Google under threat – Facebook M and iOS9

Two new services from Google's main rivals are poised to undercut Google's ad revenue


Figure 1: Credit – ZDNetusing 2013 financial data. More recent data looks even more extreme since Google’s sale of Motorola to Lenovo. Ad revenue subsidizes pretty much all of Google’s crazy adventures, from self-driving cars to creepy robots.

Facebook and Apple fired two heavy shots at Google in the past couple weeks.

Facebook announced its message-for-anything service, Facebook M, on August 26th. M is a service that can get you pretty much anything you need via chat, à la GoButler or Magic. You send a message to M in your contact list, and human-assisted artificial intelligence places the order for you or points you in the right direction.

These types of services are a direct threat to Google’s core advertising business because they can supplant Google as the first place people go when they need a product or service. The reason Google Adwords is so successful is because search is a “high-intent” channel. Users type exactly what they are looking for into Google and have a higher likelihood of purchasing something from a targeted ad. This is the opposite of scattershot, passive channels like TV advertising which can be targeted to broad demographics, but nothing near the precision of a specific search term.

If Facebook M succeeds in popularizing the use case of “Want something? Let us get it for you,” it could conceivably become even more high-intent than Google. Additionally, human-assisted AI could be better at delivering what users want than Google’s fabled search algorithm. People could simply place the request with Facebook and completely bypass Google and its ads. Big threat.

Secondly, Apple is allowing ad-blocking apps on the App Store for iOS9 (and they’re already the top-selling apps in the App Store). This one’s pretty simple – mobile recently surpassed desktop in search traffic, and if mobile users aren’t seeing ads in search, apps or display networks because of ad-blocking software, Google is screwed.

To top it off, iOS/iPhone users are far more valuable than Android users because they tend to have greater disposable income. iOS users spend 74% of total app revenue, even though Android holds 83% of smartphone market share.

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Source: Canalys via TIME.

If you extrapolate from iOS users greater willingness to pay for apps, you can trust they’re more willing to pay for stuff in general. And that’s bad news for Google since the people left are less likely to purchase from an ad. We might see Adwords prices drop dramatically over the next year.

Even if Google comes out with an improved version Google Now as expected, it will still be limited to the Android platform with its considerably less valuable usership.

Will be interesting to see how Google responds to these challenges in the weeks and months ahead, and how adoption pans out for Facebook M and adblockers on iOS – developments that could significantly reshape the balance of power in tech and the future of the web for us all.

10 thoughts on “Google under threat – Facebook M and iOS9

  1. N.A

    Great article and interesting insights of how the big players are moving toward human aided AI. Will be a interesting competition to watch. Curious who will benefit in the end…

    1. Junayd Post author

      Yup. Palantir is doing lots of interesting intelligence work for uncle Sam by pairing human analysts with ai. Apparently they’ve got billions in govt contracts.

  2. Mason

    Google is wily though. Even if someone never used the google.com front door and entered searches, google still gets em. That’s because 75% of websites use google analytics. Webmasters love the free-ness of these services, but it’s of course a trojan horse. These google analytics driven websites – again like most websites in the world – drop cookies on your device that still provide for pretty precise targeting. These must feed adwords-powered targeting too no?

    1. Junayd Post author

      That’s very true re: the Facebook M threat. Millions of sites use Google’s display ad network and they can still track/pass you off between websites. And it isn’t as if people will stop using Google entirely – Facebook M will just capture the most high-intent people. So Google will still capture plenty of data.

      As for iOS ad-blocking, you wouldn’t see any ads anywhere in the browsing experience. I don’t think that applies to apps though, so Google’s Admob mobile ad network could still target you.

      The problem is that revenue from Google sites is ~70% of total revenue. This includes GMail and Google Maps, but I’m assuming the vast majority from sponsored ads inside browser search.

    2. Lester

      I generally agree. The kind of ad-blocking apple is enabling now is of the “dumb” view and click variety. The true gold for these guys is in data-mining straight from the apps and OS and retargeting. Google knows this and if they can’t win on the device, they still control big chunks of the web experience through all the services they own.

  3. Sean

    “iOS/iPhone users are far more valuable than Android users because they tend to have greater disposable income.”
    So on the one hand, Android users are poor, but on the other hand, we’re less willing to pay for overpriced goods. 😉

    1. Junayd Post author

      What?! You mean you don’t just love “Kim Kardashian: Hollywood? ” No joke though, that app made $200 mill.

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