Category Archives: Google

Advertising, App install ads, App stores, Facebook, Google, Google Play, Mobile advertising, Twitter, Yahoo

The limited opportunity for app install ads

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Today, Twitter formally introduced its new mobile app install ads product, joining Facebook and Google in what is becoming a crowded space, with Yahoo apparently waiting in the wings too. I had a quick look at this space in the context of Facebook’s Q1 earnings a few weeks ago, but wanted to drill down deeper, especially now that we know more about app revenue through Google Play. The upshot of all of this is that the opportunity for mobile app install advertising, though growing rapidly, is not big enough to provide a significant revenue stream for all these companies. In other words, there’s gold in them there hills, but not enough to justify the gold rush we’re seeing into this space.

First, a quick primer on mobile app economics. Some of the major app companies are public, and report data themselves, while several third parties also report data on the topic regularly, allowing us to draw a few conclusions:

  • Revenue from advertising is a factor for some apps, but the vast majority of revenue today (likely between 80% and 90%) comes from pay-per-download and in-app purchases. As such, the revenue numbers for the two major stores – Apple’s App Store and Google Play – likely account for a significant proportion of total revenues from apps 1.
  • Developers pay Google, Apple or other stores 30% of their gross revenues from these stores, keeping 70% for themselves. Thus, if they’re to make a living, it will be by keeping their other costs contained within that net revenue figure. That needs to cover development costs, ongoing operating costs (salaries, hosting, care, etc.), and costs to promote apps.
  • Sales and marketing costs for most successful app makers sit between 10% and 20% of gross revenues. App install advertising will come out of this budget, and may indeed make up most of it. This percentage may be significantly higher for apps early in their lifecycle and therefore promoting themselves heavily without yet seeing significant revenue, but it will tend to return to that average over time.
  • Thus, anywhere between 40% and 50% of a typical app developer’s gross revenue may go to the store commission plus sales and marketing, leaving about half for all the other costs of running the business.

Given these facts, let’s look at total gross revenue opportunity from the two major app stores. I’ve added 15% to my estimated gross revenue from the two stores to account for the advertising opportunity.

Total app store revenues from Google Play and App StoreNow, let’s think about the size of the market for mobile app install ads, which as we’ve already said will have to come out of that sales and marketing budget. To put it in context, we’ll compare it to Facebook’s mobile advertising revenues, since Facebook is the largest player in this market today and a substantial proportion of this revenue comes from app-install ads today. In the chart below, I’ve plotted Facebook’s mobile ad revenues against two views of the app install ad opportunity – one a bull case and one a bear case. The bull case assumes that the app install opportunity is 25% of total gross revenues, and adds 15% to store revenues to account for ad revenues. The bear case assumes that the app install opportunity is 15% of gross revenues, and adds a smaller 10% to store revenues to account for ad revenues. My own view is that the bear case is likely closer to reality. Continue reading →

Notes:

  1. For simplicity’s sake, I’m excluding the revenue opportunity through other stores, because they account for a tiny proportion of overall revenues. Adding them in would not significantly affect the numbers. ↩
Android, App stores, Apple, Developer events, Developers, Google, Google I/O

What we learned at I/O about Google’s app revenue

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With both Apple and Google’s developer events behind us now, we have some useful new numbers to play with, specifically on the amount both companies have disbursed to developers. In today’s Google I/O keynote, Google announced that it had paid developers $5 billion over the past year, and that this was 2.5 times what it had paid developers in the previous twelve-month period. This gives us some really good numbers to start plotting overall Google Play developer payments for the first time. The Wall Street Journal also reported today that Google is now retaining almost all of its 30% cut, as does Apple, rather than giving the majority to carriers as it once did. This, in turn, allows us to calculate Google’s revenues from Google Play as well.

Google is catching up quickly in payments to developers

First, a comparison of quarterly developer payments on both platforms. I’ve filled in the blanks with a nice smooth curve on the Google Play numbers, and although my fairly accurate estimates on the iOS side are pretty lumpy too I’ve smoothed that curve as well to make them easier to compare. (The reality is developer payments go up and down because app spending goes up and down as new devices ship and are sold in large numbers around major launches and the holiday period, for example.)

