Why Android Is Winning The Battles But Google Is Losing The War: Part 3

by John Kirk   |   November 14th, 2012

A Pyrrhic victory (/ˈpɪrɪk/) is a victory with such a devastating cost that it carries the implication that another such victory will ultimately lead to defeat. The phrase “Pyrrhic Victory” is named after King Pyrrhus of Epirus, whose army suffered irreplaceable casualties in defeating the Romans at Heraclea in 280 BC and Asculum in 279 BC during the Pyrrhic War. Someone who wins a Pyrrhic victory has been victorious in some way; however, the heavy toll negates any sense of achievement or profit. The term “Pyrrhic victory” is used as an analogy in fields such as business, politics, and sports to describe struggles that end up ruining the victor. ~ via Wikipedia

Series Schedule:

  • Mon: The Battle for the PC
  • Tue: The Battle for Mobile Phones Won
  • Wed: The War for Mobile Phones Lost
  • Thu: The Battle for Tablets
  • Fri: Picking Your Battles Is As Important as Winning Them
  • 3) The War For Mobile Phones Lost

    Mobile Search Is Not The Same As Desktop Search

    THE PLAN

    Google’s plan was to transport their highly successful desktop search strategy to the phone. This only made sense. Search worked on the desktop. Mobile was the future. Therefore, Google’s future would be search on mobile.

    MARKET SHARE

    Google’s problem is not a lack of market share. eMarketer notes that Google’s share of mobile ad revenue is 55% and it controls 95% of mobile search ads. No, Google’s problem is that search doesn’t work the same on mobile as it does on the PC. In fact, it barely works at all. On the PC, search rules. On the phone, apps rule and search is the court jester.

    SIZE MATTERS

    When it comes to ads, size really do matter. One of Google’s strenghts when advertising on the desktop was that they would unobtrusively place relevant ads next to and above their search results. On a phone, this was not possible. There simply wasn’t enough screen real estate to display both search results and advertisments.

    “Size absolutely does matter,” says Christine Chen, director of communication strategy at Goodby Silverstein & Partners, an ad agency in San Francisco. “If you look at the real estate available on a smartphone, it’s really sad compared to not just banner ads on the Web, but also to TV, print and outdoor advertising.”

    “The evidence is telling: advertisers are willing to pay much more to reach a thousand pairs of eyes gazing upon a computer or tablet than a thousand pairs looking at a smartphone screen.

    INVISIBLE OR IGNORED OR INVASIVE

    Mobile ads are relegated to a tiny portion of the screen and are often invisible or ignored by consumers.

    It’s a double-edged sword that cuts against advertisers both ways. It the ads aren’t big, they’re invisible. If they’re bigger, they’re seen as intrusive.

    Phones are seen as very personal. Users to not want to be tracked. Interestingly, while 60 percent smartphone users do not allow themselves to be tracked only 7 percent of tablet users and 18 percent of PC users reject tracking on their devices.

    NO OPTIMIZATION

    For both technical and privacy reasons, advertisers lost the ability to know who they were advertising to. On the desktop, cookies were the standard. On the phone, such technology was either unavailable or seen and intrusive or even offensive.

    “What makes Web ads so attractive to advertisers is the ability to track actions and optimize accordingly,” . Because a smartphone cannot use the same technology “your ability to track and optimize is much more blunt, or in some cases nonexistent.”

    This makes phone advertisments much less valuable that desktop advertisments. A banner ad on a Web page that costs $3 to $5 for every thousand impressions may cost only 75 cents or $1 for a thousand impressions on a smartphone.

    CONTEXT

    Context is important too. People surf the web for long periods of time on their tablets and on the desktop. They use their phones in bursts. Trying to promote ads when the user is attempting to grab a quick bite of information is annoying and counter-productive.

    ENGAGEMENT

    Finally, the engagement levels for smartphone users are lower, reflecting the slower speeds and smaller screens on smartphones.

    Android Doesn’t Monetize Ads Well

    How much of a problem is all this for Google? Huge. Android is so bad at monetizing ads that a study done on Opera placed Android in third plce behind BlackBerry on value for the money.

    Let me say that again. Android’s ads were in third place. Behind Blackberry.

    Apps Rule

    Google didn’t know that search on the phone wasn’t going to work the same as search on the desktop. Another thing they didn’t know was how important a role apps would play in both search and advertising.

    Smartphones were made for apps. People love to use apps on their smartphones. If they want the time for the next train, they use an app to tell them rather than doing a search. If they want to find a restaurant, they might do a search but they’re even more likely to use an app.

    Google’s problem is that apps are not searchable by web crawlers. If Google can’t search it, they can’t sell ads against it. For Google, apps are like a large and ever expanding black hole in their advertising universe. And as that hole gets bigger and bigger Android’s advertising opportunities get smaller and smaller.

    Android App Apathy

    But Android has apps. 700,000 of them. As many or more than any other operating system. So why isn’t Google making money from the sale of apps and app advertising?

