Back in early August, I did a basic analysis that suggested Google was on a run rate to make at least $1.4 billion a year on Android mobile ads, with no end in sight. That doesn't even count what Google could make from people using its search engine on other handsets. Here's the logic:
- Even if Android sales flatten out, Google is well on its way to activate more than 100 million units a year. No fandom here, just basic math.
- As CEO Eric Schmidt said to the Wall Street Journal in July, the idea of Google making $10 a year per Android user is a low-balled estimate. I agree. With multiple ads per page, it shouldn't be hard to get someone to see $1.67 a month worth of ads. That's $20 a year.
- Although most of the units are phones, not all are, and not all purchases are by new users. So say that only 70 percent of the purchases will be unique users who will be capable of seeing ads. I'd argue this is low-balling it, but that's fine for now.
- That leaves Google with 70 million users generating $20 a year, for $1.4 billion.
The reason this is so important to not just the tech and media industries but other parts of commerce is that mobile has had an unfulfilled promise for nearly 15 years. In the late 1990s, pundits and hopeful vendors tried to promote how mobile commerce was going to become an enormous force and how a big part of that would be marketing via handsets. At that point, the expectations were premature and unrealistic.
But technology and social habits have changed. Google's announcement of its mobile ad run rates not only validates its Android strategy (because the company has likely far more than offset the development costs), but the entire mobile ad concept.
Once you know that there's potentially big money in ads, you open additional business model possibilities. Developers might, indeed, be able to give away software and still make money. Businesses might decide that, yes, advertising over a handset could make sense. If you can drive the ad dollars up enough, a company might even be able to give away a handset or tablet as an enticement to sign up for some sort of wireless or information service. Perhaps a device becomes a premium for loyal customers of almost any kind of business. Who knows? Maybe Google buys a company like HTC, gives away millions of handsets, and still makes money.
The point is, when the revenue dynamics change, so can strategic thinking. It's time for executives to be creative and a little wild-eyed in their business daydreaming.
- Google Makes $1.4 B a Year, and Probably a Lot More, on "Free" Android
- Google and Apple: Soon at 100 Million Operating System Copies a Year
- Google, Apple, and RIM: Win, Place, and Show in the Smartphone Horse Race
- 30M Windows Phone 7 Handsets by 2011? Yup -- It's Math, not Magic
- Motorola Handset Sales Crash, But It's Google's Android Champ