Google's Mobile Revenue Problem →
Benedict Evans has a great summary on the strategic implications of Android fragmentation. Evans argues that fragmentation isn’t necessarily a problem for Google:
However, Google’s objectives for Android are not directly affected by any of this. Google wants:
- To ensure that as many people as possible have access to the entire web on mobile devices
- To make sure there is not a dominant mobile platform (originally the fear was Microsoft, then Apple) that can block Google services on mobile
In other words, Google’s priorities for its mobile OS are not what Microsoft’s or Apple’s would be. Google wants more people using the web, because web use means web search and search advertising revenue.
This is most definitely Google’s strategy, but it occurs to me that they’re playing a dangerous game. Consider:
- Google has an estimated mobile revenue run rate of $2.5 billion per year, which is about 6.6% of their total revenues for 2011.
- Mobile search accounted for approximately 21% of all search volume in 2011.
- Even if Google controlled all search queries, mobile search is still underperforming for Google compared to desktop search. Based on the figures above, mobile search is roughly four times less valuable than desktop search right now.
- In five years, mobile search is expected to account for more than 50% of all search volume.
All these together account for a big bag of hurt for Google in the future. If Google is making the same amount of money per mobile search in five years as they are now, their projected revenue would be $27.3 billion. Still a lot of money, but that would be 28% less than the $37.9 billion in revenue Google booked last year.
Is Google going to be able to make more money per mobile search? Probably to some extent (though there are some concerns), but I have serious doubts that mobile ad revenue is ever going to be worth as much as desktop, for the same reasons I think mobile advertising is going to be a huge problem for Facebook.
Evans also points out:
Of course, if it wasn’t for the fact that we know Google isn’t evil, I could point to another reason why Google might be unconcerned by fragmentation: it has the effect of reducing app use, and app use cannibalises web use and web search. In other words, Google’s strategic objective is for there to be as few smartphone apps as possible, even on Android, and fragmentation has precisely that effect.
The problem with this is that it eventually leads to users leaving Android for a platform that can run apps. And all those platforms have shown a willingness to squeeze Google out of mobile advertising.
