Source: Flickr user Kham Tran
On the surface it seems like Google already has the booming mobile market sewn up: It is first in the promising world of mobile advertising; Android powers more than half of the world’s smartphones; and its pending acquisition of Motorola will grant it control of both the software and a manufacturing operation of a major smartphone ecosystem — a status only Apple and Research In Motion can boast.
Despite all of that, though, Google faces serious challenges in mobile. I’m not just talking about the fragmentation problems with Android, which seem to get worse by the day (and which led me to say goodbye to Google’s mobile OS). Here are three major challenges for Google, all of which make me wonder, Can the company remain as vital in mobile as it is on the traditional web?
Mobile search is different — and more competitive
As Henry Blodget pointed out, mobile search appears to be less profitable than PC-based search. Mobile search is a rapidly growing space, but the evidence indicates that only queries for local, buy-it-now products result in increased spending compared to Google’s traditional search business. (AT&T said last year that 43 percent of mobile searchers “come through the door” of local businesses, and 22 percent made a purchase.) That makes sense, because a smartphone is an inferior device for doing research and buying a product online.
Google hopes to boost its mobile search revenues by combining that business with its new Offers and Wallet businesses, enabling users to look for nearby deals and consummate transactions through a single app. It’s a compelling proposition that holds appeal for both consumers and businesses, but it’s also a model that is being aggressively pursued by players from eBay (through its PayPal and Where divisions) to Isis. Those efforts will increase the importance of location in mobile search and will eventually add the lucrative component of mobile payments. Google’s local search does a good job by delivering a map of local results including user reviews, but it should leverage its growing Google+ network to automatically provide reviews and recommendations among users in the same circles.
Mobile advertising is still anybody’s ball game
Google’s ever-expanding share of the worldwide online ad market is creeping toward 50 percent, but that dominance doesn’t extend to mobile: Its share of the U.S. mobile ad market is 24 percent; Millennial Media (17 percent) and Apple (15 percent) trail closely behind. And the dance floor teems with countless smaller players like Medialets, HipCricket and JumpTap. Mobile advertising is a more competitive space than the world of traditional online ads because it’s much younger and more fragmented, with several operating systems running countless applications.
Just as mobile search is in its early days, so is mobile advertising. While mobile ad revenues have long been overhyped, new data from eMarketer indicates revenues have finally caught up to — or surpassed — expectations. The landscape will change quickly as ads become more accurately targeted based on consumer behavior, demographics and location and as more advanced smartphones and tablets gain traction. Google faces a big hurdle here in expanding beyond its core business of keywords and links into a broader world of mobile-exclusive features like hyperlocal and click-to-call ads.
One key for Google — or any other player — is to provide advertisers with superior analytics to help it determine return on investment, which remains a stumbling block for mobile advertising. And as the tablet phenomenon blurs the line between traditional PCs and mobile devices, Google should find innovative ways to deliver ads that exploit tablets’ bigger, more colorful touchscreens.
Motorola may be a money pit
Google’s bid to buy Motorola for a hefty $12.5 billion was a bold move and one that could enable it to match Apple’s prowess in developing devices hand in hand with its mobile operating system. (And the tie-up could give Android a much-needed boost in the tablet space.) But the manufacturer posted a fourth-quarter net loss of $80 million, capping a year that saw it bleed $249 million.
Those losses prompted The Guardian this week to ask whether Google will have to start a patent war to get $9 billion in value from Motorola. That may have been Google’s plan, but such a move would be costly and risky, given the uncertainty of patent cases. And that strategy could take years to pay dividends.
No one could have predicted how quickly Google would become a dominant player in mobile, and I’m not suggesting that dominance will fade soon. But the company faces serious challenges in every facet of the mobile industry, where the landscape can change quickly. To succeed, Google must continue to find creative ways to connect mobile users with nearby businesses. It also needs to leverage its growing community of Google+ users to boost mobile ad revenues and use the Motorola acquisition to improve both Android software and hardware. Because mobile dominance can be a fleeting thing. Just ask Nokia or RIM.