Wake up, Google! Part 3

April 9, 2012 | by Cherian Abraham

Editor's note: The following is part 3 of a post from Mobile Payments Today blogger Cherian Abraham. The entire post was first published to his blog. The original post is long, so we have broken it into three parts. Part 1 and Part 2 can be read here and here. Readers who would like to see the post in its natural habitat can visit Mr. Abraham's blog here.

So what will happen to Google Wallet? Will Google let it die? Or can it? Google has certainly displayed a willingness to kill initiatives that have failed to deliver or align with its core strategy (which happens to be social media these days), but I believe it sees the current state of Google Wallet as Act I.

But Google is at an inflection point in its journey to mobile where it understands that it lacks a clear strategy to monetize in offline search as it successfully did once with online search. And what Google Wallet has proven so far is that it faces serious impediments along the last mile in its quest for adoption and scale, and in the end – monetization.

And why must it figure out mobile?
 Despite Android’s parity with iOS among smartphones (around 50 percent), this has not translated in to a meaningful and compelling source of revenue for Google. Reportedly, Google makes about $30 a year from each desktop online user, and its prolific ad business accounts for close to 90% of its revenues. On mobile, its ad revenues have been reported from anywhere between $14 per user (Oracle’s claim) to $7 (Cowen) or all the way down to $1.70 (Google, in response to Oracle). Oracle’s claim can be expected to be inflated to its benefit, and Google’s vice versa, but what is known is that Google has a mobile run rate of $2.5 billion. And that number is not just from Android devices, but iOS, Blackberry, Symbian and Windows Phone devices that run Google’s product suite as well. Charles Arthur of Guardian, who reported that Google’s Android revenue since 2008 is about $550 million concludes that the 315 million iOS devices have actually generated more revenue for Google than Android itself. Ouch.

The above painful reality, as obvious as it is to Google, is not totally lost on Apple either. The paltry $8 (approximately) that Google makes at the behest of Apple (after itself having paid Apple a fee for bundling Google Search on Safari) is a drop in the bucket compared to the $576 (approximately) Apple scored on each iPhone sold in 2011. However, Apple is understandably wary of Google’s growing ad presence and influence inside its walled garden while its own iAd platform continues to flounder. Apple’s Siri powered search, it’s recent shift to OpenStreetMaps from Google Maps are both indicative of a strategy to wean itself and its customers off of Google products sooner rather than later.

Google’s troubles extend beyond the ad revenue non-starter that Android has become. Carriers and handset makers are stepping in to the void, as they see both Google and Apple lagging behind in creating any meaningful revenue from mobile ad delivery. Samsung recently talked up its plans for launching an ad platform, while Sprint is expected to announce its exclusive partnership with an ad platform provider soon.

Now I am not spending ink (nor am I qualified) to tell you why mobile is such a different landscape for pushing ads, owing to the smaller form factor and browsing/search intent on a mobile device vs PC. Further most mobile searches are for weather, location, directions, contacts, or are generally unrelated to commerce. When we search for a product with an intent to buy, we either opt to do so at a PC, or when unable – open up the Amazon app, which offers us a quick snapshot of product detail, reviews along with an appealing price point and next day ship – instant gratification nirvana. More people are starting and finishing their product searches on Amazon, disintermediating Google completely.

But the problem hardly ends there. Even on searches with an intent-to-buy that originate at Google, its revenue is determined by ROI generated per click for its advertisers. And this is easy to measure online, where its easier to separate a strand of transaction and track it from click through to a sale. Its an entirely different problem to solve in retail commerce. There are ample problems today to solve around real-time customer analysis, leveraging multiple contexts including location and brand affinity, coupon delivery and redemption at point of sale, and keeping the whole process end-to-end as frictionless as possible.

And what is the payoff for solving the last mile puzzle? Consider this: Google earns about 80 to 90 cents on a per-click basis from its advertisers. That goes up to $6 to $8 if Google can prove that the click resulted in a sale. And in local commerce, without a mechanism that can track a coupon from delivery through redemption, even if a bulk of its click-thru’s result in a sale, Google has zero visibility beyond delivery and thus is effectively leaving money on the table.

So what’s Google Wallet again? Google Wallet is a mobile payment system developed by Google that allows its users to store credit cards, loyalty cards, and gift cards among other things, as well as redeeming sales promotions on their mobile phone (source: Wikipedia). 

Do you need any more reasons as to why Google Wallet is central to its strategy for monetization and profitability in Android?

So to all who say that Google Wallet is finished, I say this: You are wrong. Google understands what is at stake here. And as curtain falls on Act I, one should not read too much in to its failings, as the best is predictably yet to come.

Topics: Carriers / Operators , Contactless / NFC , Mobile Apps , Mobile/Digital Wallet , Retail , Trends / Statistics

Cherian Abraham / Cherian is a Mobile Payments Advisor with Experian Global Consulting. He is also an advisor to ModoPayments. As a mobile payments veteran and founder of Drop Labs, Cherian has worked with leading banks, retailers, mobile platform providers and startups in this space. Opinions expressed here are strictly his own, not that of Experian.
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