So here’s a chart comparing developer payments from the two companies since the inception of their respective paid app stores:

Google and Apple developer payments Continue reading →

Developer events, Developers, Google, Google I/O

Three questions for Google at I/O

On Wednesday this week, Google kicks of its developer event, Google I/O, completing the trifecta of major developer events with Microsoft’s Build and Apple’s WWDC. These events set the stage for at least the next year for these companies, and in some cases far more. And though they’re targeted at developers, they often tell us a great deal about the companies’ outlook and strategy beyond just those who write for their various platforms. As such, I thought it would be useful to outline three big questions for Google to answer at I/O later this week, and what the answers might mean. I’ll be at I/O for the keynote Wednesday morning at least, and I’ll be sharing my thoughts during the event on Twitter, and afterwards here and at Techpinions.

Which way will the pendulum swing between open and controlled?

Android has famously been described since its release at Google as an open operating system, and is literally an open source operating system at least as far as the AOSP version is concerned. But Google has been steadily chipping away at this openness, by preventing licensees of the Google Mobile Services package from also selling forked versions of Android, by allegedly putting pressure on Samsung to tone down its UI customizations, and by abstracting more of the core features of Android into standalone apps. At the same time, it’s acquired Nest (which is itself now acquiring Dropcam), has developed Google Glass and self-driving cars and released the Chromecast dongle for TVs. All of these products combined Google-owned hardware with Google-owned software, a departure from the platform approach it has taken with Android. Is this new, more controlled approach the shape of things to come, and the way we should think about Google’s approach to the markets it will enter in the coming years, or are they anomalous? Will Google the platform and software company become Google the hardware company, even as it rids itself of by far its biggest hardware unit in the form of Motorola?

How does Google think about integration between its platforms?

Both Microsoft and Apple showcased their approaches to cross-device and cross-platform integration at their respective developer events, and they’re quite different, as I’ve talked about here previously. Both of those companies have two separate operating systems, and they’ve talked about how they bring those together for end users. Microsoft has focused more on a common user interface at the end user layer, and a common kernel and tools at the developer layer, while Apple has focused on a common and integrated user experience and now a common language. With two operating systems of its own in the form of Chrome OS and Android, Google needs to tell the story of how these come together for both users and developers. So far, Google’s integration has been largely focused on its services, which operate not just on any of Google’s platforms but on third-party platforms such as iOS and Windows as well. But as its two major competitors focus on deeper integration between their platforms, Google’s two platforms feel as far apart as they ever have. Will putting them both under one leader in the form of Sundar Pichai change things? What will we see at I/O that demonstrates that Google understands the need to rationalize these two operating systems in some form?

How will Google respond to the privacy gauntlet thrown down by Apple?

At WWDC, Apple focused more than it ever has on its approach to security and privacy, with several explicit digs at Google in the process. HealthKit, HomeKit, iOS and its sandboxing approach, preserved even as Apple adds Extensibility – in all these announcements, Apple reiterated its commitment to securing its users’ data and protecting them from intrusions from both malicious actors and over-zealous marketers. Google has always pushed the boundaries in terms of privacy and security, both policing Android less than Apple polices iOS from an apps perspective and itself intruding ever more on users’ privacy. With the Nest acquisition (and now the Dropcam acquisition) Google has been forced to make clear statements about the separation between these units and Google itself from a data perspective. DuckDuckGo continues to grow rapidly if at a very small scale as an alternative to Google in the search engine world. Reverberations from the Snowden revelations continue to be felt. Samsung continues to build its own enterprise security and device management capabilities on top of Android. How will Google respond to all this? How will it demonstrate that it is creating not only secure platforms but platforms and services which respect user privacy?

Beyond product and feature announcements

I think we’ll see explicit or implicit answers to all these questions at I/O, and those answers will signal broader strategic shifts from Google which will be felt for years to come. Yes, it will make individual product and feature announcements including – in all likelihood – a new version of Android, the first Android Wear products and others. But it’s these big strategic choices that will have far more impact over the long term.

Apple, Apple TV, Developer events, Developers, fragmentation, Google, HealthKit, HomeKit, iOS, iOS 8, iWatch, Microsoft, OS X, Smart home, Smartwatches, Wearables, WWDC, WWDC 2014, Yosemite

Apple resurgent – thoughts on WWDC

Today’s WWDC keynote was a sign of a renewed swagger on the part of Apple, whose executives seemed to relish the deluge of new product announcements they unleashed on developers and on their customers. In the process Apple established or strengthened its competitive positioning against two major foes – Microsoft and Google – while opening itself up in unparalleled ways to developers. Today’s announcements may come to be seen in the same way as Steve Jobs’ original launch of Mac OS X, in that it lays the groundwork in several areas for years of future Apple products.

