Is Android bad for Google? Facebook mobile ads edition.

Google has spent billions on Android. With their planned purchase of Motorola Mobility, I estimate the costs of Android to Google to be approaching $20 billion.

Where is the return?

While Android quickly became the most popular smartphone platfrom in the world, thanks to Google's commitment to using its monopoly search profits to buy market share, actual revenues have been minimal.

What if they *always* will be? 

More frightening, for Google and others, but no less unlikely: what if mobile advertising revenues are always minimal *and* are not merely incremental? That is, as hundreds of millions and soon billions of users have smartphones, which we take with us all the time, everywhere, it is reasonable to expect that the smartphone becomes the *primary* platform for advertising. Rather than search for (often static) information on our PCs, at our desks, we instead use our smartphones for real-time, location-aware information that we can take advantage of at that moment at the point of presence. 

In such a world, which I find to be an extremely likely scenario of our very near future, advertising quickly evaporates on the PC and is shfted to the smartphone. Which may mean: Google is screwed. At least, Google as it exists today.

All Google's actions with respect to Android, the mounting costs of Android, their depressing, duplicitous statements re "managed" traffic instead of net neutrality, and their perversion of terms like "open" and "standards" all make sense when you realize that Google views the smartphone as I do. That is, as the future of the web and (nearly) all our web-based activities.

Except, there is simply no guarantee that advertising revenues on the smartphone are incremental. I believe that within only a few short years, smartphone 'search' and advertising will *replace* the bulk of search and advertising generated fom the PC.

In Q3 2011, Google's quarterly revenues were nearly $10 billion. When providing its revenue numbers, Google noted that, at that time, (officially sanctioned) Android was already at about 200 million activations and that *annual* "mobile" (not Android) revenues were nearing $2.5 billion.

Which is awesome, really, except that...how long will "mobile" revenues remain merely incremental?

Let's do the math!

$10 billion in revenues a quarter, for a good quarter, works out to, for this example: $40 billion in annual revenues. Which is amazing, really. Although, no matter how well Google does, no matter how many companies, such as Zagat or Travelocity, say, that they buy up, to suck out more or all PC-based search revenues, the overall PC market is not growing. Similarly, what *new* PC-based services and applications have you used this year? In the past two years, say? 

On the PC, we have reached Peak Google, I suspect. 

Thus, despite all the Lady Gaga advertisements by Google to get us to spend more and more time on their PC-first properties, such as Google+ and Youtube, nearly all Google's revenues come from (PC) search, still, and these may be nearing maximization.  Which would be, then, about $40 billion or so in annual revenues.

Plus, of course, the *incremental* mobile revenues. And mobile, as we all know, is growing rapidly.

Again, however, I am not convinced that mobile revenues will remain incremental. As more of us adopt smartphones, as more of us use smartphones, as more and more uses and use cases develop for the smartphone, our time and attention on the PC, and the value of static, stationary PC-based search can be expected to decline. Significantly.

Mobile revenues will have to ultimately replace the lost PC revenues.

Can they?

Possibly, yes. After all, on our smartphones we may search and/or discover and/or be informed of some deal, some opportunity, some information that is far more relevant than anything the PC could ever provide. Real-time, location-aware, able to be utilized at that very moment. In theory, because of its potential to provide more relevant and timely results, mobile 'advertising' (which includes deals, click-to-calls, timely offers, location, ad-hoc groups etc.) could become more valuable than PC search/advertising ever was.

But that does not mean more money for Google. 

Google, for all its brainpower, for all its hard work, stumbled upon a business model predicated upon a billion PC users, that made it rich beyond imagination. But the PC is dying. There is simply no guarantee that mobile revenues, in all forms, will *ever equal* PC based revenues. 

Consider Twitter. It is a phenomenal success, with upwards of 100 million active users and possibly our best source for guaging real-time human interest in people, products, stories and events. Their revenues are a pittance.

What of Facebook? They have quickly become the most popular landing site on our PC, are rapidly approaching *1 billion* users, and is about the most popular 'app' on Android and iPhone and Windows Phone. Better, they are remaking how people (and brands and companies) connect with one another.

Facebook will likely not even generate $5 billion in total revenues for this year. 

Do you believe Google is so much more important to people than Facebook? $5 billion vs $40 billion more important? Is Google that much better managed? 

There is nothing that suggests Google can continue to generate tens of billions in revenue -- and shockingly high profit margins -- on the PC, forever. Likewise, there is also nothing, yet, that reveals itself as a *replacement* for these tens of billions dollars in revenues.

Gartner predicts that worldwide mobile advertising revenue will grow from $1.6 billion in 2010 to $20 billion in 2015. Less than half of what Google generates this year. And unlike with PC advertising, there is little to suggest, despite the market share of Android, that Google will effectively own mobile advertising as it has PC advertising.

Apple's iAd, for example, though poorly executed, will likely own a good slice of that revenue. Don't forget, currently, and despite Android's market share, the majority of Google mobile searches are generated by iPhone users. Moreover, Gartner's predicted number includes tablets. For now, tablets effectively means Apple's iPad.

Likewise, the world's most popular app, Facebook, is gearing up to roll out its own mobile advertising platfrom. Via Ad Age:

Facebook plans its first push into mobile advertising by the end of March, giving the company a fresh source of revenue ahead of a possible initial public offering, according to two people with knowledge of the matter.

An idea being considered is putting Facebook's Sponsored Stories ads, which feature friends' interactions with brands, within the mobile News Feed, said the sources, who declined to be identified because the plans aren't public. The News Feed lets users view status updates, photos and other content.

Facebook, the world's most popular social-networking service, would be playing catch-up in mobile advertising to Google, Apple and Millennial Media Facebook's potential advantage is that by gathering so much information about a person's interests and associates, it can help advertisers target potential customers more directly than mobile web browsers or applications.

Facebook, which has more than 800 million users, is increasing its focus on mobile technology with the aim of taking advantage of the shift to smartphones and tablets. The company expects its next 1 billion users to come mainly from mobile devices rather than desktop computers. More than 350 million users already access Facebook through mobile devices, according to the site.

"More than 350 million" mobile users and currently effecitvely zero revenues. 

Show me the money!

Google is, in my view, very capable, very resourceful, is very wealthy and very well managed. They are also, in my view, doing an excellent job of funneling their monopoly PC search profits into other areas, either because these show revenue promise or Google wants to kill off the competition and maximize its PC-based revenues. Think of what they are doing to Yelp, hotel listsings and the like; how they are spending untold billions on Google+ to hamper the potential of Twitter and Facebook and they way they religiously copy iPhone in design and function.

No one can fault them for not trying.

That said, I contend that analysts are missing the big picture with respect to Google's future. The many threats against Google, from Apple to Zaarly, from Bing to Yelp, from Facebook, Twitter et al. These are, however, even, combined, *less a threat* than what I consider to be the inevitable: the end of the PC's relevance. 

We are at Peak Google.

Even as Google becomes embedded in more facets of our (digital) lives, and even as they put up more and more gateways between us and the bits we seek, the source of nearly all their wealth is becoming marginalized.