    Take the University Co-op Society, which sells University of Texas merchandise via stores, the web, an m-commerce site, an iPhone app and an Android app. When it comes to m-commerce, Apple rules.

    “IPhone app sales are about 25% of our total mobile business and Android app sales are less than 10%,” says Brian Jewell, vice president of marketing. “That leaves a big chunk of sales that come directly from the mobile site. People entering our address directly or coming to us via a search engine or also possibly clicking through from an e-mail blast.”

    And on the mobile site, Apple dominates. Today, 50% of mobile traffic to the University Co-op Society’s web site stems from iPhones, 25% from iPads, 20% from Android devices and 5% from devices running other mobile operating systems.

    Retailers of all stripes tell similar stories, which is why retailers building mobile apps invariably have started with an iPhone app. Android is an afterthought.

    “Android users do not buy. IPhone users buy,” says David Sasson, president and founder of overstockArt.com.

    Android advocates bristle when confronted with the suggestion that Android owners do not buy content or consume advertising on their mobile phones. They say it is insulting.

    First, I’m not insulting anyone. If anyone is insulting Android owners, it is the facts, not I.

    Second, Android owners are not required to buy aps and content or consume advertising. It doesn’t make them bad people. It just makes them bad customers.

    We can argue all day as to exactly why Android owners aren’t buying. There’s lots of theories. The one thing we can’t argue with is the facts. Android owners aren’t buying. And that single fact turns all the market share numbers and the arguments for Android’s dominance on its head.

    ‘Cause you see – and this is the key point missed by most pundits – developers, advertisers, retailers and others don’t follow unit sales – and they don’t follow customers – they follow the money. And until Android owners are induced to part with more of their money, their overwhelming market share numbers mean little.

    The Future

    The future of mobile advertising doesn’t look any brighter for Google either. Voice search poses a huge threat as voice activated searches, like Siri, simply bypass Google search altogether.

    And then there’s always the ultimate threat that Apple will simply purge Google from its system by making Bing or some other brand the default search engine. It is reported that Google pays Apple $1 billion to be its default search, and earns about $1.3B from searches on Apple mobile devices. In the near-term, it seems unlikely that Apple will remove Google search. But there’s no love lost between the two companies and the long-term remains uncertain. Apple made the difficult and painful decision to remove Google from their Map application. Changing the default search carrier sometime in the future seems like a very real possibility.

    It’s A Trap

    All of Android’s mobile activations don’t add up to a hill of beans if they can’t be monetized. And Android simply isn’t doing the job it was born to do.

    It’s a classic tech trap. Google provides a rapidly growing service that is popular with non-paying users while it constantly becoming less and less valuable to Google’s paying customers – the advertisers.

    The result is pernicious. More and more time, money, energy, attention and resources are devoted to Android while the return – a 15% decline in the price advertisers paid per click on a Google ad – continually becomes less and less.

    Next

    Android is struggling to monetize phones, but there is more to mobile than phones.

    Tomorrow: “The Battle for Tablets”

    John Kirk

    John R. Kirk is a recovering attorney. He has also worked as a financial advisor and a business coach. His love affair with computing started with his purchase of the original Mac in 1985. His primary interest is the field of personal computing (which includes phones, tablets, notebooks and desktops) and his primary focus is on long-term business strategies: What makes a company unique; How do those unique qualities aid or inhibit the success of the company; and why don’t (or can’t) other companies adopt the successful attributes of their competitors?
    • Rich

      Why wasn’t Google aware that something this serious was coming?

      • FalKirk

        First, no one knew that search wasn’t going to work the same on mobile as it did on the desktop. I think one might have anticipated a little drop-off, but the drop-off in profitability was much greater than anyone could have imagined.

        Second, Apps. Who knew that apps were going to become as popular as they are and become as much of a problem for Google as they are? Even Steve Jobs didn’t anticipate the popularity of apps, instead he advocated the use of web apps for the original iPhone.

        Third, platform. Here I think that Google must accept the lion’s share of the blame. I’ll be talking about this a little more tomorrow, but Google seriously let down its partners and itself by not creating the best store with the best content and the best apps and the best experience possible. This did not seem to cause them much trouble when they were expanding their Android phone empire, but the chickens are really coming home to roost now.

        I’ll be talking more about all of this in part 5 of the series: Picking your battles is as important as winning them.

    • ArchivedAnnals

      Are you saying that developing android was a poor move for Google, or that it was done poorly (from a profits perspective)?

      I still think that google is better off with android then without as the data will allow it to transition its search dominance from desktop to mobile. The exact model which allows google to operate in mobile to the same scale as desktop hasn’t been found… but for a large company google pivots pretty quickly.

