Now let’s take a quick look at Google.
1. Over 89% of their revenue for 2014 was from search advertising. And people gripe that 70% of Apple’s revenue is from the iPhone.
2. 75% of Google’s ad revenue comes from iOS devices.
3. Apple is making moves to demote Google from being the default search engine in iOS.
4. Consumer habits are shifting away from desktop, which favors Google, to mobile, which is not as Google-friendly.
If I was a financial analyst advising Google’s CEO, Sundar Pichai, I’d be ringing the bell pretty hard that something needs to change. So if an outsider like me can see this, I'm sure there are plenty of analysts way smarter than I am beating the same drum internally. Google can’t keep relying on a frenemy that could take aggressive moves to sabotage its main income stream. In fact, it’s argued by some that Apple News was taking direct aim at Google’s ad revenue.
The obvious answer is to diversify their revenue sources. But that’s a lot harder than it sounds. In fact, I'm sure Google has been working on this for years and they’re still only up to 11%. I have a lot of respect for Marissa Mayer, but look at Yahoo, which is on the verge of giving up and just selling the business.
Don’t feel sorry for Google just yet, though, because they are sitting on a gold mine unlike anyone else in the world. The value of user data for their hundreds of millions of users is incalculable. I’m sure there must be a contingent within Google loudly making the case that they must take the gloves off and start utilizing this data more aggress…er profitably. It would take another faction equally as vociferous to beat them back. At this point, I’m reminded of the movie Avatar where the scientists desperately tried to keep the military from their quest for the Unobtanium because it would hurt the Na’vi civilization.
So what would Google’s quest to drive up revenue per customer mean? Well, let me give you an example from another industry. I used to be a financial analyst for the sporting goods retailer Cabela’s in the mid-2000’s. It was a great company, and I sat just down the hall from Jim Cabela who still came into the office every day to personally answer customer e-mails. Their main market of hunters and fishermen has gradually been shrinking for decades, and yet they’ve managed to grow both sales and profits over the majority of this contraction. How? They’ve grown sales dollars per customer exponentially. Instead of just selling fishing poles and bait to fishermen, Cabela’s started selling them sonar equipment and boats. If you can’t broaden your revenue streams, go deep.
While diversifying Google’s income could be relatively hard, squeezing more sales dollars from their existing assets could be easy. I’m going to predict that Google will start either collecting much more data from their customers or start selling it much more broadly. Or both.
They’ve already been caught in a scandal involving school kids, collecting data that they had promised not too. It’s only going to get worse from here. The less successful that Google is at finding new income streams, the more aggressive they have to be at increasing sales dollars for current customers. Google already owns 80% of the smartphone market, so market penetration is over for them. They don’t need a benign user-data policy anymore to woo new customers who are wary of them. Their market share has peaked, and their customers are either hooked or desensitized to data harvesting. Not only do current Google customers not care that they are being watched, many of them openly embrace it in exchange for the small trinkets that Google gives them in return. It’s time for Google to move to Phase II. It’s like the Indians selling their land for a pittance all over again.
And if you don’t think data harvesting could get any more intrusive than it is now, boy are you in for a surprise. Banks, mortgage companies, health insurance providers, etc. have got to be salivating at the thought of getting their hands on more data. So if your connected scale shows you’re overweight they can raise your medical insurance rates. Mortgage companies would love to see what you spend your money on. How about utilizing the cameras to keep a tally of how often you wear the color red or a certain team’s jersey? How about keeping tabs on what subjects you are talking about or doing when your heart rate gets above 80bpm? How about listening to your conversations to keep metrics on what locations have the most laughter? Would auto insurance companies like to get a hold of how fast you drive down the highway? Google has only scratched the surface with the data that they harvest, and this information can fetch a mind-blowing amount of money. Too much to turn down. Unlike Apple, Google has no hardware business that makes it rain hundred dollar bills. They have nowhere else to go.
Corporate marketing departments used to get giddy about harvesting the zip codes that packages are delivered to. When I was working at Cabela’s, this information was regarded as the Crown Jewels of the company. Unlike Bass Pro Shops who didn’t have a vibrant catalog business, Cabela’s could predict with near certainty where to put in new retail stores because the catalog sales per zip code allowed them see where they had a pre-existing fan base. The information that Google can harvest through the use of GPS, cameras, microphones, e-mail, Google docs, etc. makes the Cabela’s Crown Jewels look like an ant hill compared to a mountain.