Google’s recent financial results were nothing short of exceptional, despite reporting decreases in its average cost-per-click- (CPC) it was still able to post double-digit increases in revenues. It takes a special kind of company to do so.

There has been a stream of positive white papers and industry reports highlighting the growth of the programmatic ad market, and indeed the future outlook for the sector is largely positive, but are there signs in Google's numbers that a big change is imminent in the market.

So with the Silicon Valley giant recently announcing a string of limits to its formerly ‘free’ online marketing tools, ExchangeWire examines how Google’s fortunes are indicative of the challenges facing the rest of the industry.

Google reported revenues of $16.86bn for the quarter ending 31 December, 2013, up 17% from the period 12 months earlier, last week. A further breakdown of the results reveals Google’s CPC dropped 11% year-on-year (and sequentially by 2%) during the reporting period.

Google, Like The Rest Of The Industry, Continues to Wrestle With Mobile

The decrease in the average CPC suggests Google, much like the rest of the industry, continues to wrestle from the transition from desktop to mobile usage among web users.

Advertisers are less willing to pay such high CPC rates for inventory on such devices, despite the introduction of Google’s Enhanced Campaigns product a little under a year ago.

The implication being that the sheer volume of inventory available on mobile devices means that supply is beginning to outstrip advertiser demand (until more effective methods of targeting mobile device users and post-click targeting are on offer).

However, the decline in Google’s average CPC was offset by the sheer volume of paid clicks which increased approximately 31% over the year before, and 13% over the third quarter of 2013.

Ad Revenues From Google-owned Sites and AdSense

It also announced that revenues generated from ads served on Google-owned sites, such as YouTube, amounted to $10.55bn, or 67% of total Google revenues in this segment during the period - representing a 22% increase from a year earlier.

However, this compares to revenues generated by Google's partner sites – which generated revenues of $3.52bn up 3% year-on-year. So one has to ask, are Google’s tools such as the Google Display Network necessarily generating the required revenues publishers need?

Nikesh Arora, Google’s chief business officer, was quick to highlight the success of Google increased numbers of premium publishers selling inventory through its products such as AdX, AdSense and AdMob. Apparently the volume of ads sold in such a fashion has almost doubled every quarter in the last year, Arora said during the company’s earnings call.

Impressive as the numbers are, if that’s the case then surely investors could have expected a revenue increase of more than 3% year-on-year from this sector of the business?

Are we simply facing the cold, hard economic fact that the increasing volume of inventory available on such exchanges (and others) is commoditising the value of online ad inventory for both Google and publishers alike?

And if the answer to combat such diminishing returns is simply to increase the amount of inventory supply, then we all know that Google is just about the only player in the market to withstand such a dilution of inventory value. Publishers are fully aware of such a situation.

Of course, Google referenced its attempts to improve the efficiency of its performance products, such as the introduction of charging for ads using a viewability metric, and the introduction of efforts (such as Nielsen OCR tagging) to win over further ‘brand spend’).

However, Akesh also highlighted that for the online ad industry to evolve to win further brand spend (where the big advertising budgets usually reside), the measurement industry has to keep apace.

He added: “In terms of the early feedback on Nielsen OCR tagging, I think it's sort of like, it's table stakes you have to have Nielsen OCR or some metric that is common across various media in the market for you to be, for advertisers to be able to measure your effectiveness or your relevancies vis-à-vis somebody else.”

Luckily for Google it has the scale, financial muscle and ability thus influence to (surely) eventually achieve such cross-industry cooperation. But what of smaller ad tech companies that have investors and stakeholders to answer on a quarterly basis?

Google’s Emerging ‘Other Revenue’

Pichette was keen to point out that Google’s “other revenue” grew nearly doubled (99%, growth) year-over-year to $1.6bn and was up 34% from the previous quarter. This was driven mainly by sales from its Google Play Store and sales of its hardware devices such as the Nexus range.

So are we trying to see Google reduce its reliance on ad revenues, and if so does this indicate more frailties in the online advertising market?

Although Google recently offloaded the Motorola handset unit for almost $9bn than it paid for it, pretty much everyone agrees its primary motive for purchasing the ailing handset business back in 2011 was to lay hands on its suite of patents, which could then be used to defend itself in the patent war with Apple and Microsoft. Of course, these patents are still at Google’s disposal.

Plus, we need only look at the verticals Google intends to move into in its recent acquisition history in the last two months alone. In recent weeks, Google has forked out billions of dollars on companies in the robotics (Boston Dynamics), home automation (Nest) and artificial intelligence (DeepMind Technologies) sectors.

What can we discern from Google's mad dash to diversify its business?

What should those in the ad tech business be reading between the lines of its current strategy of using its obscene pile of free cash to diversify the core business?

Google has been dubbed the new GE - and clearly wants to have a range of diversified revenue streams. It might be an indication that it is SLOWLY losing its grip on the online ad space. Instead of one company dominating (like it did in desktop) the move to mobile might herald a more fragmented ad landscape with a number of ad ecosystems (Yahoo, Apple, Facebook, Twitter). This is challenging to a company like Google who has been completely dominant on desktop.

But then it presents more opportunity for smaller players. More fragmentation means more complexity, which ultimately means more specialists required to help navigate this for both advertisers and agencies. And with a greater fragmentation in digital advertising means a greater distribution of ad revenue. The trick will be how both constituent players like agencies (dependent on media spent) and publishers (largely dependant on ads served) can avail of the shift to this new multi-faceted media landscape.

So while there are some negatives (particularly in the mobile ad market) to be drawn from Google's recent quarter on the ad side, Facebook and other are showing that there is growth there. And given the ambition of the Google CEO it was inevitable that Google would mature from being a pure ad business to being the next generation conglomerate. Good for Google, and maybe good for the rest of the online advertising industry as a whole.