The demotion of Google continues

Two years ago at WWDC, Apple removed erstwhile close partner Google from the iPhone in two significant areas: as the backend provider for the Maps app, and in the form of the pre-installed YouTube app. But Google’s last major bastion on iOS is its position as the default search engine in Safari, and it’s much harder to remove there. In the sense of typing a query into a search box or address bar in a browser, hitting enter and being presented with a screen of blue links, Google is unrivaled, and Apple knows that. But it has slowly been inserting itself between the user and that search box over the last couple of years, and today’s keynote provided further evidence of Apple’s pre-empting of the Google search on both iOS and OS X devices.

Apple’s more subtle disruption of the user-Google relationship began with the launch of Siri, which began to address some users’ queries without an explicit search, and which uses Wikipedia, Wolfram Alpha and Bing, but not Google, as underlying search providers. And it has continued since then, as more third party services have been layered into Siri, pre-empting the Google search for movie listings, restaurant reservations and sports scores. Today’s keynote added Spotlight search to the list of places where users will now find answers to their queries without the classic search box experience, thus further inserting Apple between users and Google.

This is potentially significant for Google, for which the US continues to be easily its single biggest and most lucrative market, and for which mobile is increasingly important. To the extent that iPhone users, which make over 40% of US smartphone users, start using Apple and its tightly integrated third party services instead of Google, for search, that’s pretty bad news. That isn’t, of course, why Apple is taking these steps, but it’s an unpleasant side effect for Google. And a great way for Apple to participate in the search business without having to match Google in the page-of-blue-links business.

A device for every need, not one device for every need

Continue reading →

Apple, Google, HomeKit, Nest, Smart home, WWDC 2014

Apple and the smart home

The FT reported yesterday that Apple will be announcing some sort of smart home ecosystem next week at WWDC. Interestingly, I’d written about Apple’s potential to do something interesting in the smart home space a couple of months ago on Techpinions, as part of a longer piece about how Apple has the potential to de-fragment various industry sectors, including wearables, payments and the smart home. Monday’s report got me thinking about some of those themes a bit more, and triggered several more thoughts, some of which I shared with Tim Bradshaw of the FT (who broke this news as well as the Apple-Beats news) for his follow-up piece on the subject. I thought I’d write up some of them here in more detail too.

Current state of the smart home market

In a word, fragmented. This market is characterized by a wide range of players with their own approaches to knitting together the various components of what might make up a smart home. No-one does everything end to end, so you’re either stuck with various islands that can’t talk to each other, or reliant on trying to find devices that participate in one of several ecosystems which are emerging. Qualcomm has AllJoyn/AllSeen, the UPnP forum is extending its work with UPnP and DLNA into this area, SmartThings, Staples, AT&T and others are creating their own proprietary ecosystems and so on. But it’s a messy business and no-one really owns it today. If you’ve bought products from several vendors, chances are you’d have to go into your Nest, Belkin and Phillips apps separately to turn your thermostat, home audio system and lights on separately. That’s not exactly user friendly.

But the point here is that the smartphone is the obvious controller for all these various devices, and yet none of the players currently playing in this market has a direct stake in the smartphone market, at either the hardware or OS layer. Qualcomm perhaps comes closest, but is two steps removed from the end user and as such has little direct influence over user behavior. The players in the strongest position here are those who craft smartphone hardware and software.

Apple’s smart home solution likely has several parts

Continue reading →

Earnings, Google, Q1 2014, Uncategorized

Thoughts on Google earnings Q1 2014

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Google just reported its earnings for the first quarter of 2014. Here are a few charts and observations on what they reported.

Motorola’s best quarter in over a year, ironically

First, ironically, it looks like Motorola had its best quarter in quite a while, with revenues of around $1.45 billion in the quarter, compared with $1.0 billion a year ago. It seems as though the boost was caused by strong sales of the Motorola G. But perhaps that just reinforces Google’s rationale for getting out of the business – the low end, emerging markets segment is not where the money is, and that’s the only area where Motorola was likely to be competitive under Google. (note one quarter’s results are missing because Google closed its acquisition in that quarter and as a result only reported a partial quarter in Q2 2012).

