Google's CPC [Cost Per Click] is seeing a rapid deceleration in the search market. We do not believe it is appropriate to model Google's search revenue as a product of CPC growth and paid click growth. Instead, CPC should be viewed as an output, rather than an input. That is, incremental dollar flows into the search market are more important; as long as ad dollars continue to flow into the search market, we believe search will be a share gainer and in secular growth. This will benefit Google as it continues growing with and taking share within the search market.
In its Q1 - 2012 form 10-Q, Google called out some of the search ad quality changes that have led to this reduction in CPC growth (and acceleration in paid click growth) including: site links, providing a preview option within search results, and moving a portion of the first line of an ad to the heading to promote the content of the ad. We believe some of these changes, such as site links, have led to an increase in paid click growth, without an accompanying increase in CPC growth. That said, this is not a sign of pricing or demand weakness.