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Can Google Change the Communications Dynamic
Pal Moshe Maier has a post today about the prospects of Google offering free calling through their Google phone. While I respect Moshe’s point that Google has the might and long standing success with an advertising supported business model, I still don’t believe that any communications company can survive on the ad supported model. It has less to do with them as a company, but more with the metrics of the ad supported model.
The Clicks Don’t Add Up
According to Google CEO Eric Schmidt, mobile ads are twice as profitable as their standard search result ads. With estimates that tag the overall average revenue per click from a standard search result ad at $.25, that means an average mobile ad might fetch $.50. Given my experience with cellular carriers, their ARPU is typically over $40 per month.
This would mean Google phone users would have to click on an average of 80 ads per month to generate revenues similar to that of traditional cellular carriers. Now that does not seem like much until you consider that the average cellular phone user makes/takes 200 calls per month. That means that almost 50% of the time the user is about to make a call or just after disconnecting they would have to click an ad. I just do not see that happening.
No some will say that user will also use the phone for Internet connectivity, etc, but the truth is that most people do not use this functionality enough to generate the click volume necessary to profitably operate on the ad supported model. While I would love to have free calls, I just don’t see it happening through a carrier with ad supporting calling, even if that carrier is Google.
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That only takes into consideration the per-click model. What about impressions? The screen space on your cell phone is prime real estate.
What if Google can convince ad buyers to pay for placement on the phone’s home screen? You are pretty much guaranteed a “glance” by the user at the home screen prior to making most calls. And also when receiving - we all check the caller id before answering, right?
Then consider that the ads can be targeted based on user info, calling patterns, and maybe location.
True, but how many views does the average cell phone user make? 200, 300? I bet the average cell phone user glances at their phone less than 1,000 times per month, which is the standard for selling display ads online. Targeted ads are great, but those with the big bucks to pay are typically in niches that cellular users are unlikely to look to their phone to find.
To be honest, none of us our average users…we would be considered above average, so for us maybe the metric work better because we use the phone more.
But, most people only open their phone to make a call, to receive a call, or to send/receive text messages. After that they are stuffed in a pocket or purse. The majority of cell phone users do not use all of the functionality that a phone/service offers.
Heck, look at the lagging sales of the iPhone…if folks really wanted functionality and usability, they would have exceed sales predictions.
The truth of the matter remains that no matter how the ads are marketed or sold, the average cellphone user does not use their phone enough to generate enough ad revenues to cover the carriers costs.
If it did, don’t you think they all would be doing it? After all FREE calls is a pretty easy sell.
I tend to agree with Shai. Let’s look down the road 5 years. Our pocket computer will be much more than a phone. It will be another information platform. Who is in a good position to be that information portal? Microsoft? Google? Time will tell. So far Google is my favorite. How exactly they will use the platform and monetize I am not sure, but there are enough possibilities to make it interesting!
“But, most people only open their phone to make a call, to receive a call, or to send/receive text messages.”
I hadn’t even considered all the eyeball time generated by text messaging. Given the huge numbers on text messaging, that adds a lot of value. (The Twitter investors are hoping to monetize the 2 seconds of attention they get when you send or receive your tweets.)
Then add in the oppty for Google to put their other apps front-and-center … GMaps, GTalk, Local Search, Picasa albums, etc. Those are all additional oppty’s to sell ads.
When you add up all those things, you can start closing the gap on the cost of providing cell phone service.
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