Authors
Skender Mustafi
Lionel Jost
Tuan Nguyen
Introduction
Google is the biggest online advertising company with its revenues about USD$23 billion in 2009 including pay-per-click (PPC) advertising and site-targeted advertising for text, banner, and rich-media ads (cf. Wikipedia contributors 2010). Providing a variety of useful and easy-to-use services, Google has achieved on one hand to attract many internet users and a huge potential audience for advertising and on the other hand to provide tools for its customers for creating and monitoring the success of advertisement for its customers. The online advertising, in which Google operates, is divided just between few big companies.
Mobile phones enable to enlarge the online advertisement with an enormous share. Furthermore, this share provides a lot of personal data, since coming from a personal device. Apple joined this market this year with its launch of iAds. The advertising providers have realized that mobile devices need a different approach of advertising than other online platforms (cf. Gundotra, 2010; Jobs, 2010). In order to stay ahead of competition, Google has to exploit the new mobile market for advertisement. But this idea is a new concept with a lot of challengers in different aspects.
Porter analysis of Google as an advertising provider
Suppliers
Combining applications with personal data and sometimes even including information about the local position of the device user, advertisement can be designed very specifically without a negative effect on the user experience on the device. “On a mobile device, search is not where it’s at, not like on the desktop. They’re [the users] spending all their time on these apps – they’re using apps to get to data on the internet, not generalized search” (Jobs, 2010). This user behavior is making the developers of mobile apps to suppliers for advertising space and enforcing the prerequisite that the operating system of the mobile device has to allow developers to establish this space in their apps. The developers are only willing to provide new applications if they can make revenue out of it. Since high prices for apps are not common, developers rely on a share of the advertising revenue.
New entrants and Substitutes
The structure of this business sector limits new entrants and substitutes because of the high dependencies on the operating system of the mobile device. A company can therefore only enter this business sector, if it is capable of providing its own platform meaning its own mobile device. This makes the entrance costs very high if the entrant does not want to affiliate with an existing player.
Direct substitutes are not existent. The developers of the applications could of course acquire and implement their own advertisers, but this narrows the customer base dramatically down. Furthermore, the dynamic advertisement technology which Google and Apple provide promises more success for the developer as well as for the advertising company. Another indirect substitute is advertising on websites, which dramatically cuts the usability of browsing on a mobile device.
Rivalry
The rivalry of this market is not concentrated in the platform of mobile ads – since those platforms are proprietary – but rather in the market share of those platforms. The amount of sold devices ultimately determines the size of the audience. The more attractive an operating system is designed, the more users will buy this device and the larger the advertising audience grows. But the more the manufacturer exploits its device for advertisement, the less attractive the device is perceived leading to fewer users using this device.
Customers
The customers of this business model are advertisers, which are willing to advertise on mobile phones, especially in a huge market share which Google has reached. This customer base consists mainly of companies, which want to broaden their advertising audience but also of NPOs, private persons and other mobile app developers as well.
The competitive discount of google advertisment
Google’s approach to deploy Ads in mobile applications with the launch of adSense for mobile apps1, the customer/advertiser benefits from the variety of Google tools to create and monitor advertisement on mobile platforms. Additionally, the user-friendly tools make the entry barriers for the customer very low. Furthermore, with Google the customer has an experienced advertising partner, providing location based and personalized information and handling targeted advertisement over different applications and devices. Figure 3-1 shows how Google affects the competitive discount by entering this market. By extending its existing advertisement scope, Google reaches a high perceived value (Gundotra, 2010).
The market is an oligopoly but the rivalry on the sector is intensive. Next to Google’s Android and mobile ads is Apple’s iPhone with iAds. Furthermore, there is moderate customer power, mainly because of the low entrance and exit barriers for customers. Thus, the competitive discount is moderate.
Conclusion
With Google’s entrance in the mobile advertising market, it has launched a war over a billion dollar market. By creating and promoting an OS which makes Google tools available on multiple devices, the company can maintain its power over the advertisement on those platforms. Recognized smartphones as an important emerging market, Google has recently acquired adMob (Wojcicik, 2010) a leading company for mobile advertisement and market research. Apple’s reaction to this, was the launch of iAds (cf. Jobs, 2010) and the change in developer policies, not allowing to use adMob anymore. Google is not mainly aiming to be a direct competitor to Apples iPhone, it is aiming to provide an OS which is compatible with cheaper devices, which in the future could be used by a broad audience.
Entering the mobile advertisement market is not only a new source of revenue for Google but as well necessary to keep customers interested in the AdSense program. As the porter analysis shows (see Figure 2-1), substitutes have only little chance to survive in the future and Google’s crossplatform-advertisement system could not keep up on a competitor’s operating systems. In order, Google, to keep its power over the online advertisement market has to exploit the new market of
mobile devices. Not only is Google aiming for smartphones, but also for other mobile and connected devices. The reason for this lies in the fact that devices and services become more and more interconnected. Missing a piece in this interconnected environment leads to an overall disadvantage in the online advertising business. If Google does not focus on developing a competitive mobile business plan, competitors such as Apple, Microsoft etc. will use this disadvantage to increase their
impact in all network connected devices. Thus, such a situation would have a direct impact in decreasing Google’s market share as advertising provider.
References
- 1 See: http://www.google.com/mobileads/ [Accessed on 20. December 2010]
- Gundotra, V. (2010). Google I/O 2010. Keynote Day 2 Android Demo. Retrieved from http://www.youtube.com/watch?v=IY3U2GXhz44. [Accessed on 20. December 2010]
- Jobs, S. (2010). transcript of Steve Jobs announcing the iAds. gdgt Live iPhone OS 4.0 event coverage. Retrieved from http://live.gdgt.com/2010/04/08/live-iphone-os-4-0-event-coverage/. [Accessed on 22. December 2010]
- Wikipedia contributors. (2010). AdWords. Wikipedia, The Free Encyclopedia. Retrieved from http://en.wikipedia.org/w/index.php?title=AdWords&oldid=404004686. [Accessed on 25. December 2010]
- Wojcicki, S. (2010). We’ve officially acquired AdMob!. Official Google Blog. Retrieved from http://googleblog.blogspot.com/2010/05/weve-officially-acquired-admob.html. [Accessed on 20. December 2010]
