Google is missing the boat on monetizing mobile

Readers may recall from r from recent news headlines that mobile devices are an incredibly fast-growing computing segment, and that in general, the mobile data consumption on devices has been increasing very quickly for the last several years.

This presents a big problem for the established internet advertising giants out there, who have for over a decade relied on a fairly consistent sort of internet user who searches, retrieves, and inputs information using a browser on their desktop or laptop computer.  In recent years, largely because of the huge rise in popularity of smartphones, this expectation is no longer true.  Users are using their tablets, smartphones, and other devices while on the move, and they’re doing different sorts of things with them than they do on their desktops.  Take a look at the below infographic with data from the Pew Research Center:

Interestingly, but perhaps unsurprisingly, text messaging and taking photos are done by nearly all of users at 92%, followed by a bevy of various uses such as internet browsing, gaming, social networking and tweeting.  While all of these tasks, with the exception of device specific ones like texting and taking photos, may certainly be done just as well on a desktop as on a phone, the mobile device is an entirely different beast, with a different input method, different screen size and configuration, different usage scenarios, and different expectations.  Although the users are the same, what they’re doing and what they expect out of these devices may be very different now than it once was, as our sponsors at mobileZEN specialize in.

What’s interesting is that search giant Google is seemingly so well-positioned to take advantage of this shift.  After all, they are the owners of the #1 mobile operating systems worldwide.  They collect vast amounts of data about their users passively through the devices: their locations, browsing and purchasing habits, age, sex, etc.  They use all of this information presumably to help advertisers position their products and display them to the right customers.  But there’s a problem: last week, Google’s share price dropped by 9% in a single trading day – enough so that Google halted trading early, blaming a leaked earnings report that didn’t paint a great picture.  Google CEO Larry Page blamed the leaked report for the stock price tumble, which became public before the top brass could hold their quarterly conference call and pre-empt the news. 

Still, the numbers paint an interesting picture.  During their April 2012 conference call, there was already a sudden chill in the room that Larry Page and Sergey Brin fumbled about and failed to optimistically paint: Aggregate cost-per-click (CPC) growth was down 12% and down 6% quarter-over-quarter; largely blamed on mobile devices.  Page had absolutely nothing productive to say about it, other than they were “bullish on the future”, but a cohesive actual growth strategy was absolutely nowhere in sight.

Now, four months later, the numbers are looking even worse. While in April 2012, aggregate cost-per-click (that is, what an advertiser is willing to pay Google for an average ad click) was down 12% and down 6% quarter-over-quarter, in October 2012 it is down further to 15% and 3% quarter-over-quarter, even while the number of paid clicks increased by 33%: a likely reflection of the continuing growth of these devices and the increase in ads being shown.

“All of these mobile devices are generating clicks that are just less valuable to advertisers,” said Colin Gillis, an analyst at BGC Partners, who said mobile ad clicks cost half of what clicks on desktop Web ads cost. “The supply part is doing so well, but the supply’s going to continue and continue to grow and they could devalue their inventory.” (NY Times)

Google is certainly not giving up – they are scrambling and working as diligently as they can to keep their ads valuable to advertisers with all sorts of new ideas and iterative improvements.  But one has to wonder, is what’s needed to derive value from the growing mobile user segment not an iterative improvement, but a completely new way of thinking about mobile users?