GOLDMAN: Here's Why Google Is 'Challenged' In Mobile

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Google appears to have a very strong mobile business. 

It dominates mobile search. The Android operating system has 75% of the smartphone market.

Yet, Goldman, in an 80-page report on the state of the computing market says Google is "challenged" in mobile.

Here are Goldman's reasons:

  • Google had 70% of smartphone shipments last quarter, but Apple had 60% of mobile internet traffic. Google pays a traffic acquisition cost Goldman estimates to be over 75% to be the default search engine.
  • Smartphone cost per click is about 30-50% of those on the desktop. As mobile search rises, Google's revenue decreases.
  • Google still doesn't have a super popular tablet. As people choose the iPad, there's a risk they buy an iPhone to match it instead of an Android phone. The more iPads Apple sells, the more iPhones it will sell because of its ecosystem advantage.
  • The more popular the iPhone and iPad become, the more Google's revenue is hurt because of that high traffic acquisition cost.
  • Goldman also believes that Google will need a television to compete with Apple, Microsoft, and Amazon. To crack the living room, Google is investing in big projects like Google Fiber. Those investments will whack Google's margins.

Of all these challenges, the biggest one we see is the disconnect between Android market share and Android usage. Google needs to convert all those Android phone users into power users, so they remain loyal to the platform, and surf the web.

The lack of a tablet is a challenge for Google, but it has the Nexus 7 and Nexus 10, which are two well-reviewed tablets. Their primary problem is distribution. It's hard to buy one. When Google addresses that problem it should be able to compete with Apple.

As for the shrinking revenues as people go mobile, this has been a long term threat that is well known. Despite the rise of mobile, Google has still grown sales each quarter. Could it eventually sink Google? Sure, but eventually can be a very long time.

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