Excluding Motorola, Google’s gross margins have dropped for six out of the last nine quarters. They peaked at 65.8% in early 2011 but have now dropped to 60.4%. Including the drag from Motorola they are down to 57%.
Gross margins include the effect of price, volume and direct costs of sales. Although sales have grown (see graph below), the pricing Google has been able to obtain (CPC) has fallen. The cause is unknown but there is a strong correlation between the growth in their mobile channel. For their part, management cites mobile as having an effect in reducing CPC though they caution that it’s one of many factors.