Talk of US $1bn annual revenues from mobile ad revenues lured mobiThinking into listening to the Google Q3 earnings call as the information wasn’t published in the press release or the accounts. Amazingly for an earnings call, it was compulsive listening. Despite making substantial disclosures about display, video and mobile advertising, mobile monopolized the agenda. Mobile may just be an emerging market for Google, but the company – and the analysts that ask the questions – clearly believes this is the future.
These disclosures are a one-off for Google, so if you are ever going to listen to an earnings call, this is the one – it is embedded below. If you’ve not got an hour to spare, the highlights follow and some of the meaty bits are transcribed below that.
(mobiThinking comments in brackets; @mins:secs denotes the approximate runtime of the call)
1) Non-text display has a $2.5 billion run rate @16:10, making Google one of the top three display networks in world @50:40 (the lion’s share of this is DoubleClick’s Internet ad network).
2) YouTube has 2 billion monetized views per week @16:10 (compared to 2 billion total views per day @20:20).
3) Mobile has a run rate of over $1billion. @16:10
4) The revenue figures are gross @20:20 (so we assume that Google may share a lot of this revenue with third parties, such as mobile publishers).
5) AdMob revenues appear in both non-text display and mobile revenues this is described as a “small” or “very small” overlap. @17:10 (Remember that Google paid US$750 million for AdMob). But Google expects display to become a “very large component” of the mobile business. @30:00
6) The $1bn is significant because it should get big advertisers interested in mobile. Big advertisers (the ones with $100 million $200 million budgets) have been turned off mobile advertising because there is not enough ad inventory for them to spend their budgets on. @39:40
7) Eric Schmidt believes mobile search will eventually be worth as much or more than PC search because ads will be more targeted @37:50, but Google refused to speculate when mobile ad revenues would overtake Internet ad revenues @50:40.
7) “Mobile search queries have grown five times over the last couple of years”. @16:10.
8) Mobile users are moving from off-line to on-line, which is helping providers of mobile Web and Web applications perform well. @24:00
9) Android has exceeded expectations. Around 200,000 Android handsets are activated per day. @48:30. There are now 90,000 Android applications @24:00. Google expects to make money from Android (it gives it away for free) through search – Android users search twice as much as anything else – and value added services. Revenues may equate to $10 per android phone per year. @26:20.
11) The price of cost per click (CPC) is “a good bit lower” on mobile than the Web. The problem is that it is difficult to consummate a transaction on mobile today due to lack of mobile payment systems and because filling out forms on is a pain. @32:20. This can make mobile ads unattractive to e-commerce vendors today. But new formats such as click-to-call and hyper-local ads deliver better results @33:34. Click-to-call ads are popular with insurance services. Retailers are interested in guiding consumers who search on a relevant product to their nearest store. @39:40 For example, if you search on car rental in the US, you should see an ad for Enterprise Rental Car, click on it and it will tell how far it is away with a link to a map.
(mobiThinking apologizes for any transcribing inaccuracies).
@16.10 Jonathan Rosenberg SVP product management (JR): Mobile is an annualized run rate of over $1bn. This means that the people are accessing our products and services through their mobile phones are adding a billion dollars annually to our existing revenue streams. Clearly this is the future of search on the Internet. More people in more countries coming online from these smartphones. Our mobile search queries have grown five times over the last couple of years and of course a lot more of these queries are coming from Android phones. There are the facts that Patrick has allowed me to say just once non-text display $2.5 billion run rate; YouTube 2 billion monetized views per week; and mobile is over a $1billion added to our business. And Patrick maybe I will Adlib on one more point without asking you, you should know all these businesses are growing. So I hope that this gives you a sense of why we are excited about the incredible emerging businesses at Google and with that I will take it back to Patrick.
@17:14 Patrick Pichette CFO (PR): Thank you Jonathan, before we take your questions, I just want to add one fact regarding the new disclosures that Jonathan just gave you. Obviously this is revenues from two different angles of our business and with it we recognize in some cases some small overlaps so for example the AdMob revenues are obviously included both in the mobile number because it is a mobile product and in display because it is a display product. These are very small but I wish to clarify this out for every body.
@18:00 Questions and answers
@20:10 (Q: Are revenues for display ads gross or net?)
Revenues from ads are gross
@24:00: (Q: will revenues from in app-advertising (such as iAd) impact Google’s search ad revenue?)
Eric Schmidt CEO and Chairman (ES): It doesn’t seem to … Rising tide lifts all boats…
What’s really happening is that all of the companies that are driving the Web and the Web applications are all doing really well. People are moving from off-line to on-line and in course of doing that they are using these systems more. They are searching more, using these apps more etc. From our perspective you have this phenomenal success of Android which is well past anything I would have expected. Looks like being a huge success with the number of partners, devices, open model for access, more innovation, more dynamic, more competition up to 90,000 applications on Android and growing very fast. And those applications and those have search services inside them so do not see them as negative, we see strongly positive.
