Can Google's search and display businesses compete as native in-stream advertising takes hold on mobile?
Google still holds the lion’s share of mobile ad dollars, but that grip has been slipping. Google is set to lose 13 percent of its mobile ad market share globally this year, according to estimates released by eMarketer. Facebook, on the other hand, is projected to see its market share increase by nearly 11 percent. Twitter and Yahoo are also expected to post mobile ad share gains this year. (And, it bears pointing out that both Alibaba and Baidu saws significant surges in mobile ad share this year.)
There is growing concern that Google won’t be able to strike gold with ads on mobile as it did when desktops ruled. Clicks on ads seem to be slowing and the prices of those ads is falling. Analysts argue that Google isn’t holding it’s own in the new app-based mobile world in which in-stream ads on social media apps can be targeted to audiences and delivered throughout users’ infinite-scrolling news feeds.
Yet, when I talk to marketers about how Google search, in particular, is performing compared to social on mobile the picture isn’t so glum. In fact it’s pretty rosy.
“We have seen enormous growth in mobile search and social does not yet to see any effect on the search spend. Users will continue to use mobile search for connecting with brands, which can work very well in conjunction with in stream mobile ads,” said Roger Barnette, President of marketing technology firm, Ignition One.
“Our results in the last year continue to show anything search related outperforming social,” Hamid Saify Vice President, Search Marketing & Auction Media at Deutsch told me. He says Mobile will account for larger piece of ad budgets next year as a result of strong performance.
Next year, eMarketer estimates more than half of search ad spend will go to mobile devices. Barnette says they are close to seeing this happening at Ignition One. “In Q3 2014, we already saw mobile and tablet were 33 percent of the total spend. The holiday weekend saw that number at 43 percent,” says Barnette.
Yet, with 2015 appearing to be the first year in which mobile will draw more ad dollars than desktop, Google faces more competition for digital budgets than ever. Here’s a look at seven challenging areas facing the company’s search and display businesses.
Challenge #1: Fewer Ads On Mobile Means Declining Click Volume
“The struggle Google will always have in mobile search is ad real estate. In a social context, news feeds/timelines can be swiped down to infinity, which constantly presents in-steam mobile advertisers additional opportunities to have ads seen. In Google search, you’re really at the top on page 1, or you’re not there,” says Saify.
Jason Hartley, Search Practice Lead at digital agency 360i, echoed this sentiment. In a phone conversation, Hartley said he’s hoping to see more innovation in this area, whether it’s swipe-able text ads in the vein of product listing ads on mobile or some other changes that give advertisers more visibility on mobile.
It is worth noting that on Bing mobile search results, Microsoft routinely displays as many as five text ads at the top of the page. Perhaps we’ll see Google ad more ads to the top of the page. However, if you use Siri to get search results (from Bing) on your iPhone, there are no ads at all. And this brings up another challenge for search: where will the advertising opportunities — or other monetization — will be in voice search, wearables, entertainment consoles and other emerging technologies in which search is being incorporated? Nobody has figured that out yet.
At 17 percent, Google’s overall click volume growth in Q3 was slower than it has been since 2010. Google started breaking out click volume changes by Google-owned sites and Network sites in Q2 2014. With just two quarters to look at, we can’t see any trends, of course, but the anecdotal picture isn’t pretty. Click growth on Google sites slowed from a 33 percent year-over-year increase in Q2 to 24 percent in Q3. Network click growth also declined.
Google’s slowing click volume growth could be the real indicator that mobile is hurting Google, rather than the declining cost-per-click. Mobile CPCs are going up in mature markets like the US, and will likely continue to do so as Google gets better at measuring mobile click ad contributions to sales. But, only so many ad impressions and clicks can come from Google’s mobile search results in their current formats.
Challenge #2: Native Is The New Normal For Mobile Display
With infinite scrolling, in-stream ads have nearly limitless inventory potential. Social media companies like Facebook, Facebook-owned Instagram, Twitter and Pinterest have transformed the idea of display advertising from distinct ad units to ads immersed within the content users are engaging in. Marissa Mayer quickly got Yahoo into native with stream ads after coming on as CEO and then set up a distinct ad marketplace for mobile search and native ads, Yahoo Gemini. Google, which pioneered native with its search ads, has no native display footing. The company recently released mobile updates for its Lightbox ads, but these are still banners that expand to full-screen view.
Native ads also allow any kind of content to be repurposed and amplified. Video is going to just keep getting bigger and bigger on mobile. Facebook is challenging Google in this area, and brands are already uploading more videos directly to Facebook than to YouTube.
And native in-stream ads aren’t just limited to the big social media players anymore. Companies like OpenX and Sharethrough enable publishers to dynamically serve ads within their mobile feeds without having to do much more than adding some code. It would not be surprising if Google is eying an acquisition in this space.
Challenge #3: Audience Targeting Is Taking Hold
Google’s ad network business is under great threat now that Facebook Audience Network has rolled out globally. FAN, which by early accounts is performing well, allows marketers to harness all of the audience targeting available through Facebook and use it to target ads on mobile apps outside of Facebook. The ad formats available are banner, interstitial and yes, native. Amazon is rumored to be working on its own AdWords competitor that would displace the Google ads that run on Amazon.com and perhaps include an ad network. Amazon would presumably give advertisers audience targeting capabilities based on its unmatched vault of consumer product search and purchasing data.
