Dive Brief:

• Google’s traffic acquisition costs in Q3 were up 17% year-over-year and 5% from the previous quarter. Acquisition costs as a percentage of site and network revenues grew, reflecting higher acquisition costs for mobile search and programmatic, parent company Alphabet said in a conference call discussing its quarterly earnings. 
• Google saw the aggregate cost-per-click drop 11% from a year ago and 5% from the previous quarter, in part because mobile search continues to grow but paid ads typically command a lower price than on desktop.
• During the call, executives talked up Alphabet’s vision for the next generation of computing, which it believes will be powered by digital assistants and the cloud and will be as significant a transition as the one from desktop to mobile. 

Dive Insight:

Overall, Google’s Q3 results were positive — revenue was up 20% for a total of $22.3 billion — with the primary drivers being mobile search, YouTube, programmatic advertising and Play.

But with mobile driving rising acquisition costs and sluggish cost-per-click rates for Google — two trends that could drag down results for Google as more advertising shifts to mobile — parent company Alphabet is aggressively pushing its vision of a more holistic approach to connected experiences, one that presumably would allow the search giant to boost ad pricing. Key to this vision is Google’s recent introduction of its digital assistant, Google Home, the Pixel smartphone, apps like Allo and Duo, and its cloud business.

“We feel well positioned as we transition to a new era of computing,” Google CEO Sundar Pichai said during the conference call. “This new era is one in which people will experience computing more naturally and seamlessly in the context of their lives, powered by intelligent assistants and the cloud. This transition is as significant as the move over the last decade from desktops to mobile devices.”

As this transition unfolds, Google is seeking out ways to create a more premium mobile advertising experience.

The company reports that snackable, six-second videos ads called bumper ads are working for ad prices by helping brands drive incremental reach and frequency. Universal Pictures is among the brands pairing these shorter videos with standard length ads on YouTube and is seeing strong results on mobile.

Google is also beefing up its measurement capabilities so that marketers can get a better sense of the value of their ads. Ikea recently used Google’s store visits measurement tools: By incorporating store visit data, the retailer was able to see that more than 10% of people who click on their search ads went on to visit a physical store and that the ROI from online ads was five times higher than previously estimated.

Google has a significant advantage in its search prowess as digital experiences become more integrated. However, the company will come up against formidable competitors such as Apple, Amazon and others — and the ultimate winners are still to be determined.