@26:20 (Q: What advantages does Android give to Google? You were quoted saying that maybe Google you would make $10 per phone – is that so?)
ES: The latter number I made out of thin air, we don’t really have a notion of how big it will be, but it will be pretty big…. We hope Android will become the leading platform in that space and do it with the open source approach…. We give the software away, which is always paradoxical, because people ask how you make money from that. The evidence we has suggest that People who use Android search twice as much as everything else, so clearly there’s more revenue associated with those searches. And if they are using android systems, the revenue that we share in the searches is only shared with the operator, but not with anyone, so again its more lucrative… so on that basis it is hugely profitable for us… then we can layer on value added services which is how you can get to the $10 (in profit per android phone)
@30:01 Nikesh Arora, President, Global Sales Operations and Business Development (NA) … $1bn run rate on mobile split between roughly between search, display and applications….
ES: Nikesh, I think that you have argued that display will be become a very large component of our mobile business
ES: Android store… is not a revenue goal for us.
@32:20 Q: (Q: How do average CPCs on mobile compare to Internet?)
JR: (Recently started smart pricing on the mobile devices. It is the case that the CPCs on mobile devices are a good bit lower, primarily because there isn’t the measurement, there isn’t as much of a consummation of a transaction on mobile devices. People don’t have their credit cards in them; it’s harder to type into them, so the mobile rates remain lower. As payment systems get built into the mobile devices and as people are actually more likely to complete transaction I think you will see those things go up substantially. I think it is also the case on devices like the iPad the activity looks more like activity on a PC… larger window bigger browsers
@33:34 NA: There are some formats that we are starting to introduce that are driving better monetization of the mobile sites, formats like Click to call, and hyper local because people are searching on their mobile devices where want to make a phone and are looking for something in a very local context and there we are starting to see better CPMs and better monetization. Generally we think that is where the trend is we see the monetization is … and clearly we are seeing monetization on the application side.
@34:40 (Q: Will mobile or tablets cannibalize PC ad revenues?)
JR: We do not see cannibalization, we tend to see mobile as very complementary to the desktop. You do some difference in the search patterns, people use mobile at lunch, they use it more in the evenings, they use it more weekends and they use it more on holidays.
@37:50 (Q: what percentage does Google expect from the revenues derived from each Android handset?)
ES: …Handset manufactures and operators are going to make a lot of that money
…Where we are going to make money from advertizing and value-added services on top of the android platform different model. Premature for us to estimate what that will be but if you assume that search monetization on handsets, will become equivalent to PCS and will eventually exceed it, which is my personal view, then it should be highly lucrative, because the customers are using google services they are going to use them more because they are more personal more targeted and so ultimately it should be a very strong revenue stream compared to a PC.
@39:40 (Q: Where are advertisers in their lifecycle of committing money to mobile?)
Nikesh The reason the $1bn number is interesting is that this means that the larger advertisers can get more interested as we can help them spend reasonable amounts of money. It is very hard to go and make a pitch to a large advertiser when the maximum inventory they can offer them is in the 5-10-50,000 $ range especially with advertisers that have $100 million $200 million budgets. To get them interested they need to be able to deploy a reasonable amount of money against this market. The part I am excited about is that the inventory is starting to grow there is diversity in formats people are interested in search based advertising, people are interested in display based advertising, they want to be in the middle of applications and get customer engagement so we are seeing reasonable brought based interest clearly the early adopters are people who can consummate a transaction so insurance services want click to call they want to be able to pitch they want the customer to be able to pick up the phone and call them there people in the local space who want to people to come to their restaurant they want the customer to come show up where they are offering a local service that interest is going up now. The retailers that are actually interested when you are looking for a local JC Penney or a Radio Shack that we can tell you where it is and you can click and find out where it is so interest continues to grow as you look at the local categories as you look at the click to call categories and as payment capabilities start to be built into the phone you will start to see even more of an interest from the e-commerce players
Jonathan: try typing in some things that will generate the hyper local feature we have on mobile search adds if you try for example typing in car rental there’s a very good chance that you will see an enterprise rental car ad that tells you how far away it is to their nearest location half a mile with a link to a map and I think that will give you a sense of how powerful it is.
@48:30: (Q: when is instant available on other devices)
JR: relatively soon. Sometime this fall, but fall lasts a little longer in California.
We stick to 200,000 android handsets activated per day.
Increasingly advertisers set up separate campaigns for mobile.
@50:40: (Q: when will mobile ads overtaking display advertising)
1) We don’t know and 2) we wouldn’t talk about it.
@55:15: NA: I believe the $2.5bn run rate puts us in the top three display networks in world
@57:10: PP: This gives indications of why we believe we are successful in these emerging businesses. These data points are not about giving more information on the coming quarters but to give the confidence that what we are investing in is really fuelling great growth rates and building meaningful businesses.