Rivals Slow Google’s Money Machine As Facebook Takes Over

The growth of Google Inc. ’s search-advertising business, the money machine that made the company one of the world’s most valuable, may be slowing as alternatives like Facebook Inc. grab more marketing dollars.

Google reported a 20% increase in third-quarter revenue Thursday. But Carlos Kirjner, an analyst at Bernstein Research, estimated that search-advertising revenue grew about 17% from a year earlier, down from nearly 21% growth in the second quarter.
Scott Devitt, an analyst at Stifel Nicolaus, wrote in a note to clients that Google’s revenue growth appears increasingly to come from non-search businesses, such as its YouTube online-video unit.
A growing share of Google’s revenue also comes from sources other than advertising, such as downloads from the Google Play app store. Such sources accounted for 11% of third-quarter revenue, up from 9% for all of 2013 and 5% in 2012.
That is a concern, Mr. Devitt said, because Google’s other businesses are in general less profitable than its search-advertising business. “Google is a great company but also a company that is in the early stages of a core business maturation,” he wrote.
Google shares fell 2.6% on Friday, leaving them down more than 6% so far this year.
A Google spokesman declined to comment. In a conference call Thursday, Chief Financial Officer Patrick Pichette said the company had benefited from strength in advertising from searches on mobile devices.
Some advertisers say they are shifting spending on digital ads from Google to Facebook, because they believe the social network offers better ways of targeting users. Little Passports, a geography-focused website aimed at children, last year devoted roughly 80% of its online advertising to Google and about 20% to Facebook; this year, those percentages have flipped, with 80% of the spending on Facebook.
Jane Park, chief executive of beauty startup Julep, said Google used to receive the lion’s share of her company’s ad spending. But over the past 12 months Julep has shifted the bulk of its ad dollars to Facebook, where users can share photos of beauty ideas they find appealing and Julep can target ads based on users’ gender, age and interest in cosmetics, among other things. That helps Julep acquire customers for less money, she said.
“Facebook is releasing newer and more powerful ad products and they may be iterating faster than Google at this point,” said Dave Yoo, chief operating officer of 3Q Digital, an online-marketing agency that represents Little Passports, among others.
Facebook declined to comment.
To be sure, Google’s ad revenue still dwarfs Facebook’s, though Facebook is growing faster on its smaller base.
Mr. Yoo said his firm’s four largest clients that advertise on Google and Facebook spent just over $12 million on Google AdWords in the first nine months of 2014, up nearly 20% from just over $10 million in the same period last year. The agency’s Facebook spending for those clients grew more than sevenfold, but totaled only $1.7 million for the same nine months of this year.
Google’s search-ad revenue has slowed before, and then rebounded.
In the second quarter of 2013, Mr. Kirjner said, Google search revenue grew 17%, before notching more than 20% growth in each of the next four quarters.
Matt Ackley, chief marketing officer at ad technology company Marin Software , said Facebook has simplified its ad formats and is drawing more ads because of its popularity on mobile devices. But he said increased spending at Facebook isn’t necessarily at Google’s expense.
“We’re not seeing people take budget out of Google,” Mr. Ackley said. “It’s coming from other sources.”
Write to Alistair Barr at [email protected] and Rolfe Winkler at [email protected]

 The Wall Street Journal