Motorola division revenuesThe rest of the analysis below focuses on Google’s core business (i.e. excluding Motorola Mobility). Continue reading →

Adoption, Android, Android versions, fragmentation, Google, Smartphones

Updated Android version charts

Back in December I posted some thoughts on Google’s regularly updated Android developer dashboard, which provides data on the adoption of various flavors of Android as well as screen sizes and densities in use by devices hitting the Google Play store. As we now have several more months’ data to look at, I thought I’d update the charts from that post and revisit some of the trends I saw in evidence back then to see if they still hold.

Android versions in use

Here’s the overview of adoption rates for recent versions of Android, grouped by dessert name: Recent Android versions in use

Let’s test some of the observations I made last time around:

Major versions (i.e. those grouped together by dessert name) tend to take about 12-18 months from launch to hit their peak, usually at around 60-70% of the base

Continue reading →

Broadband, Google, Google Fiber, TV

Thoughts on Google Fiber, from a user

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A few weeks ago,  I had Google Fiber installed at my home in Provo, Utah. Since there are still relatively few of us Google Fiber users out there, I thought I’d share some thoughts on the service from the perspective of a user. This is just a short summary of my experience. I’ve also posted a much longer, deep dive into the whole thing here.

First, the bandwidth side of things. The bandwidth is amazing, but only when you’re hard-wired into it. I get 700Mbit/s down and almost 600Mbit/s upstream pretty consistently when connected via Ethernet into the Network Box Google provides. It’s not quite the gigabit speed advertised, but it’s well over ten times the speed of any other broadband connection I’ve ever had. That makes for very fast iTunes downloads (I downloaded HD movies 3-4GB in size in 1-4 minutes and HD TV shows in well under a minute, and was able to upload a 1GB movie to Vimeo in about two and a half minutes. iTunes topped out at around 180-190Mbit/s, while Vimeo and Flickr seemed to operate at less than that (likely because of limits on processing speed at the other end).

However, all this falls apart somewhat on WiFi, which is what the vast majority of devices in the home will connect over. Right next to the Network Box (which also acts as a WiFi router) I get about a tenth of the download speed compared to being hard-wired, and about a third of the upload speed. Down in the basement, the speed drops further, and down a long hallway in my home office, the Google-provided router is completely useless. 60 feet away, the signal is so poor as to be unusable, and I’ve had to use my own router instead. That router provides 30-40Mbit/s up and down, which is OK but a far cry from gigabit speeds. And that’s a fundamental limitation of Google Fiber (and of WiFi technology) which dramatically reduces the utility on devices like tablets and smartphones, and on many other devices such as laptops which aren’t going to regularly be connected to Ethernet.

For most of what most of us use our devices for – web browsing, watching streaming video and so on – there’s going to be very little difference (at least today) in the experience on reasonably fast standard broadband and Google Fiber. And a 200Mbit/s connection would probably be about as fast as most online services could handle anyway. The other 800Mbit/s simply isn’t going to make a measurable difference.

As for the TV service, it’s totally fine for the basics, and has some clever features in the DVR and (as you might expect) search. But it’s also surprisingly un-Googley. The interface shares little design-wise with any of Google’s other services or platforms. There is no integration with other Google services such as YouTube, Google Play Music or Video and so on. And there’s no remote access to the DVR functions, which is particularly surprising in this day and age. In fact, the only way to control these functions is to be in the house, on the same network as the TV box. It seems odd for Google to be behind in the online/cloud aspects of running a modern TV service, but that’s where it is today.

The Google Fiber service doesn’t offer phone service, at least here in Provo. I suspect this is a regulatory issue, but it’s inconvenient to have to purchase voice separately, especially since landline-class VoIP services sold separately are going to be tied to the one place in the house where you can hardwire a terminal adapter. This was potentially an opportunity to do some interesting things here with Google Voice and so on, but Google seems to have decided the regulatory headaches weren’t worth it.

So what does all this mean? A couple of things. Firstly, the rush to gigabit speeds feels a bit premature, somewhat validating the more slow-and-steady approach we’ve seen from the incumbent players. Yes, we’re going to need increasing amounts of bandwidth over the next few years to support our growing demand for HD and eventually 4K video, but other than that it’s hard to see the applications that drive the need for gigabit speeds as opposed to 50Mbit/s or even 200Mbit/s. Secondly, Google Fiber still feels very much like an experiment, and one that’s disconnected from much of the rest of what Google does. That limits its effectiveness in some ways, and reduces the chances we’ll see Google do something really disruptive on a significantly larger scale. Lastly, WiFi is a big barrier to making these sorts of speeds meaningful in real life: once you get over about 30Mbit/s, most people’s WiFi routers are not going to be able to pass on the benefits to most of the devices in their homes. Future WiFi variants will help with this, but it’ll be a long time before gigabit speeds can be tapped by the devices most of us use most: smartphones and tablets.

