Google, mobile, and the erosion of 95% of ad inventory


So. What happens to Google if consumers really move to cell phones for internet searches, and 10 out of 11 prime ad slots disappear? What would happen to your business if you had to kiss 10 out of 11 customers good-bye?

It’s pretty obvious, folks. Cell phone screens are small. About 95% tinier than the big window on your desk you now use to access the web. Now think, how does Google make money? By selling pay-per-click “sponsored link” ads on its search results home page. The typical Google page has 11 slots for advertisers. The typical mobile phone Google page has one slot. (Yes, there are “next page” positions, but most consumers never click there.)

This is no pie-in-the-sky threat. Vic Gundotra, chief of Google’s mobile operations, said yesterday that web searches from mobile phones should outnumber web searches from traditional computer screens in just a few years. Google made $16.5 billion in revenue in 2007 largely from pay-per-click internet searches, and it still has no viable mobile model in sight. Gundotra also noted that Google has seen 50 times more searches from iPhones than any other mobile handset — meaning touchscreen devices are the tipping point for consumers learning to really adopt the internet via cell phones.

Investors are currently stoked that Google is pushing Android, above, a consortium to develop a touchscreen mobile interface. We think Google is leaping into mobile OS in pure defense, desperately trying to figure out how to get more ad slots onto tiny glassy cell screens. Search will still work brilliantly from your handset. But you’ll find fewer paid results from advertisers when your screen is 95% smaller, and that cuts to the core of Google’s business. Expect to see a new mobile interface soon in which users can flick through a series of horizontal “pages” … and expect to see more visual real estate on mobile get eaten up by ad inventory. Google’s life depends on it.

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