Will Mobile Advertising be the Beginning of the End for Google?
Smartphones in installed base, usage, and revenue potential are dominating the web. The question is no longer when, where, or how, but only by how much. Despite its efforts to diversify, 90% of Google’s revenue comes from digital advertising. Meanwhile Facebook is grabbing the lion’s share of mobile advertising, threatening Google’s core business. Is 2015 the start of the decline of the Google Empire?
1.DIGITAL ADVERTISING THE ONLY GOOGLE CASH COW
Google is not very transparent about the figures and the split of its revenue. Nevertheless its form10K demonstrates its dangerously high level of dependency on the US digital advertising market. Digital advertising generates 89.5% of Google revenue, and US represents 43% of Google’s total revenue. The other 194 countries represent the remaining 57%. Despite its broad range of innovation from robots to satellites, from cars to Google Glass, Google’s revenue is concentrated around only one stream, from one country. For context, Yahoo! had a similar ratio before its decline.
2. APPLICATIONS EAT ALL
As shared in a post last year, Comscore figures reveal people are using the web less and less. Total Internet audience is stable in the US with 222 million unique monthly visitors, but the average time spent on the web per visitor declined by a scary 17 per cent from February 2013 to February 2014. The latest Comscore study US DIGITAL FUTURE IN FOCUS 2015, confirmed this trend: “More than 3/4ths of all digital consumers (age 18+) are now using both desktop and mobile platforms to access the internet, up from 68 per cent a year ago. Mobile-only internet usage is also becoming more prevalent, driven largely by the 21 per cent of Millennials who are no longer using desktop computers to go online.”
We can expect the US advertising market to follow the same direction, based on e-marketer. Desktop advertising market is projected to decline, while mobile is expected to multiply two and a half times by 2017.
These decline in desktop access will get worse as the application eco system moves beyond smartphones to smartwatches, TVs cars and other connected devices.
3. ANDROID OPERATING SYSTEM IS MAPPING THE WORLD
Android is the absolute leader of mobile operating system worldwide. Expanding from a search engine to an OS on new platforms shows the genius of the Mountain View management team and their ability to execute at a worldwide scale. In the list of successful Google expansions, the Android operating system is strategically the most beautiful. The Android cuckoo strategy (cf : Google’s Brilliantly Cuckoo Strategy: Zero Cost Customer Acquisition) secures the deployment all over the planet of key Google applications from Gmail to YouTube on 1 billion smartphones in 2014.
Despite this success and its $750 million acquisition of Admob six year ago, Google has failed to create the mobile advertising market it needs.
4. FACEBOOK IS GOBBLING UP THE MOBILE ADVERTISING MARKET
Meanwhile, Facebook has managed to do a double transformation.
- From a desktop company, the social network managed to become a mobile company. Its latest earnings report shows that 84% of their Daily Active Users, and 85% of their Monthly Active Users use Facebook on mobile devices. Even more impressive, 38% of their users are mobile-only.
- The company has also managed to transition from a social network to a mobile advertising network. 93% of its revenue is from mobile advertising. The Facebook advertising solution offer now extends far beyond its own website and application.
E-marketer confirmed the success of its evolution, depicted in the graph below:
Facebook is gaining 12.5% of the market share in a market that is growing by 70%. For the same period, Google market share has decreased by 21%.
Looking at News Republic’s applications, we see similar trends. News Republic has seen Facebook Audience Network delivering an e-CPM two times above our average e-cpm worldwide. For certain regions, such as the US, it can be up to seven times higher. In three months, the Facebook Audience Network became the number one advertising solution out of the 12 partners we operate with in North America and Europe. Today Facebook represents 36% of News Republic’s advertising revenue stream worldwide.
5. FACEBOOK ADVERTISING CLEVERNESS
Facebook is setting up the mobile advertising market through three key differentiation factors on the SSP side (supply side platform).
- User Experience: Application user experience is a massive stakeholder of the app eco system. The evolution of the mobile operating system as well as the mobile platform has raised the bar of user experience. The frequency of new releases for each application is striking proof of the attention on user experience. As you can see on the screenshot on the right, Facebook manages to offer native advertising that is very respectful of the design and the user experience. Facebook is not the only one, but it is the first to do it at this scale.
- Scalability: In terms of volume as well as country, Facebook has built an offer to cover North America as well as all of Europe. Few companies are able to offer this international deployment with appropriate volume.
- Profiling: It is indeed the essence of Facebook, and the commitment to the advertiser. The success of the offer has two levels: 1) You do not need to sign in through Facebook. As long as you are a monthly active user of the Facebook application, the company is able to provide personalised ads. 2) The performance is above other solutions, including the contextualised advertising.
The world population in terms of audience and usage switched to mobile. Until now, the advertising eco–system for mobile was slow to grow and did not offer a professional, adequate, and scalable solution for brands. Facebook did its first bold move at a global scale, leading the race. But more than that, it demonstrated an unbelievable ability to move from a large social network to a global advertising network. Google, absolute ruler of digital advertising, must now focus urgently on what is supposed to be its core business. If it does not succeed in being a powerful stakeholder on the mobile advertising market, it will put its core business—and future—at risk.