Broadband, Google, Google Fiber, TV

Thoughts on Google Fiber, from a user (deep dive)

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A few weeks ago,  I had Google Fiber installed at my home in Provo, Utah. Since there are still relatively few of us Google Fiber users out there, I thought I’d share some thoughts on the service from the perspective of a user. This is going to be a fairly long post, which I’m going to break up into several sections:

However, if you’d like the short version, you can go here.  Continue reading →

Google, Lenovo, Microsoft, Motorola, Nokia

Google and Microsoft go in opposite directions

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With Google’s announcement that it’s offloading the Motorola smartphone business onto Lenovo, we face the intriguing picture of Microsoft and Google apparently moving in opposite directions, with one acquiring a handset business and the other divesting one. What explains this difference between the two companies’ strategies? Is one right, and the other wrong, or does it reflect a fundamental difference in their businesses?

The reality is that, since everyone else now gives them away for free, Microsoft essentially captures 100% of its two core businesses of productivity software and operating systems, and both are likely to shrink. Software may be eating the world from a functionality point of view, but hardware is eating the world from the point of view of revenues. The global market for consumer hardware (smartphones, tablets, PCs and gaming consoles) is about twenty times larger than Microsoft’s revenues from Windows and Office combined. And that explains its organic and inorganic forays into hardware as well as its Xbox business. If you have to choose between hardware and software to build a business in the consumer market, hardware is the way to go. Between Surface, Xbox and Nokia smartphones, Microsoft has around a $10 billion annual revenue stream from hardware already, and Surface and Nokia should grow well in the coming years. 

On the other hand, those aren’t the only two parts of the consumer technology market where you can make money. Consumer content and online services are another massive and growing market, and that’s where Google plays through search and advertising. Google’s addressable market is growing rapidly as the online population expands and as more and more of the worldwide advertising market shifts to channels in which Google competes, namely online and mobile. As such, Google doesn’t face the same existential challenge Microsoft does.

The key to Google’s future growth is threefold: the ongoing competitiveness of its online offerings (hence the DeepMind acquisition), the ongoing success of Android as a platform for Google services on mobile devices, and a continued ability to create vast data sets about its users and about the world (hence the Nest acquisition). The acquisition of Motorola was clearly intended to serve its goals around Android, whether by bolstering its patent position, providing leverage over its OEMs or pioneering features and functionality that would become part of the overall Android experience. But if Google believed it could turn Motorola around, it failed hopelessly. At this point there’s really nothing left to be gained by hanging onto Motorola. At its present scale, and with the dominance of Samsung in Android smartphones, there was no way Motorola on its own could ever have achieved the significant growth or margins that would have allowed to contribute to, rather than detract from, Google’s overall financial performance. It had become a millstone around Google’s neck, pure and simple, and had to be cast off.  If Google was able to extract some concessions from Samsung in return for the sale of Motorola, so much the better.

As the smartphone and tablet markets grow, Google benefits without having any presence in hardware because the majority of Android devices carry embedded Google services. But for Microsoft to benefit more than marginally, it has to be in the hardware business. Both companies see the same trends, but their positions in the market have led them – rightly, I believe – to radically different conclusions about whether they need to be in the hardware business.

As for Lenovo, they’re now in a very strong position to become the third major company in the consumer hardware business after Samsung and Apple. Last quarter they were number four in smartphones, number four in tablets and number one in PCs. It’s one of the few companies in the hardware business that’s grown profits over the last couple of years and the only one to have grown shipments across all three categories. The biggest challenge for Chinese vendors in the smartphone business has been moving beyond the white label business as HTC did a number of years ago. Both Huawei and ZTE have struggled to establish their own brands in the major carriers’ postpaid channels.  But Lenovo will be buying both carrier distribution and a known brand, which should dramatically simplify the process. Moving manufacturing to its facilities in China and taking advantage of domestic scale will also be hugely beneficial. Assuming regulatory approvals come quickly and Lenovo is able to make a quick start, it could quickly leapfrog much more established brands like Sony and LG and take a prominent position in the market.