Listening to Google’s earning report yesterday and reading analysts’ reports afterwards, it’s clear that they agree that that Google’s “golden goose” is in its golden years, the goose being search-driven advertising on the desktop. “The cost-per-click measurement has fallen for several years as people spend more time with mobile phones, which have smaller screens and are harder to place ads on.” As mobile activity continues to grow, desktop traffic is waning. It’s not that Google has a lower share of desktop revenue, it’s just that the entire market is growing smaller.
That said, analysis are unanimous in saying that Facebook has mobile advertising figured out. For Q2 2014 (the last quarter published) Facebook earned 62% of its advertising revenue from mobile. Google does not release figures for mobile ad revenue separately from desktop ad revenue so I can only try to guess why they are not doing as well as Facebook.
- Visitors: While Facebook is clearly in the lead in terms of unique monthly visitors, Google apps aren’t doing that bad. With Youtube, Search, Maps, and Gmail all in the top 10, they more than match Facebook’s number of visitors. Google certainly has the mobile real estate.
- Impressions: Here I wish I had more data to see how Google’s users interact with each app. Facebook says that 63% of its users return daily and that American users spend 40 minutes per day on the service. Those 40 minutes account for account for one in five minutes spent on mobile in the US. That’s an amazing level of engagement.
- Relevance: Facebook knows many, many personal details about its users. Relationship status, kids, age, favorite TV shows, brands, musicians, and so on. They’re also good at matching ads to people based on their personal information. Google, on the other hand, is no slacker collecting personal information but has done better with search-driven advertising. Search indicates intent and Google is good at translating that intent into ad clicks. Is it as good as translating its user information into relevant ads?
- Placement: Facebook is a pro at native advertising and places ads in its news feed that look like content but are sponsored. Google’s app ads don’t seem to be as as well placed as Facebook’s in terms of getting in front of the user.
So I’m guessing that Google is OK on visitors and relevance but not doing as well on impressions and placement.
I read a great post recently by Ben Thompson on PayPal’s Incentive Problem and why it has taken so long to respond to startups like Square and Stripe. Go read it, it’s a valuable insight into how product thinking can become trapped by having a successful solution to a different problem. The bottom line is that PayPal solved peer-to-peer transactions really well but is struggling to solve merchant-customer ones. Why? Because they are trying to fit the peer-to-peer product that they have successfully built to merchant transactions.
Compare PayPal’s payment product to Google’s advertising one. Google has a model that works well on desktop search and Gmail by displaying ads alongside and above the search results and emails. Well, mobile is different. “Phones have smaller screens and are harder to place ads on.” Google’s existing advertising product works so well it’s called the “best Internet business model ever created,” but it doesn’t work well on mobile. Do you scrap it completely or try and fit it into the mobile space? It’s hard to completely scrap a model that works so well.
I don’t think Google is like PayPal. It has too much talent, ingenuity and creativity to simply try push a square peg into a round hole, but it is struggling to monetize mobile. Maybe it should start over.