Caution :- Heavy technology – business related article.. Quite long too.. People who are not interested, please skip .. This is an article which can bring brickbats or bouquets to me some time later :)
Over the last few months, blogosphere has been abuzz with news about a mobile phone that Google is about to launch. The frenzy over this so called G-phone has reached such proportions that people have started coming out with imaginary designs of the G-phone.. Being someone who is extremely interested in this search – revenue related Google business or rather g-business, I’ve too joined the group by launching a g-phone blog and hoping to rake in some ad-revenues :) .. However, this post is not just about speculation ..This post is about some facts of the search industry and why does it make sense for Google to get into mobile phone related business .
The Search – Revenue Entangle
Some people laugh at Google’s pay-per-click policy. And most of us can count using fingers the number of times when we intentionally clicked a Google Ad or a sponsored web search link. Then how do these translate into revenue for Google?
Initially I too was highly skeptical about their business model. But the answer lies in the sheer size and scale of penetration of internet. Billions of web searches happen every day.
Millions of web pages have Google Ads (These Ads are rendered based on keywords) on them. And if you take an approximate count of the number of times, a keyword like say ‘DVD player’ comes into relevance in day-today web surfing of people across the world, it would give you a staggering figure. Infact, for a globally operating company like ‘Canon’ , the kind of returns that they would get if they do an online advertising campaign based on a relevant keyword like ‘digital camera’ would far exceed returns from any other traditional advertising channel.
Coming closer home, have you noticed ‘magicbricks.com’ ads ( they are into real estate business ) appearing in TV as well as in Google Ads in Indian blogs.. I’d say, they have smartly managed their advertising campaign. With just a few dollars, they have successfully ‘resereved’ select keywords like ‘Cochin’, ‘Vizag’, ‘Mysore’,’Gurgaon’ etc ( basically all new emerging townships ) .. Throughout blogs and news portals where these keywords show up, Google Ads of magicbricks.com show their head. They might not have succeeded in generating much online transactions from those Ads..But they would have atleast generated thousands of curious phone calls, thousands of new housing/plot related advertisements in their site. And, if you see something on TV, which you have already noticed on web, you tend to attend to that a little bit more..In other words, successful bidding of a few keywords in Google search has been an integral part of the magicbricks’ advertising strategy. And I believe they are reaping returns from that.
So, the key point is, a seemingly innocuous Google search on ‘Cochin’ might result in a commercial benefit for sites like magicbricks.com and Google too in the long run. That’s the power of smart online advertising.
So far so good.. But then, why does Google have to look at mobile phone sector ? Why can’t Google remain in web-search itself? ..There are lot of reasons for that. But everything boils down to an inherent problem with Google Ads –
Tracking of true value generation for the advertiser.
Like any other TV ads or wall poster Ads, it is extremely tough to measure the true returns from Google Ads on web. As an advertiser, I would always like to measure the returns to my invested money in monetary terms. Or in other words, I’d like to measure how many of the Google Ads resulted in a financial transaction of benefit to me. Of-course you can always argue that most advertisements create brand / product awareness and those indirectly result in monetary transactions. But those indirect transactions are not easy to measure… Hence, any advertiser would prefer a medium of advertising through which he’ll be able to measure the direct returns from advertisements or the direct financial transactions arising out of that. Or in more technical terms, e-commerce industry is eagerly awaiting a paradigm shift to a ‘pay-per-transaction’ model (I’d pay Google when a transaction of benefit to me happens out of their advertising ).. from the existing ‘pay-per-click/impression’ model ( I’d pay Google when someone views my Ad – hoping that those views would result in a direct or indirect Ad-benefit to me ).. Now there are lot of technical and business difficulties in implementing a true ‘pay-per-transaction’ advertising model on web based on just internet and PCs.. Here comes the importance of mobile phones.
How mobile phones may function 10 years later ?
Imagine you going to a shop. You like a product..instead of paying by cash, you pay through your mobile phone by sending an SMS / RFID / Bluetooth / Wireless communication to the shopkeeper’s mobile phone , which inturn would debit money from your bank account and credit it to the shopkeeper… U think this is a technological fantasy or something totally ridiculous ? Well, take this news .. Google has applied for a patent on such a software system dubbed as ‘G-pay’
Ok, so you think it is possible ? ..Now think about a more advanced scenario.. You go to a wineshop.. You see a bottle of Bordeaux Wine and notice the price..Apparently you get a suspicion whether it is priced at a higher level.. You take out your cell phone, use the cellphone bar code scanner to scan in the information about the wine .. And using that scanned in information you do a google local search, which would list the nearby shops selling the same wine and their prices.. And you go to the appropriate shop to get the wine bottle at the correct price.. This part is not my creativity .. Its taken from John Battelle’s “ The Search ” -- perhaps the most authoritative book on Search Industry Now, this is a bit of scientific fantasy at the moment. But note that it is not technologically impossible.. I mean, all parts of that scenario like barcode scanner, google local search, GPS etc exists even now.