These two examples illustrate another challenge for Google — taking targeting beyond search intent and contextual relevancy. Audience targeting, thanks to Facebook, is what advertisers want. Even in the retargeting space, Facebook outplays Google by letting advertisers overlay first party data targeting with audience insights from Facebook.
A huge part of Facebook’s success has come from its targeting capabilities and custom audiences. People-based marketing rather than persona-or search intent-based is Facebook’s promise.
Challenge #4: Apps Are Fragmenting Attention And Ad Budgets
Apps are the primary places we spend time on our phones. Engagement time spent on the mobile web is flat.
Hartley warns that apps pose a threat to search and Google specifically. “I don’t think Google has a problem yet, but I think mobile is going to be super fragmented. Apps will cut into their market share; if they aren’t smart about it, they could have a problem in 2017, 2018.”
Facebook captures roughly 17 percent of all app time, according to Flurry. It’s the top visited app in the US according to comScore and has 40 percent more unique visitors than the Google Search app, which ranks number four in unique visitors.
Google’s search app traffic rarely gets acknowledged in analysis of Google’s mobile business. The typical argument is that people don’t open their web browsers to search because they are using apps. Well, clearly one of those apps a lot of users go to is Google Search. Google’s apps for YouTube, Google Play, Google Maps and Gmail each rank among the top seven apps on comScore’s list. All present ad opportunities.
Still, Google sat on the sidelines, theoretically investing in Google+ while other companies diversified in social apps and mobile advertising tech: Facebook acquired Instragram and WhatsApp and Yahoo bought Tumblr, Flurry and Brightroll. In contrast, Google bet on the internet of things. Its big acquisition this year was Nest.
With the proliferation of apps, our search habits are changing and social media companies are taking notice. They’ve been busy building better search in their own platforms, potentially chipping away at Google’s share of search queries. Facebook began rolling out post search this month, Twitter touts its search capabilities for real-time news and events, and Pinterest’s “Guided Search” tool is designed to compete head on with traditional search engines. (And of course, there is Amazon as a commerce search engine.)
On these platforms, ads will presumably be able to be targeted on based on search intent, what these social platforms know about their users and what the advertisers and third-party data firms know.
One advantage Google does have in this space is Google Play. It has started making use of the data it has from the app store to make app promotions ad targeting more powerful.
Challenge #5: Winning Over App Developers
This year, Google released several app promotion ad products — app-installs, app engagement with deep linking. App install ads run on its mobile app advertising network, AdMob, and now in search and on YouTube.
Google was far behind in offering ads for app marketers. Facebook led in offering app-install ads, which now generate billions in revenue. Business Insider estimates anywhere from a quarter to half of Facebook’s mobile ad revenues will come from app install ads.
Twitter is in this game as is Apple iAd and Yahoo Gemini which includes app install ads on Tumblr.
Challenge #6: Showing That Mobile Search Works
“There is value in mobile search and advertisers are starting to see it,” says Jason Hartley. “The budget shift to mobile is starting to happen. Clients have been reluctant, but are now realizing they can’t ignore it.”
A big reason for the shift is better, more affordable measurement solutions, says Hartley. Google introduced estimated cross-device and call conversions this year and is now working on the in-store piece. “Drive-to-store efforts on Google can now be tied back to sales,” added Hartley, alluding to a closed beta test Google is currently running. In a significant move, Google just started to roll out “site visits” conversion estimates that will help large retailers tie in-store visits back to clicks on their search ads across devices.
Google’s not alone in trying to closing the loop — Facebook and many others are doing this, too. But the fact is, social still doesn’t convert like search. Retargeting is an exception here — FBX has proven highly successful for advertisers. Social commerce hasn’t panned out yet, but if Facebook and Twitter figure that out, well then, Google’s got more troubles.
If Google is able to demonstrate to advertisers that their mobile campaigns drive more conversion activity beyond last click, ad prices should go up.
Bing Ads executives explained at a Bing Ads Next event this fall that they keep mobile ad prices lower because they know conversion rates on those clicks are lower than desktop. It seems likely Google does the same. Clark Fredrickson, VP of communications at eMarketer, suggested to Mashable that Google is aware of the low conversion rate for search ads and keeps ad prices low as a result.
Challenge #7: Google’s The Odd Man Out In Not Reporting Mobile Performance
Transparency is another issue dogging Google. It has yet to follow the lead of companies like Facebook, Twitter and Yahoo that have chosen to report separately on mobile performance and revenue. Rather than provide this information, Google told the SEC that disclosing mobile performance would be too confusing.
So while Google consistently reports aggregated year-over-year declines in cost-per-click and sends Wall Street into a tizzy, Facebook continues to wow the market with rising mobile revenue that seemed to materialize out of nowhere in just two years. In Q3 of 2014, Facebook reported 66 percent of its revenue came from mobile, up from 49 percent the previous year.
Conventional wisdom dictates that if Google had a good mobile story to tell it would be telling it.
A decade of dominating search and display on desktop made for a lot of inertia all around. And yet, for all its challenges, Google may still be able to weather the transition to mobile as marketers catch up to the consumer shift. As Mary Meeker illustrated in her annual presentation this year, there is a $30 billion opportunity in mobile in the US alone. Advertisers dedicated a measly 4 percent of their spend to mobile last year. Lots more innovation needs to come on both the search and display sides of the business if Google wants to stay on top.