Google’s Q1: How weak — and why?

Google’s Q1 results will hit the wires this afternoon (Thursday). They will be watched even more keenly than usual.

In particular, we’ll be interested in the company’s UK performance. The UK is Google’s most advanced outpost outside North America.

During 2007, the company grew its UK revenues by 58%, well ahead of the overall growth rate for online advertising (which the IAB estimates at 38%).

The law of big(ish) numbers says that a repeat performance is unlikely during Q108. By way of background, here are some numbers that need to be beaten:

Google: Reported UK revenues:

Q4 2007: $692m
Q3 2007: $661m
Q2 2007: $600m
Q1 2007: $578m

In the US, Google suffered another ugly month during March. According to Comscore, the number of clicks on the company’s paid search ads in the US rose by just 2.7% last month.

This caps a unpleasant quarter, during which Google’s clickthroughs — according to Comscore — rose by just 1.8%. For comparison, growth was 25% in Q407 and 48% in Q3.

Google isn’t saying much publicly about the Comscore numbers, which have provoked a vast amount of speculation during the past eight weeks. (Some of which you can read here and here.)

The big question is whether the slow growth in clickthroughs will be mirrored by weak revenue growth.

The optimists doubt it. Behind the scenes, they say, Google has been tweaking the way it serves paid search ads. This will result in much higher revenue growth than Comscore’s traffic numbers suggest.

The pessimists say it’s possible that Google will soon have to settle for growth rates below 30% — and less in rapidly-maturing markets like the US and the UK.

Behind all of this lies a fascinating debate about Google’s relative vulnerability to economic hard times.

Do consumers click on paid search ads more or less frequently during a recession? We’re about to find out.

For Big Media, the prospect of a weakened Google is fascinating. Weaker companies typically become more reliant on the goodwill of partners, less able to dictate from a position of strength.

For some, including Gavin O’Reilly of Independent News & Media, who continues to push ACAP, a weakened Google might feel like good news.

But if Google’s paid search business really is starting to reach a plateau, this will only lead to the company redoubling its efforts to generate ad revenues elsewhere.

So far, we’ve only seen hints of what Google has got planned for Doubleclick, the banner ad-serving platform it formally acquired in late March.

Alternatively, Google might decide that it is time to give the online classified market — up by 54% in the UK last year — a run for its money. More aggressively, there’s always the option of really going after the TV industry’s ad revenues.

Elsewhere, Google’s oddly threadbare mobile ad platform could do with a bit of updating, too.

One thing’s for certain: despite its efforts to compete with Apple and Microsoft as a producer of software, Google will never forget the ad business. It’s where the money is.

So keep being worried, Mr O’Reilly. Even if the investors desert the company in droves this afternoon, there’s plenty of life left in the Googleplex.