While Google has made significant gains in mobile search over the past year, it faces a significant challenge going forward from retailers? struggles to streamline mobile purchasing and understand the mobile path to purchase as well as persistently lower cost-per-click rates on mobile.

Interviews with search experts in response to Google?s second quarter results, which were released late yesterday, reveal that a year after Google introduced Enhanced Campaigns to make it easier for marketers to buy search ads across devices, the strategy appears to be driving higher paid search spends. While lower mobile CPC rates cast a shadow over Google?s potential to monetize mobile, the company?s Product Listings Ads have proven to be a boon to its mobile revenue.

?The greatest threat to Google?s mobile ad share is not the embrace of its search engine, but rather online retail infrastructure and data limitations,? said Matt Grebow, group director for paid search at The Search Agency, Los Angeles.   

?In other words, can retailers create a streamlined and simple process for people to make mobile purchases?,? he said. ?And can Google provide ample search data that helps marketers understand the complex?and not always linear?mobile path to purchase?

?Both retailers and the search engines are eager to resolve these issues.?

Paid clicks
Google reported yesterday that the cost-per-click for Google sites decreased approximately 7 percent over the second quarter of 2013 and decreased approximately 2 percent over the first quarter of 2014.

The growth in mobile advertising is often named as one important reason for the decline in CPC rates, as mobile paid search typically cost less than paid search ads on desktop.

The search giant?s consolidated revenues for the quarter ended June 30, 2014, totaled $15.96 billion, an increase of 22 percent from a year ago.  

Google?s net income during the period was $3.42 billion, compared to $3.23 billion in the second quarter of 2013.

Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of its network members, increased approximately 25 percent over the second quarter of 2013 and increased approximately 2 percent over the first quarter of 2014.

The CPC issue
Mobile continues to grow as a percentage of overall paid search, with smartphones accounting for 30 percent of paid search in the first half of 2014 and expected to reach 40 percent by the end of the year, according to new data from Adobe.

The uptick in smart­phone adop­tion and usage can be attrib­uted to bet­ter Wi-Fi avail­abil­ity, greater mobile data band­width, and improved mobile land­ing pages, site and app expe­ri­ences con­ducive to bet­ter facil­i­tate mobile shop­ping, per Adobe.

With the spend on mobile paid search growing, the fact that CPC rates are not means marketers are stepping up their mobile search programs and not just paying more for what they were already doing. 

However, the low CPC rates on mobile are an issue for Google because this means the company is not able to monetize mobile at the same rate it can desktop and with mobile continuing to grow at the expense of desktop, the trend is taking a bite out of Google?s revenue.

Product Listing Ads
One of Google?s biggest success stories of late are Product Listing Ads, which are shopping-related ads that present a series of images that mobile users can easily swipe through.

There was a large jump in mobile clicks on Google?s PLAs during the second quarter highlighting how search growth is being driven by consumers who are continuing to extend their use of mobile devices into daily life, especially shopping.

Per The Search Agency?s State of Paid Search Report for Q2 2014, PLAs on smartphones made big year-over-year gains, reaching 12.7 percent of all PLA clicks. Mobile clicks now account for one-third of all PLA clicks, which suggests that users are increasingly using their smartphones for shopping.

?Google has thoroughly shored up its mobile market share and now accounts for 90 percent of both mobile and tablet clicks,? The Search Agency?s Mr. Grebow said.

?Microsoft has made some valiant moves to bolster its mobile search program?its purchase of Nokia and its deal with Apple to make Bing the de facto search engine for iOS8 being the two most prominent recent examples?but it is also facing significant pressures from its search partner Yahoo, which seems determined to reclaim its mobile search platform,? he said.

?Mobile Product Listing Ads have also proven a tremendous boon to Google?s mobile revenue. We now see mobile PLAs making up about one out of every eight PLA clicks. And as retailers continue to make it easier to buy products over smartphones, this number should only continue to rise.?

While mobile presents users with a growing number of alternatives to Google for conducting a search, the company?s leadership role appears solid.

?Google is not under as much pressure for the mobile search number as many pundits assume,? said Alex Funk, director of global paid media strategy at Covario, San Diego. ?Mobile search activity is growing at an incredible pace.

?Yes, the price per click is still at a heavy discount, but even with desktop searches slowing down in many industries - single digit or flat growth - the mobile revenue number is all incremental revenue at this time because Google has done a better job monetizing desktop queries with larger, more engaging ad units,? he said.

?Going forward, Google?s ability to provide insights, analytics and attribution across devices over the next few quarters will drive both larger budgets and command higher CPCs for marketers that hold the information.?

Final Take
Chantal Tode is senior editor on Mobile Marketer, New York