I have a growing suspicion that the very savvy Sheryl Sandberg and the exceedingly wise Mark Zuckerberg read my work. From the beginning of this site I have argued that the smartphone is a completely new and transformational shift in personal computing, not a supplement.
The smartphone is the computer. The mobile web is the web.
This portends many changes in how we connect, learn, work, play and empower. It also reveals that what worked, even what worked very well, may not work at all in this new world.
Google Adwords, for example.
As I've documented, long before the bloggers and pundits clued in, wtih such posts as:
…and many more...
There is no guarantee that even the sainted search-advertising-content presentation-display advertising model that has made Google one of the richest, most profitable companies in the world can deliver equivalent revenues, even when we have 5 billion smartphone users rather than the paltry 1 billion PC users.
Just late last year, in "Is Android bad for Google?" I stated:
Are we at Peak Google?
Google has spent billions on Android. With their planned purchase of Motorola Mobility, I estimate the costs of Android to Google to be approaching $20 billion.
Where is the return?
While Android quickly became the most popular smartphone platform in the world, thanks to Google's commitment to using its monopoly search profits to buy market share, actual revenues have been minimal.
What if they *always* will be?
More frightening, for Google and others, but no less unlikely: what if mobile advertising revenues are always minimal *and* are not merely incremental? That is, as hundreds of millions and soon billions of users have smartphones, which we take with us all the time, everywhere, it is reasonable to expect that the smartphone becomes the *primary* platform for advertising. Rather than search for (often static) information on our PCs, at our desks, we instead use our smartphones for real-time, location-aware information that we can take advantage of at that moment at the point of presence.
In such a world, which I find to be an extremely likely scenario of our very near future, advertising quickly evaporates on the PC and is shifted to the smartphone. Which may mean: Google is screwed. At least, Google as it exists today.
All Google's actions with respect to Android, the mounting costs of Android, their depressing, duplicitous statements re "managed" traffic instead of net neutrality, and their perversion of terms like "open" and "standards" all make sense when you realize that Google views the smartphone as I do. That is, as the future of the web and (nearly) all our web-based activities.
Except, there is simply no guarantee that advertising revenues on the smartphone are incremental. I believe that within only a few short years, smartphone 'search' and advertising will *replace* the bulk of search and advertising generated from the PC.
In Q3 2011, Google's quarterly revenues were nearly $10 billion. When providing its revenue numbers, Google noted that, at that time, (officially sanctioned) Android was already at about 200 million activations and that *annual* "mobile" (not Android) revenues were nearing $2.5 billion.
Facebook, apparently, understands what Google may not. From their S1 filing (via Business Insider):
Growth in use of Facebook through our mobile products, where we do not currently display ads, as a substitute for use on personal computers may negatively affect our revenue and financial results.
Mobile use of Facebook is growing faster than stationary/desktop use. Facebook claims over 400 million active mobile users. These users are spread over multiple platforms, such as iOs and Android, that could -- theoretically -- block or limit Facebook.
Yet the company focuses not on that potentially limiting factor but on monetization of mobile:
Although the substantial majority of our mobile users also access and engage with Facebook on personal computers where we display advertising, our users could decide to increasingly access our products primarily through mobile devices.
We do not currently directly generate any meaningful revenue from the use of Facebook mobile products, and our ability to do so successfully is unproven. Accordingly, if users continue to increasingly access Facebook mobile products as a substitute for access through personal computers, and if we are unable to successfully implement monetization strategies for our mobile users, our revenue and financial results may be negatively affected.
Second to Google, and possibly second to no one, no company knows more about us than Facebook. And no service is more regularly used by more people around the world, across mobile platforms, than Facebook.
Yet their ability to effectively monetize this information, in a manner that will earn them enough monies to justify their $100 billion valuation, or even a $50 billion valuation, is highly, and now formally, suspect.
And, no, it is not because they are unable to build an ad platform just like Google's. Remember, Google isn't making money off mobile advertising either.
The smartphone is not simply destroying old businesses and industries, it is destroying old business models. Google makes a fortune by having what is -- to date -- the world's most profitable business model.
That is going away.
The entire *mobile advertising* industry is expected to generate about $2.5 billion in revenues this year. This is less than one quarter of Google's Q4 2011 revenues.
This is not to suggest that the smartphone won't generate unimaginable sums of cash. Rather, despite the 1 billion and soon to be 5 billion smartphones in use -- these sums are likely to come from new sources and new economic models. Why do you think Google is spending tens of billions on Android, Google+, media subscriptions and other services, applications and platforms?
Because they have no idea.
This is what makes the smartphone wars so fascinating -- and so deadly. This is also why I think Facebook has a legitimate shot of surpassing Google in both revenues and profits this decade. Not simply because lucrative PC-based/stationary web search is, I believe, not likely to survive this decade. Rather, it's that Facebook's "social platform" has, in my view, a greater potential to offer more valuable information, feedback and services than Google. Plus, unlike Google, Facebook is not wedded to a 20th century business model.
Whereas nearly all Google's revenues (still) come from advertising, only 85% of Facebook's revenues do. Moreover, this percentage has been dropping each of the past 3 years.
Additionally, even with Android and Gmail, Google Search and Google Maps and Google+ and GoogleOther, it's very possible, maybe likely, that more people will use Facebook more often than all Google properties combined and also be more *engaged* with Facebook. Already, the company has 845 "monthly active users" including 425 million mobile monthly active users.
That is power, and power always generates wealth. Will it generate $100 billion of wealth we cannot say, not yet.
Along with the filing, CEO Mark Zuckerberg wrote:
By helping people form these connections, we hope to rewire the way people spread and consume information. We think the world’s information infrastructure should resemble the social graph — a network built from the bottom up or peer-to-peer, rather than the monolithic, top-down structure that has existed to date.
We also believe that giving people control over what they share is a fundamental principle of this rewiring. We have already helped more than 800 million people map out more than 100 billion connections so far, and our goal is to help this rewiring accelerate.
That, dear reader, represents a fundamental remaking not just of the web but of personal connectivity on a hyperglobal scale. Facebook is already well on its way to achieving -- and capitalizing -- on this vision. Yet to date, that capitalization has generated less than $4 billion in revenue.
What this reveals, then, is that the killer business model of our new social, mobile, always-connected world has not yet been discovered. True, the odds are that the leaders in mobile, those companies with the most aggressive strategies, the most users, the most cash, the best talent, are likely to discover it first and possibly exclusively.
Google and Facebook are the leaders, possibly also Twitter.
Still, their odds can't be considered great, nor even good. Think of all the portals and search engines that existed prior to Google stumbling upon Adwords, for example. Or how many mobile phones were in use and generating revenues for Nokia, Sony and others when Apple introduced the iPhone.
Money -- big money -- from the mobile web remains an undiscovered country. Keep searching.