Now as an extension of that scenario, assume that you pay for that Bordeaux wine bottle using ‘G-pay’ ( i.e, SMS based payment that I described earlier ) -- Isnt it possible to visualize a true ‘pay-per-transaction’ model based that scenario ? You have done google search, you have viewed details of the wine at the relevant shop, you have paid using G-pay --- Now it is possible for Google to charge a certain percentage of Wine bottle’s cost as advertising charge because they are able to uniquely trace back that wine-bottle purchase to a Google search… Isn’t this the ‘pay-per-transaction’ model that the e-commerce industry is truly awaiting?
Where in Mobile phone Industry will Google come into?
Ok, so agreed that mobile phone is going to play a bigger role in future? But then Google is a software company. Forget a tough job like mobile phone manufacturing. They don’t have much expertise in hardware itself. How are they going ahead with such a niche job like handset manufacturing.. Afterall, it’s the forte of elegant designers in Nokia / Apple / Motorola etc ? And doesn’t it make sense for Google to roll out a mobile phone OS clubbed with G-pay?
The answers are pretty intricate again… To start off with, take these news too
1) Google interested in bidding for a wireless spectrum that’s up for sale in US
2) This is actually a Google link itself over the available openings in Google UK
What kind of openings you see there :) ?
Now I’m explaining based on mobile-phone industry, about which my knowledge is extremely superficial..If Google rolls out a mobile OS integrated with G-pay, do you think established players like Apple ( which is actually quite nitpicky about the software that it has in i-phone ) , Nokia and Motorola will take it up ? The answer is a straight NO. Nokia would never think of discarding its Symbian OS.. Neither would Microsoft mobile OS or Motorola’s linux based systems disappear from market..They have invested millions in developing these. And they would not throw it away at one shot
Now, what would happen if they release G-pay as a third-party application ? .. This is a move that’s quite possible.. But then, there are lot of tricky issues in such a case.If G-pay is being released as a third-party App, Google will have to provide different versions to suit different mobile phones..And, in the absence of a dedicated carrier frequency or spectrum , it would not succeed in a big way..And third-party systems are more prone to hacking/security issues..
Ok..now, both of the above scenarios, even if they seem to be possible, does not seem to be a killer combination..Now lets imagine another science-fantasy scenario.. Imagine you have a google-phone integrated with Google-talk.. And assume that Google has a dedicated wireless spectrum ( which it may get soon ) . Then you might be able to talk to your friend using Google phone (indirectly using Google talk ) without paying anything to the so called ‘SIM card’ provider J .. Doesn’t it look appealing? ..And what if you are able to pay some shopkeeper sitting in SanFranciso from NewYork by using Google-phone SMS over the wireless spectrum ? -- Doesn’t it look even more attractive ? ..
Infact I believe Google’s interest in bidding for the wireless spectrum by investing billions of dollars is a very strong indication that some google-phone ( hardware ) is going to come..Because, without a dedicated handset, its not quite possible to get good return on those billions that it would put for bidding the spectrum.. But then, who is going to make the handset ? Does Google have the required expertise to make it ?
Actually based on the business , the handset does not have to be quite sophisticated like the iphone or any of those N-series. It should have wireless interfacing capabilities , it should have integration with Google talk, it should have the G-pay integration..And obviously , tight integration with all google products like search, checkout , maps, youtube etc.. Infact I don’t think it would even have a dial-pad kind of facility.. I feel calling a person would be more or less based on Gmail ID .. And more than the phone functionality, it may function as an electronic wallet for sending and receiving payments.
Doubtful about whether a customer having a normal GSM / CDMA phone would switch to a number-less ( but gmail ID based ) phone world ? They might be reluctant initially..but in the long run, they would..because in a g-phone based communication, they won’t be paying anything as cell phone usage charge to anyone else other than Google.. And quite likely , in such an environment , Google may discount on call charges in return for Ads ..because Ads served in G-phone – G pay system would be based on a ‘pay-per-transaction’ model..And advertisers will be quite willing to take that... But still, the issue of expertise with handset design remained a tricky issue to me ..Until yesterday when I got this link ==> http://www.tech2.com/india/news/smart-mobile-phones/htc-may-develop-google-phone/15741/0.. They are going to outsource the design of the gadget to someone else..
After that link, everything seems to be fitting in perfectly well…The entire business model looks to be fitting in in an excellent way :) ..It remains to be seen when Google will actually come out with such a phone at-least in US.. Contrary to what many analysts think, I don’t think the release is immediate, though I’d be happy to be proved wrong .. The first hurdle – Wireless spectrum bidding – is yet to be surpassed..Only after that , will some solid information come into the public.. And I guess it’d take at-least an year for them to actually come up with the business model in US. Until then, happy speculation :) Happy G-phone designs :) Happy G-phone blogs too :)
Ajith
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