Why Google Will Remain King of Mobile Advertising

Investors were not happy with Google’s recent 3Q 2014 results, primarily pointing to the continued decline of mobile CPCs (2% y/y). Some critics are circling – is Google vulnerable as mobile continues to grab more screen time away from desktop/laptop computers?

No way. Google will continue to dominate mobile advertising, both in total revenue to the company and in market share of mobile ads. According to my analysis, I predict that Google mobile revenues will grow from about 16% of total revenues or $8.8 billion in 2013 (emarketer estimate) to a whopping 34% of total revenues, or around $22 billion in 2015.

Here are the metrics you should pay attention to when it comes to Google’s mobile health and Google’s mobile potential:

  • Google’s ad costs shrink as Android devices go wild. 40-60% of Google’s mobile ad revenue goes to TAC (Traffic Acquisition Costs), and the Traffic Acquisition Cost for IOS devices is 2X higher than it is for ads served to Android devices. Nearly every analyst projection (including Gigaom Research’s Global mobile operating systems forecast) place Android far ahead of iOS in both current installs and future growth. TAC costs overall will continue to shrink as Android devices serve more Google ads per device.
  • Mobile CPC volume continues to rise. Yes, mobile CPCs are not generating the revenue of their desktop counterparts. Still, across the world, more people are using Google’s broad range of products on mobile, and the volume increases will continue to offset the lower CPCs.
  • Mobile product listing ads growing. Not traditional search ads, product listing ads are better suited in many instances for mobile. Growth is up 17% y/y, and 42% of all product listing ads are on smartphones.
  • Google search will continue to expand outside browser search. Google has been smart to build ad serving capabilities, particularly search, into their increasingly popular native applications, such as Google Maps, Google Shopping, Google+ and of course YouTube. This strategy also reduces TAC and increases Google’s profitability from mobile ads.

Mark Beccue is a veteran independent tech market analyst and principal of Mark Beccue Consulting Inc. He specializes in the business of mobile technology as it becomes embedded in all facets of consumer’s everyday life.