1- Google generated over $5B in revenue, in Q2 nonetheless, historically the weakest quarter.  This means Google’s 2008 will be robust, nonetheless:

2- despite ever growing revenues, Google’s traffic acquisition costs, or TAC, was down.

I could not get historical data, but ZDNet took care of that, and Om Malik was kind enough to point it out:

All factors being equal, as Google’s traffic increases, so should the portion paid out to sites like Ask.com, AOL.com, and the many many sites Google powers ads for, be it via search ads or contextual ads.

However, it’s fair to say that Google pretty much secured and locked up most of the Web’s real estate years ago when it acquired Applied Semantics and Sprinks and Yahoo! fell asleep at the wheel.  Since - oh I’d say 2005 - Google.com has continued to grow rapidly, while Google the Network has plateaued.

That being said, however, Om is dead right when he says:

TAC in general and AdSense specifically are like a black box – no one quite knows how much Google gives out. Sometimes it feels like Google can use this “black box” to come up with pretty much any numbers it wants to.

I tend to agree.  Like all ad networks, Google does not make money for publishers, it makes money for itself.  But given the black box nature of Ad Sense, Google’s TAC has long been used (disclaimer I am adding to please our counsel: the following is 100% Ashkan conspiracy theory talk) as a slush fund to offset weakness in profit margins.

What you are now seeing in that graph, with TAC leveling and balancing off, I think, is no safety margin, which makes Om right, once again, when he says: “the traffic acquisition costs is where I think the real story lies.”

Google tinkering with TAC is by of itself not a big deal… but if we’re talking about warning signs, then how about this:

Look at how TAC flattened the fiscal year after Google’s headcount took off.  From an earlier piece I wrote:

That makes sense:

- Google goes on a hiring binge: throughout 2005, then the bean counters decide to find cost savings somewhere, and where better than TAC, in the ensuing fiscal year, to make sure the year end bottom line figures are met.

- Look at the TAC graph again:

The first seven quarters, TAC falls from 37% to 31%… but then, in the next 7 quarters, TAC only falls from 31% to 28.4%.

To me, that says Google can’t cut any more meat off the bone without losing publishers, partners, or triggering some red flags… or, maybe, it’s too late.

Does anyone else think this is a coincidence?