A Highflier Loses Altitude as Google’s Clicks Go Flat

SAN FRANCISCO — Are Internet users clicking on fewer Google ads and putting the company’s growth prospects at risk?

Those questions are weighing on investors, who have cut the value of Google shares by 38 percent since they peaked at $747.24 in early November.

The slide continued Tuesday when Google shares dropped 4.6 percent to close at $464.19, as investors were spooked by a report by the research firm comScore that said clicks on Google ads the United States were flat in January when compared with a year earlier.

In all, Google’s shares have fallen $283 from their peak, wiping out $83 billion in market value, and bringing a aura of vulnerability, at least on Wall Street, to a company that just four months ago seemed unstoppable.

Investors have focused with new intensity on Google’s so-called paid clicks, which grew at 30 percent in the fourth quarter, because the search and advertising giant earns the vast majority of its revenue from text ads, for which it is paid only when users click on them.

Many analysts saw the comScore report as the clearest sign that Google, which does not give forecasts about its future performance, is not impervious to the slowdown that is buffeting the United States economy.

“There are pretty strong signals now that the economic slowdown is having impact on consumers’ behavior online and therefore having a negative impact on Google,” said Clayton Moran, an analyst with the Stanford Group.

Wall Street analysts say that in addition to concerns about the economy, the company is facing a growing number of questions that are weighing on its shares. Has Google gotten so big that its ability to gain further market share is limited? Is its spending out of control? Will it face stronger competition if its two chief rivals, Microsoft and Yahoo, end up merging?

For now, however Google remains a highly profitable company that is outpacing all of its major competitors. Its share of the fast-growing online advertising market in the United States increased to 28 percent last year, from 19 percent in 2005, according to eMarketer, a research firm.

And even some of Google’s biggest critics are reluctant to bet against the company in the long term.

“Everything wrong with Google’s stock is self-inflicted,” said Scott Cleland, an analyst at the Precursor Group, who testified before Congress against Google’s proposed merger with DoubleClick.

Mr. Cleland said the most recent quarter, when Google’s revenue grew at 51 percent while profit rose only 17 percent, was the latest sign that the company was overspending. “If they cut their spending a little, so that they could start gaining earnings momentum again, their stock valuation would return,” he said.

Others point out that the unexpected weakness in “paid clicks” that comScore reported may be the result of deliberate actions taken by Google that may benefit it in the long term.

“I think at least half of it is self-inflicted,” said Jordan Rohan, an analyst with RBC Capital Markets. Mr. Rohan noted that Google has reduced the clickable area in text ads to avoid accidental clicks, which earn it revenue but are of little value to advertisers.

In recent months, Google has taken other measures to improve the usefulness of its ads. For instance, it ended contracts with Web sites whose sole purpose is to carry ads — the kind that Web users are directed to when they mistype a Web address — as those ads tend to deliver poor results for marketers.

Many sophisticated marketers base their search advertising budgets not on the number of clicks they receive, but on the value those clicks create in terms of purchases or sales leads, said Marianne Wolk, an analyst with Susquehanna Financial Group. If Google weeds out poor quality clicks, advertisers may be willing to pay more for every click, Ms. Wolk said.

Google may be cleaning out poor performing sites from its advertising network so it can market the network more effectively to brand advertisers after its acquisition of DoubleClick, which is being reviewed by regulators in Europe, Ms. Wolk said.

“Google has had this history of making major changes to the platform that have had terrific impact on monetization,” Ms. Wolk said. “Given the track record, we will give them the benefit of the doubt.”

Others went as far as to question the accuracy of comScore’s one-month report. During a Jan. 31 conference call to discuss fourth-quarter earnings, Eric E. Schmidt, Google’s chief executive, repeatedly told investors that the company had not been affected by the economic slowdown.

“I am happy to say that we have not yet seen any negative impact from the rumors of future recessions,” Mr. Schmidt said.

Derek Brown, an analyst with Cantor Fitzgerald, said investors appear to be overreacting to data that Mr. Schmidt’s own statements seem to contradict. Mr. Brown noted that while Google’s share decline is significant, other technology stocks that climbed sharply in 2007, like Apple and Research in Motion, are also down sharply, in part, because of concerns about the economy.

Google’s rate of growth has slowed markedly in recent years, from 92 percent in 2005, to 73 percent in 2006 and 56 percent last year. Growth in the fourth quarter was 51 percent, slightly shy of analysts expectations. While many believe that the slowing trend is inevitable given Google’s growing size, others worry it is happening faster than anticipated.

“The fourth quarter didn’t show the company’s growth falling off a cliff, but it did show a slowdown,” said Mr. Moran, of the Stanford Group. “This is a high flying stock that trades a lot on momentum, and the momentum has turned decidedly negative.”

What is Search Engine Optimization?

The term Search Engine Optimization (SEO) used to describe the marketing technique of preparing a website to enhance its chances of being ranked in the top results of a search engine once a relevant search is undertaken. In the past, has also been used as a term for any type of search engine marketing activity, though now the term search engine marketing is more commonly used as an umbrella term. A number of factors are important when optimizing a website, including the content, Meta tags & anchor tags for designing and development of any successful online ranking. And structure of the website's copy and page layout, the HTML meta-tags and the submission process. Well optimized & Top SEO can help a site reach targeted goals much sooner than possibly imagined, simply by adhering to simple rules and guidelines and implementing these experts' methods in such a way that is friendly to all online search engines. SEO campaigns can range from targeting a particular product or service on a website, to the majority of its content and its specialist's subject matter. Generally a client wishes to freely advertise their website on the internet with the most popular search engines in the most efficient and successful possible ways.

