How Can Google and Others Monetize Mobile and Keep Revenue Levels
Gianluigi is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Google's (NASDAQ: GOOG) stock rose 5% shortly after the company reported consolidated revenue of $14.4 billion, up approximately 36% year-over-year. However, Google’s core revenue (revenue ex-Motorola) only grew to $13 billion, indicating growth of 21% year-over-year.
Google’s paid clicks business also posted solid growth increasing 24% YoY and 9% quarter-over-quarter. This led to a 20% increase in advertising revenue.
The ‘cost per click’ (CPC), the rate Google makes money on those clicks, fell 6%, year over year, and rose 2% from Q3′s level. This is interesting because the way how Google’s paid clicks algorithm works is that the more competition, the more an advertiser has to pay (this is a very brief description, there’s a lot to it). I was for five years highly involved in paid search marketing for international companies and for many businesses, the search engine channel was one of the core revenue streams. Now the increase in competition may come from the holiday season in Q4, so it might be temporary. Let’s see what Q1 2013 brings.
Even in financial tough times, internet channels are cost-effective channels and businesses are turning to these instead of the more conventional/offline channels. The benefit for businesses is that Google Adwords (its paid search system) is very transparent and everything is being tracked. Therefore it can be deployed very ROI-driven. Because businesses focus on this ROI, the challenge for Google’s business model is to generate real value or otherwise companies will stop advertising which can end up in a decrease in CPC.
The fact that people are spending more time on Google search and clicking on these paid ads is reflected by the 24% YoY growth.
Motorola and mobile
The year-over-year decline that Google reported in operating income was due to the Motorola division, which reported an operating loss of $353 million and was less than the $527 million loss it posted in Q3. Google's core operating income actually increased to $3.75 billion, which generated a core operating margin of 29%.
With the inclusion of the Motorola division on Google's financials, hardware has become a significant part of the firm's revenue.
Trefis estimates that Mobile search ads contribute approximately 35% to Google's value, primarily because they expect mobile advertising revenue to increase. Even though mobile search ads are expected to only generate 13% of the company's total revenue in 2013, Trefis expects the proportion to increase to 25% by 2016.
Mobile CPC are lower in comparison to desktop CPC’s and this is a challenge now that more and more people use their mobile device to surf the Web. Not only Google, but also Facebook (NASDAQ: FB) has this problem. Facebook has seen a big surge in mobile activity, but not the same revenue from the mobile channel. There's an even bigger gap between mobile usage and monetization for Facebook. And Facebook is not a knowledge platform, Facebook is a social network, which has different usages. Finding information when you're on mobile, and possibly clicking on a paid ad is different than being on Facebook and checking out friends and their activities, which is a lot less conversion-minded. Facebook is dedicating a huge proportion of its resources to improving and monetizing its mobile services, including mobile-ad products. It's ultimately up to the consumer if it is appealing enough.
I think the solution is not to copy paste ads and ads system to the mobile device, but come up with a more user-centric business model. Taking the user as starting point and not the device, creates additional loyalty because it truly helps her/him.
Utility is key
As I elaborated in the article “The Mobile Monetization Conundrum: Google, Apple, Facebook Or… Who Will It Be?” I think the company that will disrupt mobile monetization is the one that can monetize utility.
Mobile is a person’s PPD (Primary Personal Device) so Google can, based on its mission “to organize the world's information and make it universally accessible and useful,” profile itself as an intelligence company. An idea could be to provide information based on personas such as the traveller, or the business person, or the animal lover. Another idea can be to provide B2B intelligence-as-a-service product, providing companies some sort of overview.
The company that has an advantage is LinkedIn (NYSE: LNKD). In my opinion they create such a persona-experience as elaborated above. Monetizing an experience for a specific type of person, in this case a professional, enables multiple income streams.
Linkedin is expected to report earnings on February 7, 2013, based on the latest figures from the third quarter of 2012, it reported a revenue from its marketing solutions of $64 million, a YoY increase of 60 percent.
$60 million in comparison to Google's or Facebook's revenues seems small, but they have a target audience that may never leave, because it's thé business platform. They offer a membership model, companies can advertise, can post job vacancies and buy additional InMails (there private messages). There is a variety in income that makes Linkedin interesting.
Creating specific experiences based on role or persona, to me that has a very good chance in creating viable and sustainable revenue streams.
Paid search won’t be obsolete, society is information hungry, when Google keeps on providing the best possible information in relation to the needs of the consumer/searcher, it will keep growing, be it the way it does now or via mobile, but only different.
GLCuccureddu has no position in any stocks mentioned. The Motley Fool recommends Facebook, Google, and LinkedIn. The Motley Fool owns shares of Google and LinkedIn. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!