      Saying that it’s hard to tell if you are criticising them from a shareholder perspective, a shareholder perspective, a strategic perspective, and/or an OEM perspective…

    • alexkhan2000

      Again, good analysis, John. As you say, ads on the phone screen are the most annoying things when they’re easy to ignore on a browser on a large computer monitor. If there is a free app I like that serves up ads, I’ll pay up a dollar or two to get an ad-free version. Also, I use apps and Siri to do searches on mobile now. Google is totally unnecessary. In fact, there isn’t a single Google service I use anymore. I’m totally Google-free and very happy to be so.

      A few years ago, I was using browser-based Gmail to correspond with a colleague in Korea writing in Korean. After a little while, I noticed a bunch of Korean ads in the browser within Gmail related to some of the subjects we were talking about. That really creeped me out. I said, “Okay, that’s it. I’m going to totally phase out Google from my life.” And now I’m there.

      Do you remember that movie ‘Minority Report’ featuring Tom Cruise? To me, one of the most memorable and creepy scenes was when the Cruise character is on the run and as he walks by an “active” billboard in a train station or somewhere like that, the billboard scans his eyes and starts serving up personalized ads to him. This would be the ultimate extension of what Google would like to be: know who you are, where you are, what you’re doing, etc. and serve all that info up to the advertisers. The more personal info they have about you the better so they can charge more. I say, “No thanks!”

    • http://www.facebook.com/profile.php?id=100001035136448 Sihan Zheng

      I believe iPhone’s profitability advantage is only temporarily.

      Because here is the thing, I would say that high end androids are perhaps only 20% of total android sales. AKA, your Galaxy S3s, One Xs, Droid Razrs, Xperia Ts, etc only account for around perhaps 20% of the android market share. The other 80% are low end devices, barely more than feature phones.

      All iPhones are high end devices.

      I would make the assumption, that people with high end devices actually use their devices extensively. People with lower end (free on contract) devices just use it as a glorified feature phone.

      People have to actually buy apps, people have to actually search, for google to make money. 80% of people, who got their android to replace their Motorola Razr because the salesman recommended it, will probably never do those things.

      The iPhone currently holds a higher market share in the high end. However, I can see this change within the next year or two. Why?

      First of all, the Symbian crowd is dying out. Nokia is making a major play trying to convert Symbian users to Windows Phone. I believe that the Symbian users who like Symbian because of Nokia hardware would probably convert to Windows Phone. Symbian also has a huge advantage in true multitasking and file system access. People who like that, AKA, the “tinkerers” would probably convert to Android, not iPhone.

      Blackberry is also dying out. And from what I can see, blackberry users are probably more likely to convert to Android too. The blackberry users that use it for the keyboard are probably going to android, because the iPhone doesn’t have a keyboard. Secondly, enterprise users are probably going to android too, since many android devices have passed security certification, the iPhone hasn’t (whether android is really more secure is arguable, but at least it is certified).

      • Rich

        Saying that two manufacturers with low sales are going to significantly impact the one phone manufacturer with extraordinary sales doesn’t make sense to me. Also, I believe the iPhone *has* passed security certification in the enterprise.

        • steve_wildstrom

          In fact, it is Android, not iOS, that has security problems in the enterprise. There are third-party solutions that bring Android handsets up to snuff, but native Android has major security issues, while iOS’s sandboxing and prohibition on sideloading of apps lets IT managers sleep easier. Also. iOS offers quite good support for Exchange ActiveSync policies; native Android offers none.

          • http://www.facebook.com/profile.php?id=1042792179 Brian M. Monroe

            Also, for iOS there is the fact that most users are on the same version so it is much easier for corporate IT to support. This is huge because unlike on the desktop OS’s (Windows, Mac OS X) there is no easy way to share your screen with help desk to be able to provide remote support. Also, when making up instruction documents that explain how to do things with iOS, it is much easier as it is consistant from iPhone to iPad to iPod Touch and for the most mart from version to version on iOS.

            I know that some people have said that iOS is “borring” but this “borring” OS helps many average users actually use the system without having to consistently learn new ways of doing things just because Microsoft/Google/Samsung/HTC/Motorola and others decide that they need to change things for change sake.

            Basically, Android is the linux on the desktop that the linux crowd has been talking about for the last decade. But, just like linux, many of their users do not pay for software and even when they do it is a fragmented mess. Therefore, software and hardware vendors have a hard time doing quality support.

    • Edwin

      I agree with this analysis. You are spot on that the problem is, Google view advertisers as their main revenue, while Apple see users are their cash cow.
      I am not quite sure how many percent iOs revenue came from iAd, but i bet the most of them came from users buying apps and contents.
      I am user of both platform btw, and i dont click/tap mobile ads on both, but i do bought apps on both platform, but must admit i spent more on iOs rather than in android.
      Android is a lot better now compare to few years ago, with payment is easier now, they also selling contents as well, so at least for me, and while they still catching up, the ecosystem is not that bad.
      One thing still separating both are the 3rd party apps quality.
      For example, in android i can’t find apps that at least equally works like noteshelf or note taker HD. they are both paid app.
      Google must know that their key to android revenue is app developers. At least for now.
      This is where google should work very hard if they are going to match iOs overall revenue