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Protecting your Search Engine Ranking...

Your website's ranking on search engines is a vital element of your overall marketing campaign, and there are ways to improve your link popularity through legitimate methods. Unfortunately, the Internet is populated by bands of dishonest webmasters seeking to improve their link popularity by faking out search engines.

The good news is that search engines have figured this out, and are now on guard for "spam" pages and sites that have increased their rankings by artificial methods. When a search engines tracks down such a site, that site is demoted in ranking or completely removed from the search
engine's index.

The bad news is that some high quality, completely above-board sites are being mistaken for these web page criminals. Your page may be in danger of being caught up in the "spam" net and tossed from a search engine's index, even though you have done nothing to deserve such harsh treatment. But there are things you can do - and things you should be sure NOT to do - which will prevent this kind of mis perception.

Link popularity is mostly based on the quality of sites you are linked to. Google pioneered this criteria for assigning website ranking, and virtually all search engines on the Internet now use it. There are legitimate ways to go about increasing your link popularity, but at the same time, you
must be scrupulously careful about which sites you choose to link to. Google frequently imposes penalties on sites that have linked to other sites solely for the purpose of artificially boosting their link popularity. They have actually labeled these links "bad neighborhoods." You can raise a toast to the fact that you cannot be penalized when a bad neighborhood links to your site; penalty happens only when you are the one sending out the link to a bad neighborhood. But you must check, and double-check, all the links that are active on your links page to make sure you haven't linked to a bad neighborhood.

The first thing to check out is whether or not the pages you have linked to have been penalized. The most direct way to do this is to download the Google toolbar at http://toolbar.google.com. You will then see that most pages are given a "Pagerank" which is represented by a sliding green scale on the Google toolbar. Do not link to any site that shows no green at all on the scale. This is especially important when the scale is completely gray. It is more than likely that these pages have been penalized. If you are linked to these pages, you may catch their penalty, and like the flu, it may be difficult to recover from the infection. There is no need to be afraid of linking to sites whose scale shows only a tiny sliver of green on their scale.

These sites have not been penalized, and their links may grow in value and popularity. However, do make sure that you closely monitor these kind of links to ascertain that at some point they do not sustain a penalty once you have linked up to them from your links page.

Another evil trick that illicit webmasters use to artificially boost their link popularity is the use of hidden text. Search engines usually use the words on web pages as a factor in forming their rankings, which means that if the text on your page contains your keywords, you have more of an opportunity to increase your search engine ranking than a page that does not contain text inclusive of keywords.

Some webmasters have gotten around this formula by hiding their keywords in such a way so that they are invisible to any visitors to their site. For example, they have used the keywords but made them the same color as the background color of the page, such as a plethora of white keywords on a white background. You cannot see these words with the human eye - but the eye of search engine spider can spot them easily! A spider is the program search engines use to
index web pages, and when it sees these invisible words, it goes back and boosts that page's link ranking.

Webmasters may be brilliant and sometimes devious, but search engines have figured these tricks out. As soon as a search engine perceive the use of hidden text - splat! the page is penalized.

The downside of this is that sometimes the spider is a bit overzealous and will penalize a page by mistake. For example, if the background color of your page is gray, and you have placed gray text inside a black box, the spider will only take note of the gray text and assume you are employing hidden text. To avoid any risk of false penalty, simply direct your webmaster not to assign the same color to text as the background color of the page - ever!

Another potential problem that can result in a penalty is called "keyword stuffing." It is important to have your keywords appear in the text on your page, but sometimes you
can go a little overboard in your enthusiasm to please those spiders. A search engine uses what is called "Keyphrase Density" to determine if a site is trying to artificially boost their ranking. This is the ratio of keywords to the rest of the words on the page. Search engines assign a limit to the number of times you can use a keyword before it decides you have overdone it and penalizes your site.

This ratio is quite high, so it is difficult to surpass without sounding as if you are stuttering - unless your keyword is part of your company name. If this is the case, it is easy for keyword density to soar. So, if your keyword is "renters insurance," be sure you don't use this phrase in every sentence. Carefully edit the text on your site so that the copy flows naturally and the keyword is not repeated incessantly. A good rule of thumb is your keyword should never appear in more than half the sentences on the page.

The final potential risk factor is known as "cloaking." To those of you who are diligent Trekkies, this concept should be easy to understand. For the rest of you?cloaking is when the server directs a visitor to one page and a search engine spider to a different page. The page the spider sees is "cloaked" because it is invisible to regular traffic, and deliberately set-up to raise the site's search engine ranking. A cloaked page tries to feed the spider everything it needs to rocket that page's ranking to the top of the list.

It is natural that search engines have responded to this act of deception with extreme enmity, imposing steep penalties on these sites. The problem on your end is that sometimes pages are cloaked for legitimate reasons, such as prevention against the theft of code, often referred to as

"pagejacking." This kind of shielding is unnecessary these days due to the use of "off page" elements, such as link popularity, that cannot be stolen.

To be on the safe side, be sure that your webmaster is aware that absolutely no cloaking is acceptable. Make sure the webmaster understands that cloaking of any kind will put your website at great risk.

Just as you must be diligent in increasing your link popularity and your ranking, you must be equally diligent to avoid being unfairly penalized. So be sure to monitor your site closely and avoid any appearance of artificially boosting your rankings.