Google: Mobile Ads, Free Phones

Google’s CEO Eric Schmidt tells Reuters one day your phone could be free, subsidized by the growth of mobile advertising. That’s a pretty convenient suggestion for the ad giant to make.

Similar models have been suggested many times before; remember Xero Mobile, the MVNO that was probed by the SEC and then weirdly got bought before it even launched — and don’t forget its gaming step-cousin Gizmondo, which literally crashed and burned. Mobile advertising might be on everyone’s minds (and in their readers) this morning, but the question is not will there be a big mobile ad market one day, but how long would it take for the mobile advertising market to grow large enough to support such an environment?

Google itself isn’t moving too fast. The company seems like it has only just started to test out the mobile ad waters and started making more deals with small carriers like Leap Wireless. At the Mobile 2.0 event last week the Product Manager for Google Mobile, Sumit Agarwal, predicted that in 12 to 18 months there would be a healthy mobile advertising environment to fuel product innovation and mobile ad development. Mobile entrepreneurs, especially those running mobile web-based consumer startups at the conference, would love this to be true, so they can justify the same kind of Web 2.0 ad-based investment boom.

Yeah, everyone is talking about mobile ads, even advertisers, but how many are actually investing money in this area? Online ad investment is still relatively small compared to spending in other mediums. Will it be more than 1.5 years for mobile ads to be common place on cell phones in the U.S. — especially a booming environment that will be the cause of a industry-wide shift of subsidized ad-based cell phones? Yes, handset prices are dropping worldwide, so lots of free or low cost cell phones sometime in the future is a good possibility, but those subsidies being driven by mobile ads within a year won’t happen.

The online ad market took many years to mature into an environment where a good amount of web sites could make decent money. Mobile ads will take just as long. If the mobile ad industry is justifying free phones and a mobile dotcom boom within even three years I would be very surprised. Schmidt didn’t give a time line for mobile ad growth, but that’s what startups and investors really care about. Too early or too late and you miss out. What do you think?