been a journalist for nearly 40 years in India (Indian Express and Deccan Herald), the UAE (Khaleej Times) and Australia (Daily Commercial News (now defunct) and The Age). His personal blog is titled Irregular Expression.

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